Question 21
Market StructuresA firm operates under perfect competition. In the short run, which of the following are TRUE?
I. The firm is a price taker
II. Economic profit may be positive, zero, or negative.
III. Price equals marginal revenue
IV. The firm sets its own price above marginal cost
- A.I, II and III only
- B.I and IV only
- C.II and IV only
- D.All of the above
Show the answer and explanation
Answer: A (I, II and III only)
Explanation
A perfectly competitive firm takes the market price, so P = MR, and in the short run it can make profit, break even or lose. Setting its own price is what imperfect competitors do.