Determine if the following statements are true, false or uncertain. Argue with m

Question

Determine if the following statements are true, false or uncertain. Argue with math, graphs, definitions and logical reasoning. Points will be awarded to your explanation.

1. A perfectly competitive firm should always produce at an output at which long-run average cost is minimized.

2. In perfect competition firms set price equal to marginal revenue.

3. Websites like Kijiji have made it harder for firms to capture surplus.

4. Intertemporal price discrimination accommodates different groups of consumers with different demand functions.

5. Peak-load pricing accommodates different groups of consumers with different demand functions.

6. Market power always results in an equilibrium price that is higher than the perfectly competitive price.

Explanation / Answer

1. False

In the short run because there are fixed factors of production or fixed costs, the firms may not produce at a point where the LR average cost is minimised. LRAC curve is formed by minimum points of SRAC curves. However in the long run, the perfect competitive firm would produce at a point where the LRAC is minimum.

2. True.

This is true only when the demand curve in perfect competition is horizontal. The price of the good sold would remain the same, irrespective of the number of output produced.

3. True

This is because of immense competition amongst the firms have drastically changed the revenue sales figures of the firms.

4. True

This is more closely related to thrid degree price discrimination by monopolist where due to different demand functions or different price elasticities of demand, different groups pf customers are charged differently.

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