Question 1

A perfectly competitive firm will maximize its profit by producing the quantity of output where which of the following conditions is met?

Accepted Answer

Where $$P = MC$$

Question 2

If a firm’s total revenue is less than its total variable cost, what is the best short-run decision for the firm?

Accepted Answer

Shut down and bear losses equal to fixed costs

Question 3

Which of the following best describes the shutdown point for a firm?

Accepted Answer

The point where price equals average variable cost

Question 4

In the short run, the supply curve of a perfectly competitive firm is:

Accepted Answer

The portion of the marginal cost curve above the average variable cost curve

Question 5

Suppose three identical firms each supply 150 units at a price of $6. What is the total industry supply at this price?

Accepted Answer

450 units

Question 6

Which of the following is true about economies of scale?

Accepted Answer

Average costs decrease as output increases

Question 7

What is the minimum efficient scale (MES)?

Accepted Answer

The smallest size at which the long-run average cost curve is at its minimum

Question 8

A firm faces diseconomies of scale when:

Accepted Answer

Average cost increases with scale of production

Question 9

If a firm is operating at the optimal scale of plant, what is true about its long-run average cost?

Accepted Answer

It is at its minimum

Question 10

In a long-run competitive equilibrium, which of the following conditions holds?

Accepted Answer

$$P = SRMC = SRAC = LRAC$$

Question 11

If an industry experiences external economies as it grows, what happens to its long-run industry supply curve?

Accepted Answer

It slopes downward

Question 12

Which of the following best describes a constant-cost industry?

Accepted Answer

Average costs remain unchanged as the industry grows

Question 13

A sandwich at an airport is more expensive than elsewhere. According to economic theory, what would happen if another airport opened nearby?

Accepted Answer

Airport A would have to lower rents, making food prices cheaper

Question 14

If a firm is earning economic profits in the short run, what is likely to happen in the long run in a perfectly competitive industry?

Accepted Answer

New firms will enter, increasing supply and reducing profits

Question 15

Which equation correctly expresses total cost in terms of average total cost and quantity?

Accepted Answer

$$TC = ATC 	imes q$$

Question 16

In the context of mobile services, carriers benefit from economies of scale primarily by:

Accepted Answer

Reducing per-unit costs as the number of customers increases

Question 17

If a school district expands the number of students without increasing fixed costs, what is the likely effect on average cost per student?

Accepted Answer

Average cost per student decreases

Question 18

Why are firms unlikely to operate at output levels where the long-run average cost curve slopes upward?

Accepted Answer

Because higher costs reduce profitability and competitiveness

Question 19

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

Accepted Answer

Firms are constrained by their scale of operation

Question 20

In a decreasing-cost industry, what happens to the final equilibrium price after industry expansion?

Accepted Answer

It falls below the initial price

Long-Run Costs and Output Decisions in Perfect Competition

Study Guide - Practice Questions