honeycfa

In the long-run, a firm operating under perfect competition will:

A) produce a quantity where marginal revenue is less than marginal cost.

B) face a vertical demand curve.

C) generate zero economic profit.

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A firm operating under conditions of perfect competition will generate zero economic profit in the long run. Firms may generate economic profits in the short run, but due to the lack of entry barriers, new competitors will enter the market and prices will adjust downward until economic profits become zero.

honeycfa

Suppose a price-taker firm produces baseball bats that sell at a price of $100 each. This firm’s average total cost at the current level of production is $150 per bat, and the average fixed cost is $40 per bat. Which of the following statements is most accurate regarding this firm? They should:

A) shut down in the short run because their average variable cost is greater than their price.

B) continue producing baseball bats because they are covering their fixed costs.

C) shut down in the short run because their average total cost is greater than their price.

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Variable costs = $150 (ATC) ? $40 (AFC) = $110 (AVC). At a selling price of $100 the firm is not covering its variable costs and will have losses greater than its fixed costs if it stays in business.

honeycfa

A perfectly competitive firm will not expand its output beyond the quantity where:

A) the marginal cost is greater than marginal revenue.

B) the market price is equal to its marginal cost.

C) its marginal revenue is positive.

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A perfectly competitive firm will tend to expand its output so long as the market price is greater