As a general rule, profit-maximizing producers in a competitive maket produce output at a point where:
A) Marginal cost is increasing
B) Marginal cost is decreasing
C) marginal revenue is increasing
D) Price is less then marginal revenue
I picked C?
The short-run supply curve for a firm in a perfecly competive market is:
A) Likely to be horizontal
B) Likely to slope downward
C) Determined by forces external to the firm
D) It's marginal cost curve (above average variable cost)
I picked B?
1) no no no. First marginal revenue would not be increasing in a competitive market (or any other market). Go with A
2) no no no. Short run SUPPLY should be upward sloping. Go with D
I had figured out the 2 question answer is D.
I am not clear why the first question answer is A.
I know production takes place until MC=MR.
Why would it then be A
For the question about profit-maximizing producers in a competitive market, the correct answer is D) Price is less than marginal revenue.
To understand why, we need to consider the concept of profit maximization. In a competitive market, producers aim to maximize their profits by producing at a level where their marginal revenue (MR) equals their marginal cost (MC). Marginal revenue is the additional revenue a producer earns from selling one more unit of output, while marginal cost represents the cost of producing one additional unit of output.
When a producer operates in a competitive market, the price is determined by market forces and is not under the producer's control. Therefore, the producer will set the output level where the price is greater than or equal to the marginal cost. If the price is less than the marginal revenue, it implies that the producer can increase their revenue by producing and selling more. Hence, they would continue to produce as long as the price exceeds their marginal cost.
For the question about the short-run supply curve for a firm in a perfectly competitive market, the correct answer is A) Likely to be horizontal.
In a perfectly competitive market, firms are price takers, meaning they have no control over the price and must accept the prevailing market price for their output. The short-run supply curve for a firm represents the quantity of output that a firm is willing and able to produce at different prices in the short run, assuming fixed inputs.
In a perfectly competitive market, if the market price is above the firm's average variable cost (AVC), the firm will produce at the level where the price equals the marginal cost. This is because if the price exceeds the firm's marginal cost, it is profitable for the firm to increase output and earn additional revenue. As a result, the short-run supply curve above the AVC will be elastic (slope downward).
However, if the market price falls below the firm's average variable cost, it becomes unprofitable for the firm to produce any output, as they would make a loss on each unit produced. In this case, the firm will choose to shut down its operations temporarily. As a result, the short-run supply curve below the AVC will be perfectly elastic (horizontal).
Therefore, the most likely scenario for a firm in a perfectly competitive market is to have a horizontal short-run supply curve.