3. The perfectly competitive firm\'s marginal revenue curve is (1) B) downward-s

Question

3. The perfectly competitive firm's marginal revenue curve is (1) B) downward-sloping, at twice the (negative) slope of the market demand curve. C) vertical. D horizontal E) upward-sloping 4. If a graph of a perfectly competitive firm shows that the MR - MC point occurs where MR is above AVC but below ATC, (1) A) the firm is earning negative profit, and will shut down rather than produce that level of output. the firm is earning negative profit, but will continue to produce where MR MC in the short run. C) the firm is still earning positive profit, as long as variable costs are covered. D) the firm is covering explicit, but not implicit, costs. E) the firm can cover all of fixed costs but only a portion of variable costs.

Explanation / Answer

Answer to question 3 marked as part D is correct that is the marginal revenue curve in a perfectly competitive firm is horizontal, the rationale behind this is that because of large number of producers and buyers, firms in a perfect competition are price taker and every additional unit of the output is sold at the same price, as a result, the marginal revenue remains constant with each additional unit sold and MR curve becomes horizontal to X- axis that is the quantity axis.

Answer 4 is also correctly marked as part B that is it's true that if the graph of a perfectly competitive MR=MC point occurs where MR is above AVC but below ATC, the firm is earning negative profit but will continue to produce where MR=MC in the short run.

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