AP Micro Unit III: Perfect Competition and Cost Curves

Price takers are individuals in a market who:

• select a price from a wide range of alternatives.
• select the lowest price available in a competitive market.
• select the average of prices available in a competitive market.
• have no ability to affect the price of a good in a market.

The demand curve for a perfectly competitive firm is:

• perfectly inelastic.
• perfectly elastic.
• downward sloping.
• relatively but not perfectly elastic.

In the short run, a perfectly competitive firm produces output and breaks even if:

• the firm produces the quantity at which P < ATC.
• the firm produces the quantity at which P = ATC.
• the firm produces the quantity at which P > ATC.
• the firm produces the quantity at which P = (TR/Q + TC/Q) × Q.

Zoe's Bakery determines that P < ATC and P > AVC. Zoe should:

• continue to operate even though she is taking an economic loss.
• continue to operate, as she is making an economic profit.
• shut down immediately, as she is taking an economic loss.
• raise the price until she has maximized her profits.

• Shut Down
• Stay open and take a loss
• Making a normal profit
• Making a positive profit

• Shut Down
• Take loss but stay open
• Normal Profit
• Positive Economic Profit

• Shut Down
• Stay open and take a loss
• Normal Profit
• Positive Economic Profit

• Shut Down
• Stay open and take a loss
• Positive Economic Profit
• Normal Profit

This perfect competitor will maximize profits at what output level?

• A
• B
• C
• D

This perfect competitor will shut down below which price/output relationship?

• K
• M
• L
• R