Multiple Choice
When this firm is producing the profit-maximizing output:
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11. Perfect Competition
Perfect Competition and Efficiency
Multiple Choice
The firm is a price taker because:
A
It has a U-shaped ATC curve
B
The profit-maximizing point occurs where MC equals ATC
C
The MC curve has an upward slope
D
The MR curve is horizontal
Verified step by step guidance1
Understand that a price taker is a firm that cannot influence the market price and must accept the price determined by the overall supply and demand in the market.
Observe the graph labeled 'Single Firm'. Notice that the Marginal Revenue (MR) curve is horizontal, indicating that the firm can sell any quantity of output at the market price.
Recognize that the horizontal MR curve is a characteristic of a perfectly competitive market, where firms are price takers.
In a perfectly competitive market, the firm's demand curve is perfectly elastic, which is why the MR curve is horizontal.
The graph labeled 'Market' shows the overall supply and demand, determining the market price. The firm in the 'Single Firm' graph takes this price as given, reinforcing its role as a price taker.
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