____ 36. A firm facing a horizontal demand curve a. cannot affect the price it r
ID: 1202937 • Letter: #
Question
____ 36. A firm facing a horizontal demand curve
a.
cannot affect the price it receives for its output.
b.
always produces at an output at which P = MR.
c.
faces perfectly elastic demand for its product.
d.
All of the above are correct.
____ 37. Which of the following decisions cannot be made by a firm in a perfectly competitive market?
a.
Market exit decision
b.
Market price of the product
c.
Quantity of output it can produce
d.
Entering a market
____ 38. In short-run equilibrium, a perfectly competitive firm
a.
may earn a profit or a loss.
b.
always earns a profit.
c.
never earns a profit.
d.
earns a profit only if the firm has no fixed cost.
____ 39. A firm in short-run equilibrium always earns positive profits if
a.
SRAC > P > SRAVC.
b.
SRAR > SRAC.
c.
MR = MC.
d.
SRAC > MC.
____ 40. In perfect competition, marginal revenue always equals
a.
total revenue.
b.
price.
c.
average cost.
d.
marginal fixed cost.
____ 41. A perfectly competitive firm should continue to expand output until
a.
total revenue exceeds total costs.
b.
total revenue exceeds variable costs.
c.
marginal revenue equals marginal costs.
d.
average revenue equals variable costs.
____ 42. A perfectly competitive firm will always maximize profits by producing where
a.
per-unit costs are lowest.
b.
total costs and total revenue are equal.
c.
P = MC.
d.
P = AC.
a.
cannot affect the price it receives for its output.
b.
always produces at an output at which P = MR.
c.
faces perfectly elastic demand for its product.
d.
All of the above are correct.
Explanation / Answer
36. Option D is correct.
A horizontal demand curve represents a perfectly elastic curve, implying chnage in quantities is not affecting the price.
For a perfectly competitive firm, the demand curve is horizontal, where the demand curve = arverage revenue = marginal revenue = marginal cost. And also the profit maximising condition is where P = MC or P = MR (as MR = MC).
Horizontal demand curve shows perfectly elastic demand.
37. Option B is correct.
Under a perfect competition, the firm is a price taker and not a price maker, all the firms in the industry are selling the same homogeneous products so none can affect the price.
38. Option A is correct.
This is so because it depends on the shape of the cost curves that whether the AC is above or below the price charged.
39. Option B is correct.
AR shows the price charged by a firm.
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