Q1.
1. What is the difference between accounting profit and economic profit? How could a firm earn positive accounting profit but negative economic profit?
2. Why is the marginal revenue of a perfectly competitive firm equal to the market price?
Q2.
1. Would a perfectly competitive firm produce if price were less than the minimum level of average variable cost? Would it produce if price were less than the minimum level of short-run average cost?
2. What is the shutdown price when all fixed costs are sunk? What is the shutdown price when all fixed costs are nonsunk?
Q3.
How does the price elasticity of supply affect changes in the short-run equilibrium price that results from an exogenous shift in the market demand curve?