Question 1

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

Accepted Answer

There are barriers to entry and exit in the market.

Question 2

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

Accepted Answer

$$MR = MC$$

Question 3

If the market price falls below a firm's average variable cost, what should the firm do in the short run according to the shutdown rule?

Accepted Answer

Shut down production immediately.

Question 4

Which of the following best describes the law of diminishing returns?

Accepted Answer

After a certain point, each additional worker contributes less output than the previous worker.

Question 5

A bakery is considering whether to stay open or shut down in the short run. The market price of bread is $$\2$ per loaf, average variable cost is $$\$$1.80$$, and average total cost is $$\2.20$. What should the bakery do?

Accepted Answer

Continue operating because price exceeds average variable cost.

Question 6

Which formula correctly calculates average total cost (ATC)?

Accepted Answer

$$ATC = \frac{Total\ cost}{Quantity}$$

Question 7

Suppose a firm’s total revenue is $$\10$$,000$$, explicit costs are $$\$$7,000$$, and implicit costs are $$\2$$,000$. What is the firm’s economic profit?

Accepted Answer

$$\1$$,000$

Question 8

Which of the following best describes producer surplus?

Accepted Answer

The difference between the market price and the supply curve.

Question 9

If the price elasticity of demand for a product is greater than 1, what does this imply?

Accepted Answer

Demand is elastic; quantity demanded changes by a greater percentage than price.

Question 10

A firm’s marginal cost (MC) is $$\5$ at the profit-maximizing output. If the market price is $$\$$5$$, what should the firm do?

Accepted Answer

Produce at this output, since $$MC = P in $$perfect competition.

Question 11

Which of the following is an example of an opportunity cost?

Accepted Answer

The salary you give up to attend college instead of working.

Question 12

If a firm’s total cost is $$\1$$,000$ and it produces 100 units, what is its average total cost?

Accepted Answer

$$ATC = \frac{1000}{100} = \10$

Question 13

Which of the following best explains why firms in perfectly competitive markets are price takers?

Accepted Answer

Each firm’s output is small relative to the total market, so no single firm can influence the price.

Question 14

Suppose the market for wheat is perfectly competitive. If the market price rises, what will happen in the long run?

Accepted Answer

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

Question 15

Which of the following is the correct formula for percentage change?

Accepted Answer

$$\frac{new - old}{old} 	imes 100$$

Question 16

A firm’s fixed costs are $$\500$ and its variable costs are $$\$$1,000 at an $$output of 100 units. What is the average fixed cost?

Accepted Answer

$$AFC = \frac{500}{100} = \5$

Question 17

Which of the following statements about marginal cost (MC) is correct?

Accepted Answer

Marginal cost is the change in total cost from producing one more unit of output.

Question 18

If a firm’s total revenue is $$\2$$,000$ and it sells 200 units, what is the price per unit?

Accepted Answer

$$P = \frac{2000}{200} = \10$

Question 19

Which of the following is NOT a characteristic of physical capital?

Accepted Answer

It includes the skills and knowledge of workers.

Question 20

In the context of perfect competition, what is the main goal of the seller?

Accepted Answer

To maximize profits.

Perfect Competition and Cost Analysis in Microeconomics

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