In the long-run equilibrium of a competitive market with identical firms, what is the relationship between price P, marginal cost MC, and average total cost ATC?

a) P > MC and P > ATC.

b) P > MC and P = ATC.

c) P = MC and P = ATC.

d) P = MC and P > ATC.

If a profit-maximizing, competitive firm is producing a quantity at which marginal cost is between average variable cost and average total cost, it will do which of the following? Draw the diagram before answering the question.

a)keep producing in the short run but exit the market in the long run

b)shut down in the short run but return to production in the long run

c)shut down in the short run and exit the market in the long run

d)keep producing both in the short run and in the long run

Which one of the following situations should cause a firm to shut down in the short-run? It is not covering its:

a)fixed costs

b).accounting costs.

c)money outlays

d).variable costs.

A competitive firm maximizes profit by choosing the quantity where its:

a)average total cost is at its minimum

b)marginal cost equals the price

c)average total cost equals the price

d)marginal cost equals average total cost

Which one of the following describes when a rational entrepreneur should enter a competitive industry?

a)P > AVC

b)P > MC

c)P > ATC

d)P > AFC

If the firm is making economic profit in the short-run, what will happen to the firm in the long run?

a) More firms will enter the industry, thus driving down price until profit equals zero.

b)More firms will enter the industry, thus lowering cost and raising profit because of economies of scale.

c)More firms will enter the industry, thus increasing average total cost but leaving price unchanged until profit equals0.

d)Firms will leave the industry, thus increasing price until profit equals zero.

A competitive firm's short-run supply curve is its ___ cost curve above its ___ cost curve.

a) average total, marginal

b) average variable, marginal

c)marginal, average total

d) marginal, average variable

Use the graph for a competitive firm to tell which curve describes the firm's marginal revenue?

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