Q: Which formula correctly expresses profit maximization for a perfectly competitive firm?

$$\text{Profit} = (P - ATC) \times Q$$

Question 1

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

Accepted Answer

Firms can set the market price for their product.

Question 2

In a perfectly competitive market, the demand curve facing an individual firm is:

Accepted Answer

Horizontal at the market price because the firm is a price taker.

Question 3

Suppose a donut shop in a perfectly competitive market has total costs (TC) of $$3,200 per week and sells 1,000 donuts per week at 4 $$each. What is the shop’s weekly profit?

Accepted Answer

$800

Question 4

Which formula correctly expresses profit maximization for a perfectly competitive firm?

Accepted Answer

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

Question 5

A firm should continue to operate in the short run as long as:

Accepted Answer

$$P \geq AVC$$

Question 6

If the market price is $$2, average variable cost (AVC) is 1.50$$, and average total cost (ATC) is $2.50, what should a perfectly competitive firm do in the short run?

Accepted Answer

Continue to produce because $$P \geq AVC$$ even though it is making a loss.

Question 7

Which of the following best describes allocative efficiency in a perfectly competitive market?

Accepted Answer

Production occurs where $$P = MC$$ and reflects consumer preferences.

Question 8

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

Accepted Answer

New firms will enter the market, driving profits to zero.

Question 9

Which cost formula is correct for average total cost (ATC)?

Accepted Answer

$$ATC = AFC + AVC$$

Question 10

A firm’s marginal cost (MC) curve above average variable cost (AVC) represents:

Accepted Answer

The firm’s short-run supply curve.

Question 11

If a firm’s total revenue (TR) is less than its variable cost (VC) in the short run, what should the firm do?

Accepted Answer

Shut down production immediately.

Question 12

Which of the following is true about economic profit in the long run for a perfectly competitive firm?

Accepted Answer

Economic profit equals zero due to free entry and exit.

Question 13

Suppose the market for oranges is in long-run equilibrium. If demand decreases, what will happen in the short run?

Accepted Answer

Some firms will incur losses but may continue to operate if $$P \geq AVC.$$

Question 14

Which of the following is the correct formula for marginal cost (MC)?

Accepted Answer

$$MC = \frac{\Delta TC}{\Delta Q}$$

Question 15

A perfectly competitive firm is producing where $$P = MC = ATC. $$What is the firm’s economic profit?

Accepted Answer

Zero

Question 16

Which of the following best describes productive efficiency?

Accepted Answer

Producing at the lowest point of the average total cost (ATC) curve.

Question 17

If a firm’s marginal revenue (MR) is greater than its marginal cost (MC), what should the firm do to maximize profit?

Accepted Answer

Increase output.

Question 18

Which of the following is true about the relationship between price, marginal revenue, and average revenue for a perfectly competitive firm?

Accepted Answer

$$P = MR = AR$$

Question 19

A restaurant market is best described as which type of market structure?

Accepted Answer

Monopolistic competition

Question 20

Which of the following is a real-world example of a perfectly competitive market?

Accepted Answer

Wheat farming

Firms in Perfectly Competitive Markets: Structure, Profit Maximization, and Efficiency

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