Question

Please answer the following 3 questions:

QUESTION 1 In the short run, the perfectly competitive firm will always earn an economic profit when P MC. P ATC. P > AVC P > ATC. QUESTION 2 The demand curve faced by a perfectly competitive industry is horizontal slopes upward. has no slope. slopes downward. QUESTION 3 The short-run supply curve of a perfect competitor is its marginal revenue curve. its marginal cost curve equal to or above the minimum point on its average variable cost curve. its average variable cost curve its entire marginal cost curve

Answer 1

1. The correct answer is 'Option D'.

In perfect competition, there are large number of buyers and sellers in the market. Any firm cannot influence the market price on its own since the equilibrium price and quantity are determined by the market forces of demand and supply. In the short-run, a perfectly competitive firm can earn economic profit when price is greater than the average total cost. In the long run, a perfectly competitive firm earns zero economic profit.

2. The correct answer is 'Option A'.

The demand curve of a perfectly competitive industry is equal to the equilibrium price in the market. Each firm charges the same price because all the firms sell homogeneous products. So, if they charge a higher price then nobody will purchase from that firm. So, the demand curve of a perfectly competitive industry is horizontal. However, the market demand curve is downward-sloping.

3. The correct answer is 'Option B'.

The short-run supply curve of a perfectly competitive firm is the marginal cost curve equal to or above the minimum point on its average variable cost curve. In a perfectly competitive market, a profit-maximizing firm will produce at the level of output at which price is equal to the marginal cost.