Perfect Competition in the Short Run

In the short run, the firm will realize an economic loss but will continue to produce if the price is:

• below P2
  
• between P1 and P2 
• between P2 and P3 
• between P3 and P4 

Assume that a profit-maximizing, perfectly competitive firm has economic losses in the short run. If the firm continues to produce and sell its goods, then which of the following must be true? 

• The firm is covering all of its fixed and variable costs of production. 
• The firm is covering all of its fixed costs but not all of its variable costs of production. 
• The firm must have raised the price of its goods in order to minimize its losses. 
• The firm is covering all of its variable costs but not all of its fixed costs of production. 

Based on the cost and output data in the table shown, a perfectly competitive firm will shut down if price falls below:

• $15 
• $16
• $18
• $20

For a perfectly competitive firm producing the profit-maximizing quantity, the average total cost is $10 and the average variable cost is $8. If the market price for its product is $10, which of the following is true for the firm? 

• It is sustaining a loss and should shut down. 
• It is earning zero economic profit and will remain in business.
  
• It will temporarily shut down until price rises. 
• The firm is earning positive economic profit. 

A profit-maximizing firm will shut down in the short run any time the firm’s total revenue is less than its:

• total cost
  
• fixed cost
  
• total variable cost 
• explicit cost
  

Suppose that price in a perfectly competitive industry decreases and it is now below minimum average total cost but remains above minimum average variable cost. Which of the following will occur in the short run? 

• Firms will increase output so that marginal revenue equals the new price.
  
• Firms will produce the output at which average total cost is at a minimum. 
• Firms will not produce at all, since they will be unable to cover all their costs. 
• Firms will produce the output at which marginal cost equals the new price.
  

In the graph pictured, TC is total cost and TR is total revenue. At what quantity is profit maximized?

• Q1
• Q2
• Q3
• Q4

In the short run, a profit-maximizing firm, faced with U-shaped average cost curves, is producing a level of output at which the average total cost of production is minimized. At this level of output, which of the following is true for the firm? 

• Marginal cost equals average total cost. 
• Marginal cost equals average variable cost. 
• Marginal cost equals average fixed cost. 
• Profit per unit equals marginal cost. 

In the short run, if a firm produces the level of output at which marginal revenue is equal to marginal cost but price is less than average total cost, the firm will: 

• always shut down production
  
• expand output to lower its average fixed cost 
• continue to operate if price is greater than its average variable cost
  
• increase out put to increase revenue 

All of the following are essential characteristics of a perfectly competitive industry EXCEPT: 

• All products produced by the firms in the industry are homogeneous. 
• All firms in the industry are price takers. 
• Price is equal to marginal revenue for every firm in the industry. 
• There are barriers to entry into and exit from the industry.