Question 1

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

Accepted Answer

Firms can influence the market price.

Question 2

Why does a perfectly competitive firm face a horizontal demand curve?

Accepted Answer

Because the firm is too small to affect the market price.

Question 3

Suppose a wheat farmer can sell any quantity of wheat at $7 per bushel. What is the marginal revenue (MR) from selling one more bushel?

Accepted Answer

$7

Question 4

A firm in a perfectly competitive market maximizes profit by producing the quantity where:

Accepted Answer

$$MC = MR$$

Question 5

If a firm’s price is below its average variable cost ($$P \u003c AVC$$), what should the firm do in the short run?

Accepted Answer

Shut down and produce zero output.

Question 6

Which of the following best describes economic profit?

Accepted Answer

Total revenue minus both explicit and implicit costs.

Question 7

In the long run, what happens if firms in a perfectly competitive market are earning positive economic profits?

Accepted Answer

New firms enter, increasing supply and lowering prices.

Question 8

Which equation correctly represents the condition for a perfectly competitive firm to break even?

Accepted Answer

$$P = ATC$$

Question 9

A cage-free egg farmer earns an economic profit in the short run. What is the likely long-run outcome in this market?

Accepted Answer

Other farmers enter, increasing supply and reducing price until profit is zero.

Question 10

If the market price is $$2$$ per dozen eggs and the average total cost is $$2.50$$, what is the firm’s profit per dozen?

Accepted Answer

$$0.50$$ loss per dozen

Question 11

Which of the following best describes productive efficiency?

Accepted Answer

Producing at the lowest possible cost.

Question 12

Allocative efficiency occurs in a perfectly competitive market when:

Accepted Answer

The last unit provides a marginal benefit to consumers equal to the marginal cost of producing it.

Question 13

Which of the following is a sunk cost for a firm deciding whether to shut down in the short run?

Accepted Answer

Fixed costs

Question 14

In a perfectly competitive market, the long-run supply curve is:

Accepted Answer

Horizontal at the minimum point of the average cost curve.

Question 15

Suppose the price of cage-free eggs falls below the minimum average variable cost for all farmers. What will happen in the short run?

Accepted Answer

Farmers will shut down production.

Question 16

Which of the following equations shows total profit for a perfectly competitive firm?

Accepted Answer

$$	ext{Total Profit} = (P - ATC) 	imes Q$$

Question 17

A sneaker reseller earns zero economic profit in the long run. What does this imply?

Accepted Answer

Total revenue equals both explicit and implicit costs.

Question 18

Which of the following best explains why perfectly competitive markets are allocatively efficient?

Accepted Answer

Firms produce where $$P = MC$$, so the value to consumers equals the cost of resources used.

Question 19

In an increasing-cost industry, the long-run supply curve is:

Accepted Answer

Upward sloping

Question 20

If a firm is producing at a quantity where $$P  AVC$$, what should the firm do in the short run?

Accepted Answer

Continue producing to minimize losses.

Ch.12 Firms in Perfectly Competitive Markets: Microeconomics Study Notes

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