Question

1. If the ATC curve is above the demand curve in a perfectly competitive firm, the firm will have a:

- profit

- loss

- break-even

- price floor

 

2. If the ATC curve is below the demand curve in a perfectly competitive firm, the firm will have a:

- profit

- loss

- break-even

- price ceiling

 

3. Even if in the short run, a perfectly competitive firm has a profit; in the long run, they always break even because:

- low barriers to entry

- profit incentives attract new firms

- perfectly homogenous products

- all of the above

 

4. A perfect competitor would:

- never charge above market price but might charge below market price

- never charge below market price but might charge above market price

- always change the market price

- none of the above

 

5. The crucial aspect of competition among firms that leads to the condition of zero profits in the long run is

- the number of firms in the industry is fixed

- free entry and exit of firms in the industry

- fixed costs equal zero

- all costs are at their least cost level.