The Theory of the Firm under Perfect Competition quiz

Under perfect competition, the firm's demand curve is:

For a price-taking firm:

The short run shut down point occurs where price equals minimum:

The break-even point occurs where price equals minimum:

Supply curve q = 5p passes through the origin. Its price elasticity of supply is:

A unit tax on a good will shift the supply curve:

In the long run, a perfectly competitive firm earns:

Which is a condition of profit maximisation?

A linear supply curve cutting the quantity axis has elasticity:

Which feature ensures normal profit in the long run?

Why is the TR curve a straight line through the origin under perfect competition? (2 marks)

Why does a firm continue to produce in the short run even if price is below AC? (2 marks)

Explain the effect of an improvement in technology on the supply curve. (2 marks)

What is meant by market supply? How is it derived? (2 marks)

Why is the firm's supply curve upward sloping? (2 marks)

Distinguish between a movement along a supply curve and a shift of the supply curve. (2 marks)

Why is a perfectly competitive firm unable to influence price? (2 marks)

State two determinants of the supply of a good. (2 marks)

What is the long run supply curve of a firm? (2 marks)

What is the effect of a rise in the price of an input on a firm's supply? (2 marks)

When price rises from Rs 5 to Rs 6, quantity supplied rises from 100 to 150 units. Calculate the price elasticity of supply. (3 marks)

A firm's minimum AVC is Rs 8 and minimum AC is Rs 12. Find the shut down price and break-even price. What will the firm do if the market price is Rs 10? (3 marks)

A firm's TR from selling 50 units is Rs 600. Calculate price, AR and MR. (3 marks)

The price elasticity of supply of a good is 0.5. If the price rises by 20%, calculate the percentage change in quantity supplied. If initial supply was 400 units, find the new supply. (3 marks)

The market price is Rs 15. A firm's TC for 0 to 5 units is Rs 10, 20, 28, 38, 53 and 73. Calculate MC and find the profit-maximising output and maximum profit. (3 marks)

Read the passage and answer the questions. The wheat market in Punjab has thousands of farmers selling the same quality of wheat. No single farmer can change the market price of Rs 2,200 per quintal. (i) Identify the market form. (ii) Why is each farmer a price taker? (iii) Draw the demand curve facing one farmer. (5 marks)

Read the passage and answer the questions. A small factory has a minimum AVC of Rs 40 and minimum AC of Rs 55. Due to a slump, the market price fell to Rs 45. (i) Is the firm making profit or loss? (ii) Should it continue in the short run? Why? (iii) What will happen in the long run if price stays at Rs 45? (5 marks)

Read the passage and answer the questions. The government imposed a tax of Rs 5 per unit on soft drinks to discourage consumption. (i) What happens to the supply curve? (ii) Show the effect with a diagram. (iii) What happens to market price and quantity? (5 marks)

Read the passage and answer the questions. A new automatic machine reduced the marginal cost of producing bricks by Rs 2 at every level of output. (i) How does the supply curve of the brick firm shift? (ii) Why? (iii) What happens to quantity supplied at the existing price? (5 marks)

Read the passage and answer the questions. The supply of fresh vegetables does not increase much even when prices rise sharply in a single day, but over a season farmers grow more. (i) Is supply elastic or inelastic in a single day? (ii) Why does supply become more elastic over time? (iii) Name two other factors affecting elasticity of supply. (5 marks)

Explain the conditions of producer's equilibrium under perfect competition using the MR-MC approach, with a diagram. (6 marks)

Derive the short run supply curve of a firm with diagrams, explaining the shut down point. (6 marks)

Explain the long run supply curve of a firm and the break-even point with diagrams. (6 marks)

Explain price elasticity of supply, its measurement by the percentage and geometric methods, with diagrams for elastic, unit elastic and inelastic supply. (6 marks)

Explain the determinants of a firm's supply curve and how changes in each shift the curve, with diagrams. (6 marks)