Question

Please answer both of the following questions.

A perfectly competitive firm is maximizing profits in the short run. This implies that the firm is earning the most economic profits possible, which o can be positive, negative, or zero. O exist at the point at which price equals total cost. O must be positive. o must be either zero or positive. QUESTION 31 A constant-cost industry O has a horizontal long-run supply curve. O generates increasing profits whenever demand increases because the new long-run equilibrium price is above the old price even though average costs have not changed. O is one in which an increase in demand is matched by a proportional increases in long-run supply. O has a downward sloping long-run supply curve.

Answer 1

30. Option A.

• A perfectly competitive firm is said to maximize profits if it produces an output at a point where the marginal cost equals the marginal revenue or when the total benefits exceeds the total cost incurred.
• At this point they earn maximum profits possible and these profits can be either positive, negative or zero.

31. Option A.

• A constant cost industry is one in which the costs of production remains constant or fixed irrespective of the number of units produced.
• Due to this fact, the long run supply curve of a constant cost industry is horizontal and a straight line.