1) Use the following graph to answer the next question. At the profit-maximizing

ID: 1200414 • Letter: 1

Question

1) Use the following graph to answer the next question.

At the profit-maximizing level of output, the profit earned by the perfectly competitive firm is given by the area

0AHE.

ACFH.

BCFG.

ABGH.

2.Price is taken to be a "given" by an individual firm selling in a perfectly competitive market because

the firm's demand curve is downward-sloping.

there are no good substitutes for the firm's product.

each producer supplies a negligible fraction of total market.

product differentiation is reinforced by extensive advertising.

3. A perfectly competitive firm trying to maximize profits in the short run will expand output

until marginal cost begins to rise.

until total revenue equals total cost.

until marginal cost equals average variable cost.

as long as marginal revenue is greater than marginal cost.

(1) Option (d)

A perfect competitive firm maximizes profit by equating price (= MR) with MC, and its total profit is

= Quantity x (Price - ATC)

Here, MR = P = MC at point H. Here,

P = OA, ATC = OB, Quantity = OH

Profit = Area ABGH

(2) Option (c)

In a perfect competitive market there are numerous sellers who are too small in size as to control the market, so they cannot set their own price.

(3) Option (d)

Firm maximizes profit by equating MR with MC. So, as long as MR is greater than MC, firm will ern higher profit by expanding output.

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