Question

which of the following is true of a perfectly competitive firm?
a. if the firm wishes to maximize profits it will produce an output level in which marginal revenue exceeds marginal cost.
b. the firm is a price maker.
c. the firms short - run supply curve is its mc curve below its avc curve.
d. the firm will not earn an economic profit in the long run.

Explanation:

• For option a: Profit maximization for any firm (including perfectly competitive ones) occurs where marginal revenue (MR) equals marginal cost (MC), not where MR exceeds MC.
• For option b: Perfectly competitive firms are price takers, not price makers, since they cannot influence the market price.
• For option c: The short-run supply curve of a perfectly competitive firm is the portion of its MC curve above the average variable cost (AVC) curve, as the firm shuts down if price is below AVC.
• For option d: In the long run, free entry and exit of firms in perfect competition drive economic profits to zero. Firms only earn normal profits, so no positive economic profit exists.

Answer:

d. The firm will not earn an economic profit in the long run.