REVIEW QUESTIONS
- What is a “price taker” firm?
- How does a perfectly competitive firm decide what price to charge?
- What prevents a perfectly competitive firm from seeking higher profits by increasing the price that it charges?
- How does a perfectly competitive firm calculate total revenue?
- Briefly explain the reason for the shape of a marginal revenue curve for a perfectly competitive firm.
- What two rules does a perfectly competitive firm apply to determine its profit-maximizing quantity of output?
- How does the average cost curve help to show whether a firm is making profits or losses?
- What two lines on a cost curve diagram intersect at the zero-profit point?
- Why does entry occur?
- Why does exit occur?
- Do entry and exit occur in the short run, the long run, both, or neither?
- Should a firm shut down immediately if it is making losses?
- How does the average variable cost curve help a firm know whether it should shut down immediately?
- What two lines on a cost curve diagram intersect at the shutdown point?
- What price will a perfectly competitive firm end up charging in the long run? Why?
- Will a perfectly competitive market display productive efficiency? Why or why not?
- Will a perfectly competitive market display allocative efficiency? Why or why not?