$$\text{Total Profit} = (P - ATC) \times Q$$

Question 1

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

Accepted Answer

Firms have significant control over the market price.

Question 2

In a perfectly competitive market, why does a firm face a horizontal demand curve?

Accepted Answer

Because the firm is too small to affect the market price and sells an identical product.

Question 3

A wheat farmer in a perfectly competitive market will maximize profit by producing the quantity where:

Accepted Answer

Marginal cost equals marginal revenue.

Question 4

If the market price is $$7 per bushel and the marginal cost of producing the 7th bushel is also 7$$, what should the farmer do?

Accepted Answer

Produce exactly 7 bushels.

Question 5

Which formula correctly represents total profit for a firm in a perfectly competitive market?

Accepted Answer

$$	ext{Total Profit} = (P - ATC) 	imes Q$$

Question 6

A firm is breaking even if:

Accepted Answer

$$P = ATC$$

Question 7

If a firm’s price is below its average variable cost ($$P \u003c AVC$$), what should the firm do in the short run?

Accepted Answer

Shut down and produce zero units.

Question 8

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

Accepted Answer

The marginal cost curve above the minimum average variable cost.

Question 9

Economic profit in a perfectly competitive market leads to:

Accepted Answer

Entry of new firms, increasing supply and lowering price.

Question 10

If Sacha Gillette’s egg farm earns an economic profit, what will happen in the long run?

Accepted Answer

Other firms will enter the market, driving down the price and eliminating economic profit.

Question 11

Which equation represents the condition for long-run equilibrium in a perfectly competitive market?

Accepted Answer

$$P = MC = ATC$$

Question 12

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

Accepted Answer

Upward-sloping.

Question 13

Which of the following is an example of an implicit cost for a firm?

Accepted Answer

Foregone salary the owner could have earned elsewhere.

Question 14

Productive efficiency occurs when:

Accepted Answer

Goods are produced at the lowest possible cost.

Question 15

Allocative efficiency is achieved in a perfectly competitive market when:

Accepted Answer

The last unit produced provides a marginal benefit equal to the marginal cost.

Question 16

If the price of cage-free eggs falls below the minimum average variable cost, what will happen to the supply of eggs in the short run?

Accepted Answer

Farmers will shut down and supply zero eggs.

Question 17

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

Accepted Answer

It is horizontal at the minimum point of the average cost curve.

Question 18

A firm in a perfectly competitive market is making a loss but $$P \u003e AVC. $$What should the firm do in the short run?

Accepted Answer

Continue producing at the loss-minimizing output.

Question 19

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

Accepted Answer

Entry of new firms increases supply and drives down price.

Question 20

In a decreasing-cost industry, what happens to the long-run supply curve as output increases?

Accepted Answer

It slopes downward.

Firms in Perfectly Competitive Markets: Microeconomics Study Notes

Study Guide - Practice Questions