$$TR = 7 \times 10,000 = 70,000$$

Question 1

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

Accepted Answer

Firms sell differentiated products.

Question 2

In a perfectly competitive market, what is the relationship between price ($$P$$), average revenue ($$AR$$), and marginal revenue ($$MR$$)?

Accepted Answer

$$P = AR = MR$$

Question 3

Suppose a wheat farmer faces a market price of $$7$$ per bushel. If the farmer sells 10,000 bushels, what is the total revenue ($$TR$$)?

Accepted Answer

$$TR = 7 	imes 10,000 = 70,000$$

Question 4

A firm in a perfectly competitive market maximizes profit by producing the quantity where:

Accepted Answer

$$MR = MC$$

Question 5

If the market price is below a firm's average variable cost ($$AVC$$), what should the firm do in the short run?

Accepted Answer

Shut down and produce zero output.

Question 6

Which formula correctly calculates a firm's profit per unit?

Accepted Answer

$$Profit\ per\ unit = P - ATC$$

Question 7

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

Accepted Answer

New firms enter, increasing supply and driving price down to break-even.

Question 8

Which of the following best describes allocative efficiency in a perfectly competitive market?

Accepted Answer

Goods are produced up to the point where $$P = MC$$ and marginal benefit equals marginal cost.

Question 9

If a firm’s price ($$P) is $$equal to its average total cost ($$ATC) at $$the profit-maximizing output, the firm is:

Accepted Answer

Breaking even (zero economic profit).

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

A firm in a perfectly competitive market will supply output according to its marginal cost curve only for prices:

Accepted Answer

At or above the minimum point of average variable cost ($$AVC).$$

Question 12

If a firm in a perfectly competitive market is experiencing losses, what is the correct rule for minimizing losses?

Accepted Answer

Produce where $$MR = MC as $$long as $$P \geq AVC.$$

Question 13

Which equation represents the total profit for a firm?

Accepted Answer

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

Question 14

In the long run, the supply curve in a perfectly competitive market is:

Accepted Answer

Horizontal at the minimum point of the average cost curve.

Question 15

Which of the following best explains why cage-free egg farmers could not sustain high profits in the long run?

Accepted Answer

Entry of new farmers increased supply, driving prices down.

Question 16

Productive efficiency in a perfectly competitive market means:

Accepted Answer

Goods are produced at the lowest possible cost.

Question 17

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

Accepted Answer

Firms will shut down and supply will decrease.

Question 18

Which of the following is true about the role of the 'invisible hand' in a perfectly competitive market?

Accepted Answer

Individual actions lead to market outcomes that maximize efficiency without central coordination.

Question 19

A firm is producing where $$MR = MC$$ and $$P  AVC. $$What is the firm's short-run situation?

Accepted Answer

The firm is making a loss but should continue producing.

Question 20

Which of the following market structures has the highest degree of competitiveness?

Accepted Answer

Perfect competition

Firms in Perfectly Competitive Markets: Structure, Profit Maximization, and Efficiency

Study Guide - Practice Questions