Question 1

In the short run, a perfectly competitive firm will choose to continue operating even if it is making a loss as long as which of the following conditions is met?

Accepted Answer

$$ATR \u003e AVC$$

Question 2

Suppose a perfectly competitive firm faces a market price $$p^* = 10$$ and its average variable cost at $$q^* = 4 is$$ $$AVC(q^*) = 6.5. $$What is the firm's economic profit at this output if total cost $$TC = 46$$ and total revenue $$TR = 40$$?

Accepted Answer

$$-6$$

Question 3

What is the 'shut down point' for a perfectly competitive firm in the short run?

Accepted Answer

The output level where $$p^* = \min AVC$$

Question 4

If the market price falls below the minimum average variable cost, what should a perfectly competitive firm do in the short run?

Accepted Answer

Shut down production immediately

Question 5

In the long-run equilibrium of a perfectly competitive market, which of the following is true?

Accepted Answer

$$p^* = MR = MC = ATC = \min(ATC)$$

Question 6

Which of the following best explains why economic profits are zero in the long-run equilibrium of a perfectly competitive market?

Accepted Answer

Free entry and exit of firms drive profits to zero

Question 7

A firm in a perfectly competitive market is currently producing where $$MR = MC$$ but $$p^* \u003c AVC. $$What should the firm do?

Accepted Answer

Shut down in the short run

Question 8

If a perfectly competitive firm is producing at $$q^*$$ where $$p^* = MC = ATC$$, what is the firm's economic profit?

Accepted Answer

$$0$$

Question 9

Which of the following statements about allocative efficiency in perfect competition is correct?

Accepted Answer

In long-run equilibrium, price equals marginal cost, ensuring allocative efficiency

Question 10

Suppose in the short run, a firm’s total fixed cost is $$20$$, total variable cost at $$q = 4 is$$ $$26$$, and total revenue at $$q = 4 is$$ $$40. $$What is the firm’s profit at this output?

Accepted Answer

$$-6$$

Question 11

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

Accepted Answer

New firms will enter, increasing supply and lowering price until profits are zero

Question 12

Which of the following is NOT a characteristic of perfect competition?

Accepted Answer

Firms can influence market price

Question 13

A perfectly competitive firm’s short-run supply curve is best described as:

Accepted Answer

The portion of its marginal cost curve above the minimum AVC

Question 14

If a firm’s total cost at $$q = 0 is$$ $$20$$ and at $$q = 4 is$$ $$46$$, what is the average variable cost at $$q = 4$$?

Accepted Answer

$$6.5$$

Question 15

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

Accepted Answer

Entry and exit of firms adjust market supply until economic profits are zero

Question 16

If a perfectly competitive firm’s marginal cost is $$10$$ and the market price is $$10$$, what should the firm do?

Accepted Answer

Continue producing at the current output

Question 17

Which of the following is true about fixed costs in the short run for a perfectly competitive firm?

Accepted Answer

They are sunk and must be paid even if the firm shuts down

Question 18

Suppose a firm’s total revenue is less than its total variable cost at all output levels. What should the firm do?

Accepted Answer

Shut down immediately

Question 19

In perfect competition, what does the market price represent in terms of social welfare?

Accepted Answer

The marginal benefit to society of the good

Question 20

If a perfectly competitive firm is producing at a level where $$TR = VC$$, what can be said about its decision to operate?

Accepted Answer

The firm is indifferent between operating and shutting down

Perfect Competition: Short-Run and Long-Run Analysis

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