Q: Which equation correctly represents a perfectly competitive firm's profit?

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

Question 1

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

Accepted Answer

There are significant barriers to entry.

Question 2

In a perfectly competitive market, why does a single 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

Suppose a wheat farmer in a perfectly competitive market is deciding how much to produce. Which rule should the farmer follow to maximize profit?

Accepted Answer

Produce where $$MC = MR$$

Question 4

A perfectly competitive firm 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 represents a perfectly competitive firm's profit?

Accepted Answer

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

Question 6

If a perfectly competitive firm is producing where $$P = MC = ATC$$, what is the firm's economic profit?

Accepted Answer

Zero

Question 7

In the long run, what happens if firms in a perfectly competitive market are earning positive economic profits?

Accepted Answer

New firms will enter, increasing supply and driving price down.

Question 8

Which of the following best describes the long-run supply curve in a constant-cost perfectly competitive industry?

Accepted Answer

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

Question 9

A firm in a perfectly competitive market is considering shutting down in the short run. Which condition must be true for shutdown to be optimal?

Accepted Answer

$$P \u003c AVC$$

Question 10

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

Accepted Answer

Foregone salary from another job

Question 11

Suppose the market for cage-free eggs is initially in long-run equilibrium. A sudden increase in consumer demand raises the price. What will happen in the long run?

Accepted Answer

New firms will enter, increasing supply and driving price back to the break-even level.

Question 12

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

Accepted Answer

Perfect competition achieves both productive and allocative efficiency in the long run.

Question 13

In a perfectly competitive market, what does the price of a good represent for consumers?

Accepted Answer

The marginal benefit consumers receive from the last unit consumed

Question 14

Which of the following best explains why economic profit in a perfectly competitive market is zero in the long run?

Accepted Answer

Entry and exit of firms drive the price to the minimum average total cost.

Question 15

A sneaker reseller finds that profits have disappeared as more people enter the market. This is an example of:

Accepted Answer

Long-run competitive equilibrium

Question 16

If a perfectly competitive firm is producing at a level where $$MC \u003c MR$$, what should the firm do to maximize profit?

Accepted Answer

Increase output

Question 17

Which of the following is true about sunk costs in the shutdown decision?

Accepted Answer

Sunk costs are irrelevant to the shutdown decision because they cannot be recovered.

Question 18

In an increasing-cost industry, what does the long-run supply curve look like?

Accepted Answer

Upward sloping

Question 19

Which of the following real-world markets is most likely to be closest to perfectly competitive?

Accepted Answer

Wheat farming

Question 20

A firm in a perfectly competitive market is currently producing where $$P = MC \u003e ATC. $$What is the firm's situation?

Accepted Answer

The firm is making a profit.

Firms in Perfectly Competitive Markets: Microeconomics Chapter 12 Study Notes

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