Question

TRUE OR FALSE

1.When a firm sets its price on the basis of the price being charged by other firms in the market, there is evidence that the firm has market power.

2. If the demand curve for each firm in Industry X is horizontal, then the demand curve for Industry X must also be horizontal.

3. Most of the 20 million businesses in the United States are perfectly competitive firms.

4.When price does not cover average total cost at any rate of output, the firm should shut down in the short run.

Answer 1

1. FALSE because when a firm sets its price on the basis of price being charged by other firms in the market , then the firm doesn't have any market power , it is consider to be perfectly competitive market.

2. TRUE because if demand curve for each firm in industry is horizontal , then the industry demand curve must also be horizontal.

3. FALSE because most of the 20 million businesses in the US have some degree of competitiveness but not perfectly competitive.

4. FALSE because when price doesn't cover average total cost , then the firm would continue its production unless and until price doesn't fall below average variable cost , when price doesn't cover average variable cost , then the firm should shut down in the short run.