Perfect Competition

MC crosses the ATC and AVC

• where you draw it

• at its lowest point

• where MR=MC

• None of the above

Which of the following markets is closest to perfectly competitive?

• airlines

• wheat

• cell phones

• textbooks

Which of the following is NOT an assumption of perfect competition

• perfect information

• free entry and exit

• different goods

• lots of buyers/sellers

The market for milk is an example of perfect competition. Why?

• Sellers offer a nearly identical product
• Anyone can start a dairy farm or leave the dairy business at any time
• Many people buy and sell milk
• All of the above

The market price is $10. Marginal revenue for the 10th unit would be

What is the profit maximizing condition?

• MR = D

• MR = MC

• MC = D

• D = Profits

Suppose a firm in a perfectly competitive market faces a price which is lower than their average cost (ATC) but higher than their average variable costs (AVC). In the short run, this firm should

• shut down

• exit the industry

• raise the price

• produce where MC=MR

Based on this graph, this firm will:

• make positive short-run profits

• incur losses in the short-run

• shut-down in the short run

In the long-run, price will equal

Firms are incurring short-run losses in a perfectly competitive firm. What will happen in the long-run?

• New firms will enter and price will increase

• New firms will enter and price will decrease

• Firms will exit and price will increase

• Firms will exit and price will decrease