Question 1

In a perfectly competitive market, what does it mean for a firm to be a 'price taker'?

Accepted Answer

The firm has no influence over the market price and must accept the prevailing market price.

Question 2

Which of the following is a necessary condition for perfect competition?

Accepted Answer

Homogeneous products that are perfect substitutes.

Question 3

If a firm in a perfectly competitive market faces a market price below its average variable cost, what should the firm do in the short run?

Accepted Answer

Shut down production.

Question 4

Which equation represents profit ($$\Pi) $$for a firm?

Accepted Answer

$$\Pi(q) = R(q) - C(q)$$

Question 5

At the profit-maximizing level of output for a perfectly competitive firm, which condition must be satisfied?

Accepted Answer

$$MR(q) = MC(q)$$

Question 6

Suppose the marginal cost of production for a firm increases due to a rise in input prices. What is the likely effect on the firm's profit-maximizing output?

Accepted Answer

The firm will decrease output to where the new marginal cost equals marginal revenue.

Question 7

Which of the following best describes 'producer surplus'?

Accepted Answer

The sum over all units produced of the difference between the market price and the marginal cost of production.

Question 8

If the market price is $$P$$ and a perfectly competitive firm chooses output $$q^*$$, which equation must be true at the profit-maximizing point?

Accepted Answer

$$MC(q^*) = MR(q^*) = P$$

Question 9

Which of the following is NOT a feature of perfect competition?

Accepted Answer

Significant barriers to entry.

Question 10

A firm should continue producing in the short run as long as:

Accepted Answer

Price is greater than average variable cost.

Question 11

Which of the following best explains why a perfectly competitive firm faces a horizontal demand curve?

Accepted Answer

The firm can sell any quantity at the market price without affecting the price.

Question 12

If marginal revenue ($$MR) is $$less than marginal cost ($$MC) at a $$given output, what should a profit-maximizing firm do?

Accepted Answer

Decrease output.

Question 13

Which formula correctly expresses the condition for profit maximization in terms of derivatives?

Accepted Answer

$$\frac{d\Pi}{dq} = \frac{dR}{dq} - \frac{dC}{dq} = 0$$

Question 14

Which of the following is a plausible consequence of free entry and exit in a perfectly competitive market?

Accepted Answer

Firms will earn zero economic profit in the long run.

Question 15

If a firm's marginal cost curve lies above its average variable cost curve, what does this indicate?

Accepted Answer

Marginal cost is increasing and average variable cost is rising.

Question 16

Which of the following is an example of a cooperative in microeconomics?

Accepted Answer

A group of businesses joining together to achieve common goals.

Question 17

What is the effect on producer surplus if the market price increases, holding marginal cost constant?

Accepted Answer

Producer surplus increases.

Question 18

Which statement best describes the role of marginal revenue in a perfectly competitive firm?

Accepted Answer

Marginal revenue equals the market price for each unit sold.

Question 19

A firm in a perfectly competitive market will shut down in the short run if:

Accepted Answer

Price is less than average variable cost.

Question 20

If a firm is maximizing profit, which of the following must be true?

Accepted Answer

Marginal cost equals marginal revenue.

Perfect Competition and Profit Maximization in Microeconomics

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