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3 Management decisions for a perfectly competitive firm

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1. Should a perfectly competitive firm making a loss in the short-run always leave the market? Why or why not? What about in the long-run?

2. Should a perfectly competitive firm advertise in an effort to increase its sales and its profits? Why or why not?

3. Can you think of an example of a perfectly competitive firm? Why do you think this firm is perfectly competitive?

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1. No. If the market price falls to a point where a perfectly competitive firm is making a loss, it should shut down temporarily to minimize its losses in the hope that the market price rises again. If the price does not rise in the long run, then the firm should leave the market.

2. No. The goal of ...

Solution Summary

This solution addresses three decisions that must be made by the manager of a perfectly competitive firm:
1. Should a loss-making firm leave the market?
2. Can a perfectly competitive firm increase its revenues by advertising?
3. What is an example of a perfectly competitive firm, and why?

Similar Posting

Economics and management

1. What are the main characteristics of a perfectly competitive market that cause buyers and sellers to be price takers?

2. A perfectly-competitive firm (a firm that operates in a perfectly competitive market) has the following cost function:

TC = 2000 + 10Q + 0.02Q^2

The market price is $25, so that TR = PQ = 25Q.

What is the optimal (profit-maximizing) output level?
What is MR at that level?
What is MC at that level?
What is the profit at that level?

3. Explain a monopolist's output and price decisions.

4. A monopoly firm has the following cost function:

TC = 10000 + 100Q + 0.02Q^2

and it faces a market demand function:

Q = 20000 - 100P

What is the firm's optimal (profit-max) output?
What is the profit-maximizing price that the firm charges?
What is the maximum profit?

Please refer to attached word document.

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