1. (Demand Under Perfect Competition) what type of demand curve does a perfectly competitive firm face? Why?
A horizontal or a perfectly elastic, demand curve. A perfectly competitive firm is called a price taker because that firm must “take,” or accept, the market price- as in “take it or leave it.”
2. Explain the different options a firm has to minimize losses in the short run.
A firm in perfect competition has no control over the market place. Sometimes that price may be so low that a firm loses money no matter how much it produces. Such a firm can either continue to produce at a loss or temporarily shut down.
3. (The Short-Run Firm Supply Curve) Each of the following situations could exist for a firm in the short …show more content…
8. (The Short-Run Firm Supply Curve) An individual competitive firm’s short-run supply curve is the portion of its marginal cost curve that equals or rises above the average variable cost. Explain why.
A perfectly competitive firm's supply curve is that portion of its marginal cost curve that lies above the minimum of the average variable cost curve. A perfectly competitive firm maximizes profit by producing the quantity of output that equates price and marginal cost. As such, the firm moves along its positively-sloped marginal cost curve in response to changing prices.
9. What are the major characteristics of perfectly competitive market?
A perfectly competitive market is characterized by (1) many buyers and sellers, so many that each buys or sells only a tiny fraction of the total amount in the market; (2) firms sell a commodity, which is a standardized product, such as a bushel of wheat, an ounce of gold, or a share of Google stock. (3) buyers