Q: Which equation correctly expresses profit in terms of price, average total cost, and quantity?

$$Profit = (P - ATC) \times Q$$

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

Suppose a wheat farmer faces a market price of $7 per bushel. If the farmer increases output from 6,000 to 15,000 bushels, what happens to the price received per bushel?

Accepted Answer

The price remains constant at $7 per bushel.

Question 3

In a perfectly competitive market, the profit-maximizing rule for output is:

Accepted Answer

$$MR = MC$$

Question 4

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

Accepted Answer

$$P \u003c AVC$$

Question 5

If a firm’s total revenue is $$150,000 and its explicit and implicit costs total 90$$,000, what is its economic profit?

Accepted Answer

$$60,000$$

Question 6

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

Accepted Answer

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

Question 7

If the market price is always below a firm’s average total cost, what is the firm’s best option in the short run?

Accepted Answer

Produce where $$MR = MC to $$minimize losses.

Question 8

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

Accepted Answer

New firms enter, increasing supply and lowering price until profits are eliminated.

Question 9

Which of the following best describes productive efficiency?

Accepted Answer

Goods are produced at the lowest possible cost.

Question 10

A perfectly competitive firm’s supply curve in the short run is:

Accepted Answer

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

Question 11

If the price of cage-free eggs rises due to increased demand, what will happen in the long run in a perfectly competitive market?

Accepted Answer

New firms will enter, increasing supply and driving the price back down to the break-even level.

Question 12

Which of the following is an implicit cost for a business owner?

Accepted Answer

Forgone salary from another job.

Question 13

In a perfectly competitive market, long-run equilibrium occurs when:

Accepted Answer

$$P = MC = ATC$$

Question 14

Which of the following best describes allocative efficiency?

Accepted Answer

Production occurs where the marginal benefit to consumers equals the marginal cost of production.

Question 15

If a firm’s price is below average variable cost, what should the firm do in the short run?

Accepted Answer

Shut down and produce zero output.

Question 16

Which of the following industries is most likely to be perfectly competitive?

Accepted Answer

Wheat farming.

Question 17

Suppose the market for cage-free eggs is in long-run equilibrium. If demand suddenly decreases, what will happen in the short run?

Accepted Answer

Firms will make losses, and some will eventually exit the market.

Question 18

In an increasing-cost industry, the long-run supply curve is:

Accepted Answer

Upward sloping.

Question 19

Which of the following statements is TRUE about the relationship between price, marginal revenue, and average revenue in perfect competition?

Accepted Answer

$$P = MR = AR$$

Question 20

A firm’s marginal cost curve is its supply curve only for:

Accepted Answer

Prices at or above average variable cost.

Perfect Competition: Theory, Application, and Efficiency

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