Question 1

For a perfectly competitive firm, what is the price elasticity of demand for the firm's product?

Accepted Answer

Perfectly elastic

Question 2

Which of the following is the correct profit-maximizing condition for a competitive firm?

Accepted Answer

$$P = MC$$

Question 3

Suppose a wheat farmer faces a market price of $$5 per bushel. The farmer's marginal cost at 100 bushels is also 5. $$What should the farmer do to maximize profit?

Accepted Answer

Produce exactly 100 bushels

Question 4

If a competitive firm is producing at a level where $$P \u003c AVC$$, what should the firm do in the short run?

Accepted Answer

Shut down production

Question 5

Which area on a cost curve graph represents the producer's surplus (rent) for a competitive firm?

Accepted Answer

The area between the price line and the MC curve above AVC

Question 6

Jake is considering opening a food stall. His expected total revenue is $$130,000. His explicit costs are: rent 10$$,000, wages $$20,000, utilities 5$$,000, interest $$5,000, raw materials 40$$,000. What are his total explicit costs?

Accepted Answer

$80,000

Question 7

Using Jake's scenario, if he must give up a $40,000 salary to run the business, what is his accounting profit?

Accepted Answer

$50,000

Question 8

If the market price is below a firm's average total cost but above its average variable cost, what is the firm's profit situation?

Accepted Answer

The firm is making a loss but should continue to produce in the short run

Question 9

In the long-run equilibrium of a perfectly competitive market, what is true about economic profit?

Accepted Answer

Economic profit is zero

Question 10

Which of the following best describes the shutdown point for a competitive firm?

Accepted Answer

The minimum point of the AVC curve

Question 11

If a firm’s total revenue is $$100,000, total variable cost is 60$$,000, and fixed cost is $30,000, what is the firm’s rent (producer surplus)?

Accepted Answer

$40,000

Question 12

Which of the following is true about the market supply curve in a perfectly competitive market with identical firms?

Accepted Answer

It is the horizontal sum of all individual firms’ supply curves

Question 13

Suppose the market price increases. What happens on the intensive and extensive margins in a market with firms that have different AVCs?

Accepted Answer

Existing firms produce more (intensive margin), and new firms with higher AVC enter (extensive margin)

Question 14

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

Accepted Answer

The firm can influence the market price

Question 15

If a firm is earning zero economic profit in the long run, what does this imply about its total revenue and total cost?

Accepted Answer

$$TR = TC$$

Question 16

Which formula correctly represents marginal revenue for a competitive firm?

Accepted Answer

$$MR = \frac{\Delta TR}{\Delta Q}$$

Question 17

In the short run, a firm will continue to produce as long as:

Accepted Answer

$$P \geq AVC$$

Question 18

Which of the following best explains why economic profit is zero in long-run equilibrium in a perfectly competitive market?

Accepted Answer

Entry and exit of firms drive profit to zero

Question 19

If a firm’s price is equal to its average total cost at the profit-maximizing output, what is the firm’s profit?

Accepted Answer

Zero

Question 20

Which of the following is true about rent (producer surplus) in long-run equilibrium for the marginal firm?

Accepted Answer

Rent equals fixed cost

The Competitive Firm and Market Supply Curves

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