Perfect Competition

The figure above shows short-run cost curves for a perfectly competitive firm. If the price of the

product is $8, in the short run the firm will

• incur an economic loss

• earn an economic profit

• earn a normal profit

• more information is needed to determine the

  firm's profit or loss

Answer explanation

When P = MC = $8, P < ATC so profit per unit is negative

Suppose the cost curves in the above figure apply to all firms in the industry. If the initial price is

P1, firms are

• making an economic profit and some firms will leave the industry

• incurring an economic loss and some firms will leave the industry

• making an economic profit and some firms will enter the industry

• incurring an economic loss and some firms will enter the industry

Answer explanation

Where MR = MC, P < ATC so firm are taking economic losses and some firms will exit the market

Should the following firm shutdown?

• Yes

• No

• Not enough information present

The image above shows a firm making

• Economic Profit

• Economic loss

• Breaking even

• Shutting down

The demand curve for an individual firm within a perfectly competitive industry is

• perfectly elastic

• perfectly inelastic

• downwards sloping

• upwards sloping

Perfectly competitive firms will maximize profit where

• MR > MC

• MR < MC

• MR = MC

• TR = P x Q

Perfectly competitive markets sell

• differentiated products

• homogenous products

• a variety of both types of products

What is the price in this market?

• 3

• 4

• 7

• 13

Is this firm making a profit or suffering a loss?

• Profit

• Loss

• Breaking Even

How many products should this firm produce?

• 3

• 4

• 6

• 8