Page 163 - DECO405_MANAGERIAL_ECONOMICS

Managerial Economics

Notes 9.6 Self Assessment

1. State true or false for the following statements:
(a) In a perfect market there are large number of sellers.

(b) In a perfect market there is products differentiation.
(c) In a perfect market a change in the output of a single firm will affect the market
price of the product.
(d) In perfect market, market agents are not fully aware of market.

(e) In a perfect market there is perfect mobility of resources.
(f) Under perfect competition the price curve and the marginal revenue curve are the
same.

(g) Industry has no role in the determination of price under perfect competition.
(h) When the supply of a commodity decreases and its demand remains constant then it
leads to decrease in price.
(i) For equilibrium MC curve should cut the MR curve from below.

2. Fill in the blanks:
(a) A perfectly competitive firm faces an ......................... elastic demand curve.
(b) The closing down point is at which the firm covers its ......................... cost.
(c) In the long run all costs are ......................... .
(d) In the long run the best level of output is, where P = ......................... .

(e) The LMC cuts the LAC at its ......................... point.
(f) The ................ LRS is generally a feature of rapid growth.
(g) The .................... of an industry might lead to a fall in prices of some of its input.
(h) The factors of production are .......... to move in perfect competition.

9.7 Review Questions

1. In which condition under perfect competition, would a firm maximize profit in the short
run?
2. A firm can sell its product for 20 each in a perfectly competitive output market. Its total
cost of production for the production range of 200 units to 205 units is given below:
200 201 202 203 204 205
3600 3615 3634 3658 3688 3720
What is the profit maximising level of production?

3. To maximize the profit in the short run, a perfectly competitive firm produces the output
for which price is equal to average variable cost- Why/Why not?
4. Why are firms operating under conditions of perfect competition depicted as having a
horizontal demand curve?

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