Competitive Firms

Why did some Communist Markets fail?

• Planning Errors

• Price Fixing

• Political Intervention

• Systemic Flaws

What is the role of private ownership of means of production in Capitalism?

• Boost Innovation

• Increase Shareholder value

• Allow Firms to Aquire Capital

• Encourage Production

Where, according to the Hotelling model do two beach vendors set up their stand?

• At both ends

• At equal space from the center

• At the center

• It does not matter

A competitive firm should shut down if

• The price falls below average variable cost

• The price falls below average total cost

• The price falls below total cost

• Never

A competitive firm should exit the market if

• The price falls below average variable cost

• The price falls below average total cost

• The price falls below total cost

• Never

A competitive firm’s supply curve is given by

• The total cost curve

• The average total cost curve

• The average variable cost curve

• The marginal cost curve

Can competitive firms stay in business if they make zero economic profit?

• Yes, in the short run

• Yes, as opportunity costs are included in the economic costs

• No, the sunk cost will not be recovered

• No, competition will force them out of the market

What is true for a competitive firm in the long run?

• Price equals the minimum of average variable cost

• Price is greater than average total cost

• Price is below average variable cost

• Price equals total cost

In the long run competitive firms are

• Making economic profit

• Making zero economic profit

• Making zero accounting profit

• Making loss

An increase in demand in a perfectly competitive market has the following effect in the long run

• The price will increase

• Supply will increase and bring the price back to equilibrium

• The firm will make profit

• There will be a shortage