Are the following statements True or False? a) Competitive market equilibrium price, P, corresponds to marginal revenue, MR, for individual firms

a) This statement is true. Competitive firms are price-takers who face a horizontal demand curve at the market price. Therefore, regardless of the quantity the firm sells, it always has to charge the same price. Therefore P=MR=AR.

b) This statement is false. If MC > MR, the firm is selling too many units and should reduce its production. As MC is typically upward sloping, reducing production will improve the firm?s profits by reducing marginal costs. Quantity declines until MC=MR at which point the firm is maximizing profits.

c) This statement is true. When MPL is rising, workers are becoming more productive and APL is below MPL. For example, suppose that MPL is rising as follows: 5,10,15. APL can be calculated to be: 5, 7.5, 10. Clearly, APL is below MPL whenever MPL is rising.

d) This statement is true. If price is below AVC, the firm should shut down as its operation cannot even cover the average costs. For example if a restaurant is open for lunch, it make sense to stay open as long as revenues can cover the variable costs ? worker salaries, chef, food, etc.