6) A perfectly competitive firm will maximise profit when the quantity produced

Question

6) A perfectly competitive firm will maximise profit when the quantity produced is such that the A) price exceeds the firm's marginal cost by as much as possible. B) firm's marginal revenue is equal to the price. C) firm's marginal revenue is equal to its marginal cost. D) firm's marginal revenue exceeds its marginal cost by the maximum amount possible. E) firm's total revenue is equal to total cost. 7) A perfectly competitive firm should shut down in the short run if price falls below the minimun of A) average variable costs. B) marginal revenue. C) average total cost. D) fixed costs. E) marginal cost 8) A perfectly competitive firm's decision on shut-downwhereas its decision on exit A) occurs in long run; occurs in short run B) determines the level of price; determines the level of output C) determines the level of output, determines the level of price D) occurs in short run; occurs in long run E) none of above is correct. 9) In the short run, a firm in a perfectly competitive market A) makes either positive, negative or zero economic profit depending on the level of market price. B) always makes zero economic profit, so that its owners eam a normal profit. C) remove all competitors and become a monopolistically competitive firm. D) makes positive or zero profit, but never negative profit because firms can freely exit. E) makes only positive profit by charging a high price to consumers

Explanation / Answer

6) A perfectly competitive firm will maximise profit when the quantity produced is such that the firm's marginal revenue is equal to it's marginal cost.

it is so because, the profit maximizing condition for a perfectly competitive firm is P = MC and we know that in this competition (i.e., perfect competition) the Price = AR = MR, it means Price = MR so if MR = MC, the profit maximizing condition will automatically attained as Price = MR = MC.

Option A) is incorrect because profit maximizing condition is

P = MC, not P > MC.

Option B) is incorrect because in perfect competition the price is always equal to the marginal revenue so we cannot determine the quantity level at which profit is maximize by this condition.

Option C) is correct because P= MR so the profit maximizing condition will be attained if MR = MC.

Option D) is also incorrect because at this level (i.e., total cost equal total revenue) economic profit will be zero not maximise.

7) A perfectly competitive firm should shut down in the short run if price falls below the minimum of average variable cost.

option A) is correct because shut down condition in tthe short run for a perfectly competitive firm is P < AVC. It means if the form is not able to cover it average variable cost the  firm should shut down in the short run, because if the person is paying for the variable cost from his own pocket this is not rational to continue the operation.

Option B) is incorrect because price level is always equal to marginal revenue in the perfect competition.

Option C) is also incorrect because if price falls below the average total cost the firm should shut down but in long run not in short run.

Option D) is also incorrect as firms in the short run only focus to cover it's variable cost not fixed cost.

Option E) is also incorrect because even if the price falls below the marginal cost but above the average variable cost the firm will continue to operate.

8) A perfectly competitive firm decision on shut down occurs in short run whereas its decision on exit occurs in the long run.

It is because in short run if firm is not able enough to cover it's average variable cost it will shut down but do not exit as the prices could increase and it could again able to start operation but in long run if it continue to losses and not able to cover the average total cost the firm would exit the market.

Option a) is incorrect as explained above that in long run firm will exit the market.

Option B) is also incorrect because in perfect competition one firm's decision cannot determine the level of price and output as each firm have a very small share in the market due to large number of producers.

Option C) is also incorrect as the same explaination of option b).

Option D) is correct as firm's decision on shut down occurs in the short run and firm's decision on exit occurs in the long run.

Option E) is incorrect because option D) is correct.

9) In the short run, a firm in perfect competitive market makes either positive, negative, or zero economic profit depending on the level of market price.

Option A)is correct because in short run due to change in demand the market price changes and the existing firfirm could make either negative, positive or zero economic profit as the exit and entry of the new firm takes times.

Option B) is incorrect because firms always makes zero economic profit in the long run not in short run.

Option C) is also incorrect as the products in the perfect competitive firms are homogeneous so they can never become a monopolistically competative firms.

Option D) is also incorrect because it makes negative profit also as the entry is also free.

Option E) is also incorrect as firm can make negative as well as zero economic profit in the short run.

10) In the long run, a firm in the perfectly competitive market will make zero economic profit, so that its owners earn a normal profit.

Option A) is incorrect because the firms produce homogeneous products so it can never become monopolistically competitive firm.

Option B) is also incorrect because owner will always make normal profit in the long run.

Option C) is incorrect because if marker incur economic normal loss it cannot earn a positive economic profit.

Option D) is also incorrect because perfectly competitive firm cannot become monopoly because of free entry and exit of firms.

Option E) is correct because in long run market will make zero economic profit and owner also earn normal profit.

Related Questions

Navigate

• Browse (All)
• Browse 6
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.