When the Perfectly Competitive Firm Produces the Quantity of Output

question 70

Multiple Choice

When the perfectly competitive firm produces the quantity of output at which marginal revenue equals marginal cost, it naturally

• A)produces the quantity of output at which marginal cost equals price, since for the perfectly competitive firm price equals marginal revenue.
• B)produces the quantity of output at which short-run average total cost equals price, since for the perfectly competitive firm short-run average total cost equals marginal revenue.
• C)earns a profit, since equating marginal revenue and marginal cost guarantees profit.
• D)takes a loss.

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Definitions:

Manifestly Unreasonable

A term describing actions or decisions that are so unfair or absurd that they are immediately recognizable as unjust.

Consent Restraint

A security transfer restriction requiring a shareholder to obtain the consent of the corporation or its shareholders prior to the shareholder’s sale of her shares.

Option Agreement

A share transfer restriction granting a corporation or its shareholders an option to buy a selling shareholder’s shares at a price determined by the agreement.

Buy-and-Sell Agreement

a legally binding agreement between co-owners that outlines what will happen to an owner’s share of the business if they depart the business due to death or any other reason.