Question

A perfectly competitive market does not imply which of the following?

a.	The firm’s price will be greater than marginal revenue.	b.	The market price is established at the point where supply equals demand.
c.	Production is carried out only until supply equals demand.	d.	Marginal benefit equals marginal cost.

Which of the following is not a point where firms produce in long-run equilibrium?

a.	The minimum average variable cost is below selling price.	b.	Marginal cost equals marginal revenue.
c.	The minimum long-run average costs are equal to the selling price.	d.	Price is greater than marginal cost.

A decrease in demand will not cause firms to do which of the following if they operate where marginal cost is equal to average total cost which is also equal to long-run average cost in long-run equilibrium?

a.	Shift supply to the left	b.	Increase capital investment
c.	Reduce output	d.	Produce efficiently

Firms will not do which of the following under perfect competition?

a.	Select the most efficient plant size	b.	Be driven to produce at the lowest possible short-run average cost
c.	Minimize average cost in the long run	d.	Produce at a point where marginal cost is greater than marginal revenue

Answer 1

1. Answer: The firm's price will be greater than marginal revenue. In a perfect competition, a profit maximising producer will always produce at a point where price = marginal cost= marginal revenue.

2. Price is greater than marginal cost. In the long run, a firm produces at a point where price = long run marginal cost = marginal revenue.

3. Reduce output

4. Produce at a point where marginal cost is greater than marginal revenue. When MC>MR, the firm will incur losses and hence, he will not produce at that point.