Q: Which equation correctly expresses total profit for a perfectly competitive firm?

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

Question 1

Which of the following best describes a perfectly competitive market?

Accepted Answer

A market with many firms selling identical products and no barriers to entry.

Question 2

Suppose a wheat farmer faces a market price of $7 per bushel. If the farmer increases output from 6,000 to 15,000 bushels, what happens to the price received per bushel?

Accepted Answer

The price per bushel remains the same.

Question 3

In a perfectly competitive market, the profit-maximizing rule for output is:

Accepted Answer

$$MR = MC$$

Question 4

If a firm in a perfectly competitive market is producing at a level where $$P  AVC$$, what should the firm do in the short run?

Accepted Answer

Continue producing to minimize losses.

Question 5

Which equation correctly expresses total profit for a perfectly competitive firm?

Accepted Answer

$$Profit = (P - ATC) 	imes Q$$

Question 6

A firm should shut down in the short run if:

Accepted Answer

$$P \u003c AVC$$

Question 7

What happens in the long run if firms in a perfectly competitive market are earning economic profits?

Accepted Answer

New firms enter the market, increasing supply and lowering prices.

Question 8

Which of the following is an implicit cost for a farmer running her own business?

Accepted Answer

The opportunity cost of her forgone salary elsewhere.

Question 9

If the market price is equal to the minimum point on the long-run average cost curve, what is true about the typical firm in a perfectly competitive market?

Accepted Answer

The firm is breaking even.

Question 10

Which of the following best describes productive efficiency?

Accepted Answer

Producing at the lowest possible cost.

Question 11

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

Accepted Answer

Its marginal cost curve above the minimum point of AVC.

Question 12

If the price of cage-free eggs falls below the average variable cost for all farmers, what will happen in the short run?

Accepted Answer

Farmers will temporarily shut down production.

Question 13

Which of the following is true about allocative efficiency in a perfectly competitive market?

Accepted Answer

Firms produce up to the point where $$P = MC.$$

Question 14

Suppose the demand for cage-free eggs increases. In the long run, what will happen to the price and quantity in a perfectly competitive market?

Accepted Answer

Price rises temporarily, then returns to break-even as quantity increases.

Question 15

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

Accepted Answer

Upward-sloping.

Question 16

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 17

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

Accepted Answer

Growing wheat.

Question 18

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

Accepted Answer

Shut down immediately.

Question 19

Which of the following statements about long-run equilibrium in a perfectly competitive market is correct?

Accepted Answer

Firms break even, earning zero economic profit.

Question 20

Why do economic profits in a perfectly competitive market tend to disappear in the long run?

Accepted Answer

Entry of new firms increases supply, lowering price to the break-even level.

Perfect Competition: Theory, Application, and Efficiency

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