Deck 23: Perfect Competition

Question 1

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

A)The products sold by the firms in the market are homogeneous.
B)There are many buyers and sellers in the market.
C)It is difficult for a firm to enter or leave the market.
D)Each firm is a price taker.

Answer 1

C

Question 2

Under perfect competition, a firm that sets its price slightly above the market price would

A)make lower profits than the other firms, but the amount would depend on the elasticity of demand.
B)make a normal rate of return, but on reduced revenues.
C)lose all of its customers.
D)earn higher profits as long as the other firms continued to charge the market price.

Answer 2

C

Question 3

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

A)There is free entry and exit in the long run.
B)The industry demand curve is downward sloping.
C)Each firm produces the same homogeneous product.
D)Economic profits must be positive in the short run.

Answer 3

D

Question 4

All firms in a perfect competition industry

A)are price makers.
B)produce differentiated products.
C)produce identical products.
D)lose money.

Question 5

A firm in a perfectly competitive industry is a

A)price taker.
B)quantity taker.
C)quality maker.
D)price maker.

Question 6

A price taker is a firm that

A)seeks to maximize revenue rather than profit.
B)cannot influence the market price.
C)searches for the best price and then takes the highest profits possible.
D)buys inputs for firms.

Question 7

All of the following are characteristics of perfect competition EXCEPT

A)homogenous products.
B)each firm is a price taker.
C)product differentiation.
D)a lack of barriers.

Question 8

In a perfectly competitive market, which of the following is the main factor that affects consumers' decisions on which firm to purchase a good from?

A)Quality
B)Customer service
C)Reputation
D)Price

Question 9

A market structure in which the decisions of individual buyers and sellers have no effect on market price is

A)monopoly.
B)monopolistic competition.
C)perfect competition.
D)oligopoly.

Question 10

Perfect competition is characterized by

A)many buyers and sellers.
B)a small number of firms.
C)differentiated products of firms in the industry.
D)high barriers to entry.

Question 11

When considering perfect competition the absence of entry barriers implies that

A)no firm can enter the industry.
B)firms can enter but cannot get out of the industry easily.
C)all firms will earn economic profit.
D)firms can enter and leave the industry without serious impediments.

Question 12

Being a price taker essentially means

A)a firm can influence the market price.
B)a firm cannot influence the market price.
C)the firm cannot legally set its price above the market price.
D)the firm cannot legally set its price below the market price.

Question 13

In a perfectly competitive industry

A)each firm is a price maker.
B)no buyer or seller can influence the market price.
C)there is apt to be a shortage of sellers of output.
D)firms can never make an economic profit.

Question 14

Which of the following is a characteristic of perfect competition?

A)Easy entry and exit
B)Few firms
C)Differentiated products
D)None of the above

Question 15

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

A)There are large numbers of buyers and sellers.
B)The firms in the industry produce a homogeneous product.
C)Sellers have better information about the product than consumers.
D)Any firm can enter or leave the industry without serious impediments.

Question 16

All of the following are characteristics of a perfectly competitive industry EXCEPT

A)the product sold is homogeneous.
B)firms in the industry are price takers.
C)buyers and sellers have equal access to information.
D)there are a large number of buyers and sellers with only a few being able to influence the market price.

Question 17

Each firm in a perfectly competitive industry is

A)producing a unique product.
B)relatively large.
C)a price taker.
D)a price setter.

Question 18

The perfectly competitive firm cannot influence the market price because

A)it has market power.
B)its production is too small to affect the market.
C)it is a price maker.
D)its costs are too high.

Question 19

A market structure in which the decisions of individual buyers and sellers have no effect on market price is

A)perfect competition.
B)a short-run industry.
C)a long-run industry.
D)a market supply industry.

Question 20

Which of the following is NOT a characteristic of perfect competition?

A)There are large numbers of buyers and sellers.
B)The firms in an industry produce goods that are different from each other.
C)Any firm can easily enter or leave the industry.
D)Both buyers and sellers have equally good information.

Question 21

Which of the following is NOT a characteristic of perfect competition?

A)differentiated products
B)large number of buyers and sellers
C)price taking by each firm
D)easy entry and exit into the market

Question 22

Perfect competition is a market structure

A)in which any firm would have serious impediments to entry or exit.
B)in which individual buyers and sellers have no effect on the market price.
C)resulting from individual firms selling highly differentiated products.
D)where there is significant regulation and markets are always efficient.

Question 23

Your local farmer has many competitors and exists in a market structure known as perfect competition. This means that price is determined outside of the individual farmer's ability to charge a price higher than the going market for a bushel of wheat, hence the farmer is

A)a price maker and can therefore charge different customers different prices.
B)always able to price produce above the competition and earn a larger profit.
C)never able to determine any prices he charges for anything, such as soybeans.
D)a price taker and cannot affect the market price of wheat.

Question 24

Which of the following is closest to a perfectly competitive market?

A)the computer software market
B)the market for handmade guitars
C)the market for broccoli
D)the market for athletic shoes

Question 25

In a perfectly competitive market structure both buyers and sellers have equal access to information. This implies

A)the products sold will be alike.
B)firms will move labor and capital in pursuit of profit-making opportunities to whatever business venture gives them the highest return on their investment.
C)no one buyer or seller has any influence on price.
D)consumers are able to find out about lower prices charged by other firms.

Question 26

Which of the following is closest to a perfectly competitive market?

A)the pizza market
B)the market for breakfast cereal
C)the market for corn
D)the market for automobiles

Question 27

What does it mean when the products sold by the firms in an industry are homogeneous?

A)The product sold by one firm is a perfect substitute of the product sold by another firm in the same industry.
B)Firms in the industry can produce the same product with different inputs.
C)All firms in the industry are identical in size.
D)The product sold by one firm is a perfect complement of the product sold by another firm in the same industry.

Question 28

Which of the following is closest to a perfectly competitive market?

A)the soda pop market
B)the market for bread
C)the market for sugar
D)the market for fast food

Question 29

Malfeasance at Enron, a Houston-based energy firm, led to overstatement of revenues by almost $92 billion. As Enron closed its operations, U.S. energy prices remained stable. This may have been evidence that

A)Enron could charge whatever price it wanted to for energy.
B)there was lack of any competition, so Enron was the winner.
C)there is a competitive market in energy distribution in the United States.
D)the accounting profession needs to review its policies quickly.

Question 30

Which of the following is NOT a characteristic of perfect competition?

A)There are many buyers and sellers.
B)Each firm determines the market price of its product.
C)Products are homogeneous.
D)Buyers and sellers have equal access to information.

Question 31

Which of the following is NOT a characteristic of perfect competition?

A)Firms are "price takers."
B)All firms sell identical products.
C)There are substantial barriers to entry into the industry.
D)There are many buyers and sellers.

Question 32

A perfectly competitive market has

A)high barriers to entry or exit.
B)homogeneous products.
C)to do a lot of advertising to attract buyers.
D)few firms.

Question 33

What are the main characteristics of a perfectly competitive market?

Question 34

In a perfectly competitive market structure any firm can enter or leave the industry without serious impediments. This implies

A)the products sold will be alike.
B)firms will move labor and capital in pursuit of profit-making opportunities to whatever business venture gives them the highest return on their investment.
C)no one buyer or seller has any influence on price.
D)consumers are able to find out about lower prices charged by other firms.

Question 35

When there are large numbers of buyers and sellers, then

A)the products sold must look identical.
B)firms will move labor and capital in pursuit of profit-making opportunities to whatever business venture gives them the highest return on their investment.
C)no one buyer or seller has any influence on price.
D)consumers are able to find out about lower prices charged by other firms.

Question 36

All of the following are characteristics of a perfectly competitive market EXCEPT

A)homogeneous products.
B)large number of buyers and sellers.
C)buyers and seller have equal access to information.
D)high barriers to entry and exit.

Question 37

Clothing retailers have faced greater competition in recent years as more firms have entered the clothing market. Some of the competition has come from foreign competitors, but much of it is domestic competition. As a result there is much competition in markets for many types of clothing and

A)individual buyers and sellers cannot affect the market price because it is determined by the market forces of demand and supply.
B)there are no other implications.
C)firms have a great degree of flexibility in pricing their products because these products can be sold at a high profit level.
D)there are relatively few buyers and sellers in the market, and one individual firm can determine the market price.

Question 38

The firm in a perfectly competitive industry is a

A)price taker.
B)price maker.
C)price seeker.
D)price dealer.

Question 39

Which of the following statements about the perfect competitor is INCORRECT?

A)The perfectly competitive firm is always a price taker.
B)The perfect competitor sells a homogeneous commodity.
C)If an individual firm raises price, it will lose business.
D)The products made by a perfectly competitive firm have no close substitutes.

Question 40

What is a price taker? Discuss the assumptions used to obtain the perfectly competitive model.

Question 41

The demand curve for a perfectly competitive firm is

A)elastic at relatively high prices and inelastic at relatively low prices.
B)perfectly elastic.
C)perfectly inelastic.
D)unitary elastic.

Question 42

Which of the following statements is not true for a perfectly competitive firm?

A)A firm's demand curve is horizontal.
B)The firm can influence its demand curve by advertising its product.
C)The firm's demand curve is perfectly elastic.
D)The market demand and supply curves determine the market price.

Question 43

Which of the following statements is correct about the demand curve of the perfectly competitive industry?

A)The demand curve of the perfectly competitive industry is horizontal as are the demand curves facing the individual firms.
B)The market demand curve of perfect competition is vertical because the individual consumers are buying a homogeneous product.
C)The market demand curve of the perfectly competitive industry is downward sloping while the demand curve facing an individual firm is horizontal.
D)The market demand curve of the perfectly competitive industry is downward sloping, so the demand curves of the individual firms are also downward sloping.

Question 44

A perfectly elastic demand function

A)shows that a consumer is willing to pay any amount for the product.
B)is characteristic of an individual firm operating in a perfectly competitive market.
C)shows that the individual firm can increase sales by lowering the price of output.
D)has a marginal revenue that is always decreasing.

Question 45

Under the perfectly competitive market structure, the demand curve of an individual firm is

A)perfectly inelastic.
B)downward sloping.
C)relatively inelastic.
D)perfectly elastic.

Question 46

The perfectly competitive firm faces

A)a downward sloping demand curve.
B)a horizontal supply function.
C)perfectly elastic demand.
D)constant marginal costs.

Question 47

Which of the following statements is correct?

A)The demand curve of the perfectly competitive industry is elastic as are the demand curves facing the individual firms.
B)The market demand curve of perfect competition is inelastic because the individual consumers are buying a homogeneous product.
C)The market demand curve of the perfectly competitive industry is downward sloping while the demand curve of an individual firm is horizontal with a height equal to the product price.
D)The market demand curve of the perfectly competitive industry is downward sloping, so the demand curves of the individual firms are also downward sloping.

Question 48

Refer to the above figure. The market supply and demand curves in a perfectly competitive market intersect at $4. Which of the graphs represent the situation for an individual firm?

A)Panel A
B)Panel B
C)Panel C
D)Panel D

Question 49

A perfectly competitive producer faces a demand curve for its own product that is

A)downward sloping.
B)upward sloping.
C)horizontal.
D)vertical.

Question 50

The demand curve for the product of a perfectly competitive firm is

A)perfectly elastic.
B)perfectly inelastic.
C)elastic at high prices and inelastic at low prices.
D)identical to the elasticity of demand on the market demand curve.

Question 51

If a firm is a perfect competitor, then

A)the demand curve for its product is perfectly elastic.
B)it can independently set the price of the product it sells without regard to what other firms in the market are doing.
C)it is impossible for the firm to earn short-run economic profits.
D)its marginal cost will exceed marginal revenue at the optimal level of output.

Question 52

For a firm in a perfectly competitive industry, the demand curve for its own product is

A)downward sloping.
B)vertical.
C)always above the marginal revenue curve.
D)the same as the marginal revenue curve.

Question 53

The demand curve for a perfectly competitive firm is horizontal because

A)consumers are willing to pay any price to obtain its product.
B)its production decisions cannot influence the market price.
C)the firm profits from setting its price higher than the market price.
D)its product is easy for consumers to differentiate from those of other firms.

Question 54

For a firm in a perfectly competitive industry, the demand curve for its own product is

A)horizontal.
B)vertical.
C)upward sloping.
D)downward sloping.

Question 55

The demand curve for the product of a perfectly competitive firm's demand curve indicates that if the firm

A)lowers its price, it can sell more.
B)accepts the market-set price, the number of units the firm can sell is limited.
C)raises its price, sales will fall to zero.
D)changes its price, the quantity demanded will change in the opposite direction.

Question 56

The demand curve for a perfectly competitive industry is

A)downward sloping.
B)horizontal.
C)vertical.
D)indeterminate without more information.

Question 57

Refer to the above figure. Which of the graphs represent the situation for a perfectly competitive industry?

A)Panel A
B)Panel B
C)Panel C
D)Panel D

Question 58

"A market is said to be perfectly competitive when consumers can tell that some products are of better quality than others." Do you agree or disagree? Why?

Question 59

In a perfectly competitive industry, the industry demand curve

A)must be horizontal.
B)must be vertical.
C)is upward sloping.
D)is downward sloping.

Question 60

In the model of perfect competition, the market demand curve is found by

A)a marketing analysis.
B)taking the demand curve of a "representative consumer" and expanding it by the number of consumers of the good.
C)horizontally summing the demand curves of individual consumers.
D)horizontally summing the supply curves of individual firms.

Question 61

"Demand curves slope down, so the demand curve faced by a perfectly competitive firm must also be downward sloping." Do you agree or disagree? Why?

Question 62

Describe and explain how a perfectly competitive firm's demand curve is found.

Question 63

In the above figure, at the profit-maximizing rate of production for the perfectly competitive firm total revenue is

A)$100.
B)$70.
C)$30.
D)$130.

Question 64

The total revenue of a perfectly competitive firm is calculated by

A)multiplying average revenue by price.
B)dividing price by quantity.
C)multiplying price by quantity.
D)multiplying quantity by average total cost.

Question 65

Economists generally assume that firms attempt to maximize

A)total revenue.
B)sales.
C)marginal revenue.
D)total economic profits.

Question 66

Referring to the diagram, which of the following statements is INCORRECT?

A)The equilibrium market price is $5, at which the industry demand and supply curves intersect.
B)If the individual firm raises its price, it will capture all sales in the market.
C)The individual firm takes as given the market price along the perfectly elastic demand curve "d."
D)The individual firm faces the going market price as determined by the industry.

Question 67

If a firm in a perfectly competitive market raises its price,

A)it will sell more products.
B)it will sell fewer products.
C)its sales will remain unchanged.
D)it will sell nothing.

Question 68

The perfectly competitive firm's demand curve has

A)a negative slope.
B)a positive slope.
C)an undefined slope.
D)a slope of 0.

Question 69

For a firm in a perfectly competitive market, average revenue equals

A)average cost.
B)the change in total revenue.
C)the market price.
D)price divided by quantity.

Question 70

Why is the demand curve horizontal for a perfectly competitive firm?

Question 71

In the above figure, at the profit-maximizing rate of production for the perfectly competitive firm average total cost is

A)$10.
B)$3.
C)$7.
D)$70.

Question 72

A perfectly competitive firm faces a horizontal demand curve because it is

A)a price taker.
B)a price maker.
C)a large firm in a small industry.
D)one of few firms in the market.

Question 73

The demand curve faced by a perfectly competitive industry

A)slopes upward.
B)slopes downward.
C)has no slope.
D)is perfectly inelastic.

Question 74

In the above figure, the market price charged by this profit-maximizing, perfectly competitive firm is

A)$5 per unit of output.
B)$10 per unit of output.
C)$8 per unit of output.
D)$14 per unit of output.

Question 75

In the above figure, at the profit-maximizing rate of production for the perfectly competitive firm total cost is

A)$100.
B)$70.
C)$30.
D)$130.

Question 76

Refer to the above figure. The figure represents the market demand and supply curves for widgets. What statement can be made about the demand curve for an individual firm in this market?

A)An individual firm's demand curve will be a smaller version of the market demand curve.
B)An individual firm's demand curve will be horizontal at $5.
C)An individual firm's demand curve will be horizontal at a price below $5.
D)An individual firm's demand curve cannot be determined from the graph above.

Question 77

In the above figure, at the profit-maximizing rate of production for the perfectly competitive firm profit is

A)$100.
B)$70.
C)$30.
D)$130.

Question 78

In the above figure, the profit-maximizing rate of production for the perfectly competitive firm is

A)5.
B)10.
C)13.
D)none of the above.

Question 79

The demand curve for a perfectly competitive industry is

A)perfectly elastic.
B)downward sloping.
C)perfectly inelastic.
D)unit elastic.

Question 80

The demand curve for the product of a perfectly competitive firm is

A)downward sloping.
B)upward sloping.
C)perfectly inelastic.
D)perfectly elastic.