An individual finds that the price of artichokes, a food she dislikes, has been reduced by 50 percent. The following two questions are based on the data below, which give cost information for a perfectly competitive firm. The diagram above shows a perfectly competitive firm's short-run cost curves. The demand for its product is a downward-sloping function. The firm will earn zero economic profits in long-run equilibrium.
Advertising is an important tool of the firm.
The firm will increase its total economic profits if it charges a price that is lower than the market price. The marginal revenue the firm receives from selling an additional unit of output will be different from the price at which it sells that unit. The inclusion of source material in this examination is not intended as an endorsement by the College Board or Educational Testing Service of the content, ideas, or values expressed in the material. The material has been selected by the economics faculty who serve on the Committee of Examiners. In their judgment, these materials reflect various aspects of the course of study on which this examination is based and are therefore appropriate to use to measure the students' skills and knowledge of this course.