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Pricing and output decisions

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Indicate whether each of the following statements is true or false and explain why. a) A competitive firm that is incurring a loss should immediately cease operations. b) A pure monopoly does not have to worry about suffering losses because it has power to set its prices at any level. c) In the long run, firms operation in perfect competition and monopolistic competition will tend to earn normal profits. d) When a firm is able to set its price, its price will always be less than its MR. e) A monopoly will always earn economic profit because it is able to set any price that it wants

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a) FALSE. As long as the AVC (Average Variable Cost) is being covered the firm can continue operating. The firm should only shut down if it is not able to cover its variable costs.

b) FALSE. A monopoly does have some ...

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