Question 1

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

Accepted Answer

Firms produce differentiated products.

Question 2

A competitive firm maximizes profit by producing the quantity where:

Accepted Answer

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

Question 3

In the short run, a competitive firm should shut down if:

Accepted Answer

$$P \u003c AVC_{min}$$

Question 4

Suppose the market price is $$6.50, the minimum average variable cost is 5.00$$, and the minimum average total cost is $6.00. What will a competitive firm do in the short run?

Accepted Answer

Produce and earn a profit.

Question 5

The short-run supply curve of a competitive firm is:

Accepted Answer

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

Question 6

If all firms in a market are identical, the short-run market supply curve is:

Accepted Answer

The horizontal sum of the individual firms' supply curves.

Question 7

In the long run, a competitive firm will exit the market if:

Accepted Answer

$$P \u003c AC_{min}$$

Question 8

Which of the following best describes the long-run market supply curve in a perfectly competitive market with identical firms and free entry?

Accepted Answer

It is horizontal at the minimum long-run average cost.

Question 9

If the government imposes a price ceiling below the equilibrium price in a perfectly competitive market, what is the likely outcome?

Accepted Answer

Quantity supplied will decrease, and a deadweight loss will occur.

Question 10

Consumer surplus is best described as:

Accepted Answer

The area below the demand curve and above the market price up to the quantity consumed.

Question 11

Producer surplus is:

Accepted Answer

The area above the supply curve and below the market price up to the quantity sold.

Question 12

Total surplus in a market is maximized when:

Accepted Answer

The market is perfectly competitive and output is at the equilibrium level.

Question 13

Deadweight loss is:

Accepted Answer

The net reduction in total surplus from an action that alters market equilibrium.

Question 14

Suppose a new tax increases the price of a good from $$30$$¢ to $$32$$¢ per unit. If the consumer surplus falls from $$A+B+C to$$ $$A$$, what is the loss in consumer surplus?

Accepted Answer

$$B + C$$

Question 15

If a competitive firm faces a market price below its minimum average variable cost, what is its optimal short-run decision?

Accepted Answer

Shut down and produce zero output.

Question 16

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

Accepted Answer

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

Question 17

Which of the following is true about the demand curve facing a perfectly competitive firm?

Accepted Answer

It is perfectly elastic at the market price.

Question 18

A government policy that limits trade in a competitive market will:

Accepted Answer

Reduce total surplus and create a deadweight loss.

Question 19

If the market supply curve is the horizontal sum of individual supply curves, what happens to the market supply curve as more identical firms enter the market?

Accepted Answer

It becomes flatter.

Question 20

Which of the following best explains why perfect competition is used as a benchmark in economics?

Accepted Answer

It maximizes economic well-being by maximizing total surplus.

Competitive Firms and Markets: Perfect Competition and Economic Well-Being

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