Question

please solve both questions:

QUESTION 1 A competitive firm faces for the good it is selling. O A. a perfectly elastic demand cuve B. a perfectly inelastic demand curve OC. competition from a government franchise O D. a perfectly elastic supply curve QUESTION 2 A competitive firm might choose to set its price below the market price, because O A. this would result in higher average revenue. B. this would result in higher profits. C. this would result in lower total costs. OD. None of the above is correct.

Answer 1

Q1 )

Correct option is (A) Competitive firm faces a perfectly elastic demand curve for the good it is selling

Because competitive market have large number of buyer & sellers and it contains large no, of similar products due to which no single individual can influence the price of the product.

Why other options are wrong because -

Option (B) In perfectly inelastic demand curve the demand for a good does not change in response to a change in price.

Option (C) Not necessarily it faces the competition from govenrment franchise

Option (D) means that large amount of a good will be supplied at the given price, but nothing is supplied below this given price.

Q2 )

Correct option is (d) None of the above

Because in Option (A) This will not result in higher average revenue as price is below market price

in Option (B) This will not result in higer economic profits as price is below market price

In Option (C) This will not result in lower total cost as price is kept below market price which will increase total cost as cost will be more than revenue generated.