$TR = P \times Q = 25 \times 9 = 225$

Question 1

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

Accepted Answer

Firms have significant control over the market price.

Question 2

In a perfectly competitive market, the demand curve facing an individual firm is:

Accepted Answer

Perfectly elastic because the firm's product is a perfect substitute for others.

Question 3

A perfectly competitive firm maximizes its profit by producing the quantity at which:

Accepted Answer

$MR = MC$

Question 4

Suppose the market price for sweaters is $25. If a firm sells 9 sweaters per day, what is its total revenue?

Accepted Answer

$TR = P 	imes Q = 25 	imes 9 = 225$

Question 5

If a perfectly competitive firm is producing at a price below its average variable cost, what should it do in the short run?

Accepted Answer

Shut down temporarily, as it cannot cover variable costs.

Question 6

Which equation correctly represents a firm's economic profit?

Accepted Answer

$Economic\ profit = Total\ revenue - Total\ cost$

Question 7

A firm’s shutdown point occurs when:

Accepted Answer

Price equals minimum average variable cost.

Question 8

If the market price is between a firm’s minimum average variable cost and average total cost, what is true in the short run?

Accepted Answer

The firm produces where $P = MC$ and incurs a loss less than total fixed cost.

Question 9

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

Accepted Answer

New firms will enter, increasing supply and lowering the market price until profits are zero.

Question 10

Which of the following best describes the efficiency of perfect competition in the long run?

Accepted Answer

Resources are allocated efficiently because $MSB = MSC$ and total surplus is maximized.

Question 11

Suppose a new technology lowers production costs in a perfectly competitive market. What is the likely sequence of events?

Accepted Answer

Early adopters make economic profit, supply increases, price falls, and eventually all firms use the new technology and make zero economic profit.

Question 12

If a firm’s total fixed cost is $100, average variable cost is $10, price is $8, and it produces 20 units, what is its economic loss?

Accepted Answer

$Economic\ loss = TFC + (AVC - P) 	imes Q = 100 + (10 - 8) 	imes 20 = 100 + 40 = 140$

Question 13

Which of the following statements about entry and exit in perfect competition is correct?

Accepted Answer

Firms enter when there is economic profit and exit when there is economic loss.

Question 14

A perfectly competitive firm is producing at the point where $P = MC = ATC$. What is the firm’s economic profit?

Accepted Answer

Zero economic profit (break-even).

Question 15

If the market demand for a product decreases in a perfectly competitive industry, what is the likely long-run effect?

Accepted Answer

Some firms will exit, reducing supply and raising the price until remaining firms break even.

Question 16

Which of the following is true about the relationship between marginal revenue and price in perfect competition?

Accepted Answer

$MR = P$ for all output levels.

Question 17

In the short run, if the market price is below a firm’s minimum average variable cost, what is the firm’s supply?

Accepted Answer

Zero; the firm shuts down.

Question 18

Which of the following best explains why perfect competition leads to efficient resource allocation?

Accepted Answer

Because in equilibrium, marginal social benefit equals marginal social cost.

Question 19

A perfectly competitive firm faces the following costs: $TFC = 50$, $AVC = 12$, $P = 15$, $Q = 10$. What is the firm’s economic profit or loss?

Accepted Answer

$Economic\ profit = TR - TC = (P 	imes Q) - (TFC + AVC 	imes Q) = (15 	imes 10) - (50 + 12 	imes 10) = 150 - (50 + 120) = 150 - 170 = -20$

Chapter 11

Study Guide - Practice Questions