QUESTION 11 5 points Save Answer If a firm in a purely competitive industry is c
ID: 1130373 • Letter: Q
Question
QUESTION 11 5 points Save Answer If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue: may be either greater or less than S5. will also be $5 O will be less than $5 will be greater than $5 QUESTION 12 5 points Save Answer In the long run a pure monopolist will maximize profits by producing that output at which marginal cost is equal to average total cost. marginal revenue O average variable cost. average cost. QUESTION 13 5 points Save Answer Suppose you find that the price of your product is less than minimum AVC. You should O minimize your losses by producing where P MC. maximize your profits by producing where P MC. O close down because, by producing, your losses will exceed your total fixed costs. close down because total revenue exceeds total variable cost.Explanation / Answer
A perfectly competitive firm acts as a price taker. That is it takes price as given by the market forces. Each firm maximizes its profit by equating marginal revenue to its marginal cost. In perfect competition the marginal revenue equals to the price. Therefore, each competitive firm maximizes its profit by producing the level of output for which its marginal cost equals to the market price. Each firm faces the horizontal demand curve given the fact that the firm can sell any amount at a given price.
The correct option is: will also be $5
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12.
The monopoly is characterized by single firms producing all the industry output at a price that is determined through demand curve facing the monopolist. The monopolist has market power to influence the market price. The monopolist determines its equilibrium quantity by equating marginal revenue with marginal cost. The equilibrium price corresponding to the equilibrium quantity is determined from demand curve facing the monopolist.
The correct option is: Marginal Revenue.
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13.
The profit of the firm depends on the difference between price (P) and the average total cost (ATC) for the profit maximizing level of output. If P is greater than ATC; the firm earns economic profit. If P is equal to ATC, the firm earns zero economic profit. If P is less than ATC; the profit of the firm becomes negative.
As each firm has identical cost curves and there is free entry and exit into the market, the positive economic profit attracts new firms to the market. The entry of new firms increases market supply and given demand causes the price to fall. The price falls until it equals to minimum ATC. By the same argument, the negative economic profit prompted many firms to exit the market causing price to rise. The equilibrium occurs where price equals to ATC and MC. This happens at the minimum point of ATC curve. If the price falls bellow AVC the firm is unable to cover its fixed cost and shuts down.
Therefore, the correct option is: close down, because, by producing your losses will exceed your total fixed cost
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