Mod 3.6: Firms' Entry and Exit Decisions

A perfectly competitive firm will maximize profit at the quantity at which the firm’s marginal revenue equals:

• price

• average revenue

• total cost

• marginal cost

• demand

Which of the following represents conditions for a firm that is profitable? (CHOOSE 2)

• TR > TC

• MC = MR

• ATC > MC

• P > ATC

• P > AVC

Which of the following should cause a firm to shut down?

• MR < MC

• P < ATC

• ATC < MC

• Revenue < Cost

• P < AVC

If the price is between the AVC and the ATC, by producing, the firm will cover:

• neither its fixed cost nor its variable cost.

• all of its fixed cost but only some of its variable cost.

• all of its variable cost but only some of its fixed cost.

• both its fixed cost and its variable cost.

• its total cost and its economic profit

In the absence of barriers to entry, what will happen in the long run if firms are earning a

profit?

• Existing firms will produce more

• Existing firms will produce less

• New firms will enter the market

• Existing firms will leave the market

• New firms will not be able to enter the market