Question

TRUE OR FALSE TF DO 1. In a price-taker market, all firms produce an identical product and each firm comprises only a very small portion of the total market. 2. If a price-taker firm wants to sell its output, it must accept the market price, but it can sell as much output as it wishes at that market price. O N 3. For a price-taker firm, its marginal revenue from the sale of an addi- tional unit is generally less than the market price. D O 4. A profit-maximizing, price-taking firm will expand output to the point where marginal cost equals the market price. 0 5. In a price-taker market, each individual firm confronts a perfectly elas- tic demand curve that is a horizontal line at the market price. D O 6. A price-taker firm's short-run supply curve is equal to the firm's aver- age total cost curve. 7. The short-run market supply curve for a price-taker market is equal to the horizontal summation of the marginal cost curves (above AVC) for all firms in the industry. D O 8. In the short run, price-taker firms will expand their output and earn higher profits when the market price increases. O D 9. Whenever short-run economic profits are present in a price-taker mar- ket, new firms will enter and the market price will fall until all firms earn only zero economic profit in the long run. 0 0 10. Price takers always produce at the level of output at which average total costs are a minimum in both the short and long run.

Answer 1

1. Ans: True

2. Ans: True

3. Ans:False

4. Ans: True

5. Ans: True

6. Ans: False

7. Ans:True

8. Ans:True

9. Ans:True

10. Ans: False

Explanation:

Under perfect competition , firm is the price taker whereas industry is the price maker. A firm can sell as much as out it wishes to sell. Due to unique price , P = MR = AR.

Profit maximization condition is where price equals marginal cost.

Each individual firm confronts a perfectly elastic demand curve because the firm can not change the market price but it can sell as much as it wishes to sell at this price. As a result, the demand curve becomes horizontal at the market price.