Problem 1
Suppose that the paper clip industry is perfectly competitive. Also assume that the market price for paper clips is 2 cents per paper clip. The demand curve faced by each firm in the industry is: a. A horizontal line at 2 cents per paper clip. b. A vertical line at 2 cents per paper clip. c. The same as the market demand curve for paper clips. d. Always higher than the firm's MC curve.
Problem 3
A purely competitive firm whose goal is to maximize profit will choose to produce the amount of output at which: a. TR and TC are equal. b. TR exceeds TC by as much as possible. c. TC exceeds TR by as much as possible. d. none of the above.
Problem 4
If it is possible for a perfectly competitive firm to do better financially by producing rather than shutting down, then it should produce the amount of output at which: a. \(\mathrm{MR}<\mathrm{MC}\) b. \(M R=M C\) c. \(\mathrm{MR}>\mathrm{MC}\) d. none of the above.
Problem 5
A perfectly competitive firm that makes car batteries has a fixed cost of \(\$ 10,000\) per month. The market price at which it can sell its output is \(\$ 100\) per battery. The firm's minimum AVC is \(\$ 105\) per battery. The firm is currently producing 500 batteries a month (the output level at which MR \(=M C) .\) This firm is making a _____ and should _____ production. a. profit; increase b. profit; shut down c. loss; increase d. loss; shut down
Problem 6
Consider a profit-maximizing firm in a competitive industry. For each of the following situations, indicate whether the firm should shut down production or produce where \(\mathrm{MR}=\mathrm{MC} .\) a. \(P<\) minimum AVC. b. \(P>\) minimum ATC. c. Minimum AVC \(
