Question

1)

When we say that a firm is a price-taker, we are indicating that

Group of answer choices

a the firm takes the price established in the market and then tries to increase that price through advertising

b the firm will have to take a lower price if it wants to increase the number of units that it sells

c the firm can increase or decrease its rate of production and sales without having any significant effect on the price of the product it sells

d the demand curve faced by the firm is perfectly inelastic

2)

Suppose a price-taking firm faces the following costs:

Quantity	0	1	2	3	4	5	6
Total cost	200	300	380	440	490	560	640

If the market price is $70, what is this firm's profit-maximizing output?

Group of answer choices

a Q = 5 units

b Q = 6 units

c Q = 0 units

d Q = 3 units

Answer 1

1) option C is correct. price taker is a firm that has no control over the market price and it can only decide how much to produce at that price. The demand function is perfectly elastic and it can not increase/decrease the price on its own

2) option C is correct. Marginal cost of 5th unit is 560 - 490 = 70 and price should be equal to marginal cost which happens when V unit is produced. However the average variable cost is (560-200)/5 = 72. Since price is less than average variable cost firm will not produce and will shut down