Question 1

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

Accepted Answer

Each firm can influence the market price.

Question 2

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

Accepted Answer

$$MR = MC$$

Question 3

Suppose the market price for cheese boxes falls below a firm's average variable cost. What should the firm do in the short run?

Accepted Answer

Shut down production immediately.

Question 4

If the marginal product of labor is decreasing as more workers are hired, this illustrates:

Accepted Answer

The law of diminishing returns.

Question 5

Which of the following best describes the short-run supply curve of a perfectly competitive firm?

Accepted Answer

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

Question 6

A firm’s economic profit is zero in the long run in a perfectly competitive market because:

Accepted Answer

Entry and exit drive the price to the minimum of average total cost.

Question 7

If a firm’s total cost is $$TC = 500 + 2Q$$, where $$Q is $$output, what is the firm’s average fixed cost (AFC) when $$Q = 100$$?

Accepted Answer

$$AFC = 5$$

Question 8

Which of the following statements about marginal cost (MC) and average total cost (ATC) is correct?

Accepted Answer

MC intersects ATC at ATC's minimum point.

Question 9

In the long run, if the market price is above the minimum average total cost, what will happen in a perfectly competitive market?

Accepted Answer

Firms will enter the market, increasing supply and lowering the price.

Question 10

Producer surplus for a firm is:

Accepted Answer

The difference between total revenue and total variable cost.

Question 11

If the price elasticity of supply is high, it means that:

Accepted Answer

Firms can easily increase production when prices rise.

Question 12

A firm’s total revenue (TR) is given by:

Accepted Answer

$$TR = P 	imes Q$$

Question 13

Suppose a firm faces a market price of $$P = 10$$, and its marginal cost is $$MC = 10 at$$ $$Q = 50. If $$average variable cost at $$Q = 50 is$$ $$8$$ and average total cost is $$12$$, what should the firm do in the short run?

Accepted Answer

Produce $$Q = 50$$ even though it incurs a loss.

Question 14

Which of the following best explains why the long-run supply curve in a perfectly competitive market is horizontal when all firms have identical costs?

Accepted Answer

Entry and exit of firms keep the price at the minimum of average total cost.

Question 15

If a firm’s marginal cost is below the market price, what should the firm do to maximize profit?

Accepted Answer

Increase output.

Question 16

In the context of the Cheeseman example, if the market price rises from $$1.13 to$$ $$1.41$$ per box, what is the most likely effect on Cheeseman’s output?

Accepted Answer

Output will increase.

Question 17

Which of the following is true about economic profit and accounting profit?

Accepted Answer

Economic profit includes opportunity costs, while accounting profit does not.

Question 18

If all firms in a perfectly competitive market are making negative economic profits in the short run, what will happen in the long run?

Accepted Answer

Firms will exit the market, reducing supply and raising the price.

Question 19

Suppose two firms in a perfectly competitive market have different average total costs. In the long run, which of the following is true?

Accepted Answer

The firm with lower average total cost will earn positive economic profit.

Question 20

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

Accepted Answer

As more units of a variable input are added to fixed inputs, the marginal product of the variable input eventually decreases.

Seller Behavior and Supply in Perfectly Competitive Markets

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