In a perfectly competitive industry, the market price is $30. A firm is currently producing...


In a perfectly competitive industry, the market price is $30. A firm is currently producing 15,000 units of output, its short-run average total cost is $28, its marginal cost is $20, and its average variable cost is $20. Given these facts, explain whether the following statements are true or false or indeterminate at its current rate of production. Explain why or why not.

a. The firm is currently producing the profit-maximizing quantity.

b. The firm should produce more output to maximize its profit/minimize its loss.

c. The firm has a fixed cost of $20 per unit.

d. The firm is earning a normal profit.

e. The firm is operating in the long run.

f. Draw the graph for the firm and label all of the curves.

Perfect Competition:

There are four different types of market structures. One of them is Perfect competition. This market is distinguished by the large number of sellers, identical products, free entry and exit condition and perfect elastiicity of demand.

Answer and Explanation: 1

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A. The statement is False. The firm is not maximising its profits, because at the current stage of production the MR or the price is greater than MC....

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Perfect Competition: Definition, Characteristics & Examples


Chapter 3 / Lesson 62

Learn the definition, characteristics, and benefits of perfect competition. Review real-life examples of perfect competition between different companies.

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