Profit Maximization in Perfectly Competitive Markets

The video tutorial discusses perfectly competitive markets, where firms are price takers with no pricing power. It explains how market price equals firm price and uses side-by-side graphs to illustrate market and firm dynamics. The tutorial covers the firm's revenue and cost curves, highlighting how economic profit is achieved. It concludes by examining the impact of price changes on a firm's revenue in a perfectly competitive market, emphasizing that raising prices leads to zero revenue due to product undifferentiation.

In a perfectly competitive market, how do firms determine their pricing?

• They negotiate prices with consumers.

• They follow the market price as price takers.

• They set prices based on competitor pricing.

• They set their own prices based on production costs.

What does the supply curve in a perfectly competitive market typically look like?

• Vertical

• Downward sloping

• Horizontal

• Upward sloping

In the context of a firm in a perfectly competitive market, what is the relationship between average revenue and marginal revenue?

• Average revenue is always higher than marginal revenue.

• There is no relationship between the two.

• Average revenue is always lower than marginal revenue.

• Average revenue equals marginal revenue.

Where does a profit-maximizing firm produce in relation to its marginal cost curve?

• Where marginal cost is above average revenue

• Where marginal cost intersects marginal revenue

• Where marginal cost is equal to average total cost

• Where marginal cost is below average total cost

What indicates that a firm is earning a positive economic profit?

• Average total cost is above average revenue

• Average total cost is below average revenue

• Marginal cost is above average total cost

• Marginal revenue is below average total cost

How is the total cost represented on a firm's graph?

• As the area above the average total cost curve

• As the area below the marginal cost curve

• As the area between marginal revenue and quantity

• As the area between average total cost and quantity

What happens to a firm's total revenue if it raises its price in a perfectly competitive market?

• Total revenue increases

• Total revenue decreases slightly

• Total revenue drops to zero

• Total revenue remains unchanged

Why can't firms in a perfectly competitive market raise their prices?

• Because they have high production costs

• Because products are undifferentiated

• Because consumers are loyal to brands

• Because they have unique products

What is the role of consumers in a perfectly competitive market?

• They buy from the firm offering the lowest price

• They choose the highest priced product

• They set the market price

• They buy from the firm with the best marketing

In a perfectly competitive market, what is the consequence of product differentiation?

• It results in zero economic profit

• It leads to higher prices

• It causes firms to become price makers

• It does not exist; products are identical