Question 1

Which of the following is NOT a characteristic of a perfectly competitive market?

Accepted Answer

Each firm has significant control over the market price.

Question 2

Suppose a competitive firm faces a market price of $$10 per unit. If the firm's marginal cost at 50 units is 8 $$and at 51 units is $12, what should the firm do to maximize profit?

Accepted Answer

Keep output at 50 units.

Question 3

In the short run, a competitive firm will shut down production if:

Accepted Answer

$$P \u003c AVC$$

Question 4

A competitive firm’s supply curve in the short run is:

Accepted Answer

Its marginal cost curve above the average variable cost curve.

Question 5

If a competitive firm is producing at a quantity where $$P = MC = ATC$$, what is the firm’s economic profit?

Accepted Answer

Zero

Question 6

Which of the following best explains why fixed costs are considered sunk costs in the short run?

Accepted Answer

They do not affect the shutdown decision because they have already been incurred.

Question 7

A competitive firm’s profit can be calculated as:

Accepted Answer

$$\(P - $$ATC) \times Q\$$

Question 8

In the long run, if firms in a competitive market are making positive economic profits, what will happen?

Accepted Answer

New firms will enter the market, causing price to fall.

Question 9

Why is the long-run supply curve in a competitive market typically more elastic than the short-run supply curve?

Accepted Answer

Firms can adjust all inputs and new firms can enter or exit the market.

Question 10

Suppose the market price falls below a competitive firm’s average variable cost. What is the firm’s best short-run decision?

Accepted Answer

Shut down production immediately.

Question 11

If a competitive firm’s total revenue is less than its total cost, but greater than its variable cost, what should the firm do in the short run?

Accepted Answer

Continue operating to cover some fixed costs.

Question 12

Which of the following scenarios would cause the long-run market supply curve to slope upward?

Accepted Answer

Firms have different costs or input prices rise as more firms enter.

Question 13

A competitive firm’s marginal cost curve crosses its average total cost curve at:

Accepted Answer

The minimum of the average total cost curve.

Question 14

If the market price is $$8, the average variable cost is 6$$, and the average total cost is $10 at the profit-maximizing output, what should a competitive firm do in the short run and long run?

Accepted Answer

Continue operating in the short run but exit in the long run.

Question 15

Which of the following best describes the process of entry and exit in a perfectly competitive market in the long run?

Accepted Answer

Firms enter when $$P \u003e ATC$$ and exit when $$P \u003c ATC.$$

Question 16

A competitive firm’s marginal revenue is always equal to:

Accepted Answer

The market price.

Question 17

Suppose a competitive firm’s marginal cost curve is upward sloping and its average variable cost curve is U-shaped. At what point does the firm maximize profit?

Accepted Answer

Where marginal cost equals marginal revenue.

Question 18

If a competitive firm is earning zero economic profit, what does this imply about its accounting profit?

Accepted Answer

Accounting profit is positive.

Question 19

After an increase in market demand, what happens to price and quantity in the short run and long run in a perfectly competitive market?

Accepted Answer

Short run: price and quantity rise; long run: price returns to original level, quantity rises.

Question 20

Which of the following is a real-world example of a sunk cost for a firm like Walmart deciding whether to stay open all night?

Accepted Answer

The rent paid for the building.

Firms in Competitive Markets: Perfect Competition and Supply Decisions

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