Question 1

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

Accepted Answer

There are significant barriers to entry.

Question 2

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

Accepted Answer

Perfectly elastic because the firm's product is a perfect substitute for others.

Question 3

A perfectly competitive firm maximizes profit by producing the quantity at which:

Accepted Answer

$$MR(q) = MC(q)$$

Question 4

Suppose the market price for a product is $$20, and a perfectly competitive firm's average total cost at the profit-maximizing output is 18. $$What is the firm's economic profit per unit?

Accepted Answer

$$2$$

Question 5

If a perfectly competitive firm is producing at a price below its average variable cost, what should the firm do in the short run?

Accepted Answer

Shut down production temporarily.

Question 6

Which equation correctly represents a perfectly competitive firm's total revenue?

Accepted Answer

$$TR = P 	imes Q$$

Question 7

A firm in a perfectly competitive market is currently producing where $$MR \u003e MC. $$What should the firm do to maximize profit?

Accepted Answer

Increase output.

Question 8

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

Accepted Answer

New firms will enter, increasing supply and lowering price.

Question 9

At the shutdown point, which of the following is true for a perfectly competitive firm?

Accepted Answer

Price equals minimum average variable cost.

Question 10

If the market price is $$15, a firm's average variable cost is 17$$, and average total cost is $20 at the profit-maximizing output, what should the firm do in the short run?

Accepted Answer

Shut down because price is below average variable cost.

Question 11

Which of the following best describes the long-run equilibrium in a perfectly competitive market?

Accepted Answer

Firms make zero economic profit and price equals minimum average total cost.

Question 12

Suppose a technological advance lowers the marginal cost for all firms in a perfectly competitive market. In the long run, what is the most likely outcome?

Accepted Answer

Market supply increases, price falls, and firms make zero economic profit.

Question 13

A perfectly competitive firm faces the following costs at its profit-maximizing output: $$P = 25$$, $$ATC = 25$$, $$AVC = 20$$, $$MC = 25. $$What is the firm's economic profit?

Accepted Answer

$$0$$

Question 14

Which of the following is the correct shutdown condition for a perfectly competitive firm in the short run?

Accepted Answer

$$P \u003c AVC$$

Question 15

If a perfectly competitive firm is producing at a price between its average variable cost and average total cost, what is true?

Accepted Answer

The firm covers all variable costs and some fixed costs, but incurs a loss.

Question 16

Which of the following equations represents the profit ($$\pi) of a $$perfectly competitive firm?

Accepted Answer

$$\pi(q) = R(q) - C(q)$$

Question 17

A sudden increase in demand for a product in a perfectly competitive market will initially cause:

Accepted Answer

A higher market price and positive economic profits for existing firms.

Question 18

In the short run, the market supply curve in a perfectly competitive industry is:

Accepted Answer

The horizontal sum of all individual firms' supply curves.

Question 19

If a perfectly competitive firm is producing where $$P = MC \u003e ATC$$, what is true about the firm's profit?

Accepted Answer

The firm is making a positive economic profit.

Question 20

Which of the following best explains why perfect competition is considered efficient?

Accepted Answer

Resources are allocated so that $$P = MC$$, maximizing total surplus.

Perfect Competition: Price, Output, and Firm Decisions in Microeconomics

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