Reading 18: Perfect Competition LOS b习题精选 2010, economic, perfect, company

honeycfa

LOS b: Determine the profit maximizing (loss minimizing) output for a perfectly competitive company and explain marginal cost, marginal revenue, and economic profit and loss.

When a firm operates under conditions of perfect competition, marginal revenue always equals:

A) total cost.

B) price.

C) average variable cost.

When a firm operates under conditions of perfect competition, marginal revenue always equals price. This is because, in perfect competition, price is constant (a horizontal line) so that marginal revenue is constant.

 

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honeycfa

A perfectly competitive firm will continue to increase output so long as which of the following conditions exists?

A) Marginal revenue is positive.

B) Market price is greater than marginal cost.

C) Marginal revenue is greater than price.

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A perfectly competitive firm will tend to expand its output so long as the market price is greater than marginal cost since price and marginal revenue are equal. In the short term and long term, profit is maximized when marginal cost and marginal revenue are equal (i.e., MC = MR).

honeycfa

A firm in a perfectly competitive industry that seeks to maximize profit is most likely to continue production in the short run as long which of the following conditions exists? Price is equal to or greater than:

A) average variable costs.

B) average fixed cost.

C) marginal cost.

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If a firm is covering its average variable costs, it will continue to operate in the short run since it is covering some portion of its fixed costs.

honeycfa

Which of the following most accurately describes the relationship between price (P), marginal cost (MC), and marginal revenue (MR) at the profit maximizing output level for a firm in a perfectly competitive industry?

A) P = MC = MR.

B) P > MC < MR.

C) P > MC = MR.

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For a perfectly competitive firm, maximum profit occurs at the output level where marginal revenue equals marginal cost. And, since the demand curve faced by each firm in perfect competition is horizontal, marginal revenue is equal to price.

honeycfa

In the long run, if price is below average total cost (ATC) the firm will:

A) shut down.

B) keep running.

C) cover its variable costs.

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If the price is below ATC then the firm is losing money. If the firm believes the price will never exceed ATC the only way to eliminate fixed costs is to go out of business.

honeycfa

In the long run, a perfectly competitive firm will earn:

A) small economic profits.

B) zero economic profits.

C) large economic profits.

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Zero economic profits means the firm is earning a normal rate of return and a positive accounting profit. Since perfectly competitive firms have no barriers to entry, economic profits cannot be positive in the long run because new competitors will enter the market place driving down economic profits to zero.