Microeconomics Chapter 23- Perfect competition

In which of the following scenarios would you most likely be a price taker? Check all that apply.

A can of soda costs $1 at the store.•A smartphone costs $200 regardless of the service plan you purchase with it.

True or False: The perfectly competitive firm's entire marginal cost curve is its short-run supply curve.

False

In the short run, a perfectly competitive firm will maximize profits (minimize losses) by producing the level of quantity at which __. The firm will only operate at the lowest per-unit cost if the firm is _____and P=MR=MC=P=MR=MC=

MR = MC, breaking even, minimum ATC

Firm A, one firm in a perfectly competitive industry, faces higher costs of production. As a result, will consumers end up paying higher prices?

No, because in a perfectly competitive industry, the more efficient firms with lower costs will drive firm A out of the market.

The demand curve is the same as the marginal revenue curve for a perfectly competitive firm because:

Price is equal to marginal revenue

In the short run, a perfectly competitive firm should continue to produce as long as it can cover its variable costs. Which of the following conditions describes this rule?

P>AVC. If price is below average variable cost, a perfectly competitive firm will be unable to pay its variable factors of production (labor, electricity, and so on), let alone generate any revenue to help pay its fixed costs, which cannot be avoided whether the firm produces or not. In this case, therefore, the firm should shut down production

Profit serves as an incentive for individuals to produce, prompting or encouraging certain behavior. Profit also serves as a signal by identifying where

Resources can be most productively employed in producing goods and services that consumers want.

A few major airlines account for the vast majority of air travel. Consumers view all airlines as providing basically the same service and will shop around for the lowest price. There are hundreds of colleges that serve millions of students each year. The colleges vary by location, size, and educational quality, which allows students with diverse preferences to find schools that match their needs. Dozens of companies produce plain white socks. Consumers regard plain white socks as homogeneous and don't care who manufactures their socks. The government has granted a patent to a pharmaceutical company for an experimental AIDS drug. That company is the only firm permitted to sell the drug.

No, not many sellers No, not a homogeneous product Yes, meets all assumptions No, not many sellers

Do firms in a perfectly competitive market exhibit productive efficiency?

Productive efficiency, when P=Minimum ATCP=Minimum ATC, is guaranteed in the long run. It is possible that a firm will produce its output at a unit cost higher than the lowest unit cost possible in the short run.