402)
What does a perfectly competitive firm do to maximize profits?
403)
“A perfect competitor should maximize total revenues.” Do you agree or disagree? Explain.
404)
Explain what happens to the long–run supply curve of an industry when firm entry raises the price of inputs
used in the industry.
405)
“A firm should shut down immediately when it earns zero economic profits.” Do you agree or disagree? Explain
your answer.
406)
What determines whether the industry long–run supply curve is upward sloping or horizontal?
407)
“A market is said to be perfectly competitive when consumers can tell that some products are of better quality
than others.” Do you agree or disagree? Why?
408)
When should a firm shut down? When should a firm go out of business?
409)
“In the long run, a perfectly competitive firm’s average total cost is always below the market clearing price.”
Agree or disagree? Why?
410)
In principle, how do we determine a perfectly competitive firm’s profit–maximizing output and maximum
profits given information about the market clearing price, and about the marginal cost and average total cost
curves of the firm? Explain in words.
411)
Can a firm make losses by producing the rate of output at which marginal revenue equals marginal cost? Why?
412)
How do we determine whether a firm has maximized profits?
413)
Why is the demand curve horizontal for a perfectly competitive firm?
414)
What is the short–run shutdown price? Using a graph and a market price of P, show that losses are less when
shutting down than when producing.
415)
“An industry’s short–run supply curve is constructed by adding horizontally all the average variable cost curves
of firms in that industry.” Do you agree or disagree? Why?
416)
Why does the industry short–run supply curve slope upward?
417)
What determines the perfect competitor’s supply curve? How is the industry supply curve found?
418)
Why should a firm not produce more than the rate of output at which marginal revenue equals marginal cost?
419)
Why is the pricing outcome of a perfectly competitive firm efficient in economic sense?
420)
How is the market clearing price established in a perfectly competitive industry?
421)
What is a price taker? Discuss the assumptions used to obtain the perfectly competitive model.
422)
“Because a firm’s supply curve slopes upward, the long–run supply curve of an industry must also slope
upward.” Do you agree or disagree? Explain.
423)
Why should a perfect competitor produce at which price equals marginal cost?
424)
What are the main characteristics of a perfectly competitive market?
425)
What is the short–run break–even price? What are economic profits at this price? Why would a firm be willing
to operate permanently at this price?
426)
What are signals? How do profits function as signals?
427)
What is marginal cost pricing? Why is marginal cost pricing important?
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