Question 1

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

Accepted Answer

Significant barriers to entry

Question 2

In a purely competitive market, the demand curve faced by an individual firm is:

Accepted Answer

Perfectly elastic

Question 3

If a purely competitive firm can sell as much output as it wants at the market price of $100, what is its marginal revenue for each additional unit sold?

Accepted Answer

$100

Question 4

Which formula correctly represents total revenue for a purely competitive firm?

Accepted Answer

$$TR = P 	imes Q$$

Question 5

A purely competitive firm will maximize profit by producing the quantity at which:

Accepted Answer

$$MR = MC$$

Question 6

Suppose a firm in a purely competitive market faces the following costs: Total Fixed Cost = $$100, Total Variable Cost = 780$$, and Total Revenue = $1,179. What is the firm's economic profit?

Accepted Answer

$$299$$

Question 7

If the market price falls below a purely competitive firm's minimum average variable cost, the firm should:

Accepted Answer

Shut down production in the short run

Question 8

In the long run, entry and exit of firms in a purely competitive industry will result in:

Accepted Answer

Zero economic profit (normal profit) for all firms

Question 9

Which of the following best describes productive efficiency in pure competition?

Accepted Answer

Producing where $$P = minimum\ ATC$$

Question 10

A competitive firm’s short-run supply curve is the portion of its:

Accepted Answer

Marginal cost curve above average variable cost

Question 11

If a purely competitive industry is a constant-cost industry, what happens to the long-run industry supply curve?

Accepted Answer

It is perfectly elastic (horizontal)

Question 12

Suppose a technological advance lowers the cost of production in a purely competitive industry. In the long run, what is the most likely outcome?

Accepted Answer

The market price will fall and economic profits will return to zero

Question 13

Which of the following equations correctly defines marginal revenue?

Accepted Answer

$$MR = \Delta TR / \Delta Q$$

Question 14

In the short run, a purely competitive firm should continue to produce as long as:

Accepted Answer

Price is greater than or equal to average variable cost

Question 15

Which of the following is an example of a real-world market that closely resembles pure competition?

Accepted Answer

Wheat farming

Question 16

Creative destruction in a purely competitive market refers to:

Accepted Answer

The process by which new products and methods replace old ones

Question 17

If a purely competitive firm is producing at a level where $$P = MC = minimum\ ATC$$, what is true about the firm's profit?

Accepted Answer

The firm is earning zero economic profit

Question 18

Suppose the market price for a product is $$50, and a competitive firm’s average variable cost at its profit-maximizing output is 40$$, while average total cost is $60. What should the firm do in the short run?

Accepted Answer

Continue producing to minimize losses

Question 19

Which of the following best describes allocative efficiency in pure competition?

Accepted Answer

Producing where $$P = MC$$

Question 20

If a purely competitive firm is producing where $$MR \u003e MC$$, what should the firm do to maximize profit?

Accepted Answer

Increase output

Pure Competition: Market Models, Firm Behavior, and Efficiency

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