Question

The demand curve for a perfectly competitive firm

options:

	is upward sloping.
	is perfectly horizontal.
	is perfectly vertical.
	maybe downward or upward sloping, depending upon the type of product offered for sale.

In the short run, the best policy for a perfectly competitive firm is to

Question 17 options:

	shut down its operation if the price ever falls below average total cost.
	produce and sell its product as long as price is greater than average variable cost.
	shut down its operation if price falls between average total cost and average variable cost.
	a and c
	none of the above

When a perfectly competitive firm incurs losses, it follows that price is

Question 16 options:

	necessarily below average total cost.
	equal to zero.
	below marginal cost.
	below marginal revenue. If an industry is in long-run competitive equilibrium and experiences a decrease in demand, then as a result the equilibrium price will __________, which will cause the representative firm's __________ curve to shift downward and some firms will __________ the industry. Question 15 options: rise; demand; enter fall; demand; enter rise; marginal revenue; enter fall; demand; exit If MR > MC, then Question 13 options: profits will be at their maximum. the firm is producing too much of the good to be maximizing profits. the firm can increase profits by increasing output. the firm is necessarily incurring losses. The market demand curve in a perfectly competitive market is Question 11 options: downward sloping. upward sloping. perfectly vertical. downward or upward sloping depending upon the type of product offered for sale. A perfectly competitive market is initially in long-run competitive equilibrium. Then, market demand increases. As a result, existing firms in the market begin to __________. By the time all adjustments have been made, profits will __________. Question 10 options: earn positive economic profit, rise even higher earn positive economic profit; be back at zero produce more output; be less than zero produce less output; rise earn positive economic profit; turn into losses

Answer 1

First question. Option 2. Perfectly horizontal.

Explanation: A perfectly competitive firm faces a perfectly elastic demand curve. Therefore, it faces a horizontal demand curve.

17. Option 2. Produce and sell its product as long as price is greater than average variable cost.

Explanation: A perfectly competitive firm would recover a part of its fixed cost as long as its price is higher than the average variable cost.

16. Option 1. Necessarily below average total cost.

Explanation: A perfectly competitive firm loses only when its price is lower than the average total cost.

15. Option 4. Fall; demand; exit

Explanation: The fall in demand would result in a fall in a fall in the equilibrium price. Also, firms will experience a leftward shift in demand and falling revenue. Many firms will exit the industry in this situation.