A competitive firm sells output at price ; production depends on capital alone, , twice differentiable with , , , , . The firm starts with capital stock and can buy or sell capital at price . If it maximises profit, which statement is NOT CORRECT?
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A competitive firm sells output at price P=1; production depends on capital alone, y=f(K), twice differentiable with f(0)=0, f′>0, f′′<0, lim_(K→0)f′(K)=∞, lim_(K→∞)f′(K)=0. The firm starts with capital stock K̄>0 and can buy or sell capital at price r. If it maximises profit, which statement is NOT CORRECT? (A) If K̄ is large enough, profit-maximising y=0 and the profit is rK̄ (B) If f′(K̄)>r, the firm will buy additional capital (C) If f′(K̄)<r, the firm will sell some of its capital (D) If f′(K̄)=r, the firm will neither buy nor sell any capital
Also written as: A competitive firm sells output at price P=1; production depends on capital alone, y=f(K), twice differentiable with f(0)=0, f'>0, f''<0, lim_(K->0)f'(K)= inf, lim_(K-> inf)f'(K)=0. The firm starts with capital stock K_bar>0 and can buy or sell capital at price r. If it maximises profit, which statement is NOT CORRECT?
Perfect competition has come up 115 times in 7 exams since 2006.
This question is on Profit maximisation and the competitive firm, part of Perfect competition in Microeconomics.
How a price-taking firm picks output where price equals marginal cost, and when it breaks even or shuts down.
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Question from the IIT JAM 2023 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.