Question 1

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

Accepted Answer

There are significant barriers to entry and exit.

Question 2

In a perfectly competitive market, what does the demand curve facing an individual firm look like?

Accepted Answer

It is perfectly elastic at the market price.

Question 3

Suppose a soybean farmer operates in a perfectly competitive market. If the market price falls below the farmer's minimum average variable cost, what should the farmer do in the short run?

Accepted Answer

Shut down production temporarily and produce zero output.

Question 4

Which equation correctly represents the profit-maximizing condition for a perfectly competitive firm?

Accepted Answer

$$P = MR = MC$$

Question 5

If a perfectly competitive firm is producing where $$P = MR = MC \u003e ATC$$, what is the firm experiencing?

Accepted Answer

Economic profit

Question 6

A firm in perfect competition finds that at its profit-maximizing output, $$P = MR = MC \u003c AVC. $$What should the firm do?

Accepted Answer

Shut down temporarily and produce zero output.

Question 7

In the long run, what happens to the economic profit of firms in a perfectly competitive industry?

Accepted Answer

It becomes zero due to entry and exit of firms.

Question 8

Which of the following best describes the short-run supply curve of a perfectly competitive firm?

Accepted Answer

The portion of the marginal cost curve above the minimum average variable cost.

Question 9

If a perfectly competitive industry is currently incurring losses, what is likely to happen in the long run?

Accepted Answer

Firms will exit, supply will decrease, and price will rise until losses are eliminated.

Question 10

Which of the following is true about resource allocation in a perfectly competitive market with no externalities?

Accepted Answer

Marginal benefit equals marginal cost at equilibrium.

Question 11

A firm in a perfectly competitive market has the following costs at its profit-maximizing output: $$ATC = 20$$, $$AVC = 15$$, $$MC = 18$$, and the market price is $$18. $$What is the firm's economic profit?

Accepted Answer

Negative, since $$P \u003c ATC$$

Question 12

In a perfectly competitive market, what happens when new, cost-saving technology is adopted by some firms?

Accepted Answer

Their costs decrease, supply increases, and market price falls.

Question 13

Which of the following best describes a constant-cost industry in the long run?

Accepted Answer

The long-run supply curve is perfectly elastic.

Question 14

If external economies exist in an industry, what is the shape of the long-run supply curve?

Accepted Answer

Downward sloping

Question 15

Which formula correctly calculates a firm's total revenue in a perfectly competitive market?

Accepted Answer

$$TR = P 	imes Q$$

Question 16

A firm in a perfectly competitive market is producing at the shutdown point. Which of the following is true?

Accepted Answer

$$P = MR = MC = AVC$$

Question 17

If a firm in perfect competition is producing where $$AVC \u003c P = MR = MC \u003c ATC$$, what is the firm's situation?

Accepted Answer

The firm is incurring an economic loss but will continue to produce.

Question 18

Which of the following is a direct result of perfect information in a perfectly competitive market?

Accepted Answer

All buyers and sellers have equal access to costless information about prices and products.

Question 19

In a perfectly competitive market, what is the marginal revenue for a firm selling an additional unit?

Accepted Answer

Equal to the market price

Question 20

Which of the following statements about Adam Smith's 'invisible hand' in perfect competition is correct?

Accepted Answer

Self-interested buyers and sellers unintentionally promote society's best interest.

Perfect Competition: Structure, Profit Maximization, and Efficiency

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