Under perfect competition, a firm determines its price where AR = MR
In perfect competitive industry, a firm is in equilibrium in the short run only when its AC = AR = MR = MC
The short run supply curve has a negative slope
A firm is price taken under perfect competition
Answer is Wrong!
Answer is Right!
The correct answer is: D. A firm is price taken under perfect competition
A firm is price taken under perfect competition because it is a small player in the market and has no control over the market price. The firm must accept the market price as given and cannot charge a higher price, or it will not be able to sell any of its output.
The other options are incorrect because:
- Under perfect competition, a firm’s demand curve is perfectly elastic, which means that the firm can sell any quantity of output at the market price. Therefore, the firm’s marginal revenue curve is equal to the market price.
- A firm is in equilibrium in the short run when its marginal cost equals its marginal revenue. However, this does not necessarily mean that its average cost is equal to its price. In the short run, a firm may be able to make a profit or a loss, even if it is in equilibrium.
- The short run supply curve for a firm under perfect competition is the portion of its marginal cost curve that lies above its average variable cost curve. This is because the firm will only produce output if the price is at least equal to its average variable cost.