Question 1.
If a perfectly competitive firm's total revenue is less than its total variable cost, the firm
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should raise its price above its average variable cost.
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should adopt new technology in order to lower its costs of production.
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should stop production by shutting down temporarily.
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should continue to produce and increase its demand.
Question 2.
Figure 12-18
Use the figure above to answer the following questions.
a. | How can you determine that the figure represents a graph of a perfectly competitive firm? Be |
specific; indicate which curve gives you the information and how you use this information to arrive at your conclusion.
b. | What is the market price? |
c. | What is the profit-maximizing output? |
d. | What is total revenue at the profit-maximizing output? |
e. | What is the total cost at the profit-maximizing output? |
f. | What is the profit or loss at the profit-maximizing output? |
g. | What is the firm's total fixed cost? |
h. | What is the total variable cost? |
i. | Identify the firm's short-run supply curve. |
j. | Is the industry in a long-run equilibrium? |
k. | If it is not in long-run equilibrium, what will happen in this industry to restore long-run |
equilibrium?
l. | In long-run equilibrium, what is the firm's profit maximizing quantity? |
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