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 equations correctly represents the profit-maximizing condition for a competitive firm?

Accepted Answer

$$P = MC$$

Question 3

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

Accepted Answer

$$P \u003c AVC$$

Question 4

In the context of the competitive firm, what does 'rent' refer to?

Accepted Answer

The gains from trade on the production side, or producer's surplus

Question 5

Suppose Jake's expected total revenue is $$130,000, and his explicit costs are 80$$,000. If his opportunity cost (implicit cost) is $40,000, what is his expected economic profit?

Accepted Answer

$$10,000$$

Question 6

Which area on a cost curve graph represents the total variable cost (TVC) for a competitive firm?

Accepted Answer

The area under the MC curve up to the chosen output

Question 7

If the market price is below the minimum of the average variable cost (AVC) curve, what should a competitive firm do in the short run?

Accepted Answer

Shut down production

Question 8

In long-run equilibrium in a perfectly competitive market, which of the following is true?

Accepted Answer

$$P = MC = minAC$$

Question 9

Why can a competitive firm earn zero economic profit in equilibrium but still remain in business?

Accepted Answer

Because all opportunity costs, including normal profit, are covered

Question 10

Which of the following best describes the individual supply curve of a competitive firm?

Accepted Answer

The portion of the MC curve above the minimum AVC

Question 11

If a competitive firm is producing at a level where $$P = AVC$$ but $$P \u003c AC$$, what is the firm's profit?

Accepted Answer

Negative (the firm is making a loss)

Question 12

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

Accepted Answer

It can influence the market price

Question 13

If the market price increases, what happens to the quantity supplied by a competitive firm in the short run?

Accepted Answer

It increases, moving up along the MC curve above AVC

Question 14

In the case of identical firms with no sunk costs, what does the market supply curve look like at equilibrium?

Accepted Answer

Flat at $$P = minAC$$

Question 15

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

Accepted Answer

Entry and exit of firms drive profit to zero

Question 16

If a firm is earning a positive rent but zero economic profit in equilibrium, what does this imply?

Accepted Answer

The firm covers all opportunity costs and receives payment for fixed factors

Question 17

Suppose a competitive firm faces the following costs: Fixed cost = $$10,000, Variable cost = 40$$,000, Total revenue = $55,000. Should the firm continue to operate in the short run?

Accepted Answer

Yes, because $$TR \u003e TVC$$

Question 18

Which of the following statements is TRUE regarding the shutdown point for a competitive firm?

Accepted Answer

It occurs at the minimum point of the AVC curve

Question 19

If a competitive firm is producing at a point where $$P = minAC$$, what is its economic profit?

Accepted Answer

Zero

Question 20

Which of the following best describes the market supply curve in a competitive industry with firms that have different fixed costs?

Accepted Answer

It is upward-sloping, reflecting both intensive and extensive margin adjustments

The Competitive Firm and Market Supply Curves: Microeconomics Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards