Deck 12: Perfect Competition and the Supply Curve

Question 1

In the model of perfect competition:
A.the consumer is at the mercy of powerful firms that can set prices wherever they prefer.
B.individual firms can influence the price, but only slightly.
C.no individual or firm has enough power to have any impact on price.
D.the price is determined by how many years are left in the product's patent.

Answer 1

no individual or firm has enough power to have any impact on price.

Question 2

When a firm cannot affect the market price of the good that it sells, it is said to be a:
A.price-taker.
B.natural monopoly.
C.dominant firm.
D.cartel.

Answer 2

price-taker.

Question 3

Individuals in a market who must take the market price as given are:
A.quantity-minimizers.
B.quantity-takers.
C.price-takers.
D.price-searchers.

Answer 3

price-takers.

Question 4

The perfectly competitive model assumes all of the following except:
A.a great number of buyers.
B.easy entry into and easy exit from the market.
C.complete information on the part of buyers and sellers.
D.that firms attempt to maximize their total revenue.

Question 5

One characteristic of a perfectly competitive market is that there are sellers of the
good or service.
A.one or two
B.a few
C.usually fewer than 10
D.many

Question 6

Which of the following is not a characteristic of a perfectly competitive industry?
A.Firms seek to maximize profits.
B.Profits may be positive in the short run.
C.There are many firms.
D.There are differentiated products.

Question 7

If a Florida strawberry wholesaler operates in a perfectly competitive market, that wholesaler will have a share of the market, and consumers will consider her strawberries to be
________.Therefore, advertising will take place in this market.
A.large; standardized; no
B.small; standardized; little, if any
C.small; differentiated; no
D.large; differentiated; extensive

Question 8

All except one of the following are characteristics of perfect competition.Which is the exception?
A.All firms produce the same standardized product.
B.There are many producers, and each has only a small market share.
C.There are many producers; one firm has a 25% market share, and all of the remaining firms have a market share of less than 2% each.
D.There are no obstacles to entry into or exit from the industry.

Question 9

In a perfectly competitive industry, each firm:
A.is a price-maker.
B.produces about half of the total industry output.
C.produces a differentiated product.
D.produces a standardized product.

Question 10

Which of the following is a necessary condition for perfect competition?
A.A small number of firms control a large share of the total market.
B.Movement into and out of the market is limited.
C.Firms produce a standardized product.
D.Extensive advertising is used to promote the firm's product.

Question 11

Price-takers are individuals in a market who:
A.select a price from a wide range of alternatives.
B.select the lowest price available in a competitive market.
C.select the average of prices available in a competitive market.
D.have no ability to affect the price of a good in a market.

Question 12

The market for breakfast cereal contains hundreds of similar products, such as Froot Loops, corn flakes, and Rice Krispies, that are considered to be different products by different buyers.This situation violates the perfect competition assumption of:
A.many buyers and sellers.
B.a standardized product.
C.complete information.
D.ease of entry and exit.

Question 13

Perfect competition is characterized by:
A.rivalry in advertising.
B.fierce quality competition.
C.the inability of any one firm to influence price.
D.widely recognized brands.

Question 14

A perfectly competitive firm is a:
A.price-taker.
B.price-searcher.
C.cost-maximizer.
D.quantity-taker.

Question 15

Perfect competition is characterized by:
A.rivalry in advertising.
B.fierce quality competition.
C.the inability of any one firm to influence price.
D.widely recognized brands.

Question 16

The assumptions of perfect competition imply that:
A.individuals in the market accept the market price as given.
B.individuals can influence the market price.
C.the price will be fair.
D.the price will be low.

Question 17

If a local California avocado stand operates in a perfectly competitive market, that stand owner will be a:
A.price-maker.
B.price-taker.
C.price-discriminator.
D.price-maximizer.

Question 18

The assumptions of perfect competition imply that:
A.individuals in the market determine the market price.
B.firms in the market accept the market price as given.
C.there will be no new competition due to natural monopolies.
D.the price will be decreasing yearly.

Question 19

If all firms in an industry are price-takers, then:
A.each firm can sell at the price it wants to charge, provided it is not too different from the prices other firms are charging.
B.each firm takes the market price as given for its current output level, recognizing that the price will change if it alters its output significantly.
C.an individual firm cannot alter the market price even if it doubles its output.
D.the market sets the price, and each firm can take it or leave it (by setting a different price).

Question 20

For the Colorado beef industry to be classified as perfectly competitive, ranchers in Colorado must have ________ on prices and beef must be a product.
A.no noticeable effect; standardized
B.a huge effect; standardized
C.a huge effect; differentiated
D.no noticeable effect; differentiated

Question 21

In perfect competition:
A.a firm's total revenue is found by multiplying the market price by the firm's quantity of output.
B.the firm's total revenue curve is a downward-sloping line.
C.at any price, the more sold, the higher is a firm's marginal revenue.
D.the firm's total revenue curve is nonlinear.

Question 22

________ almost always take the market price as given, or are considered , but this
is often not true of _.
A.Consumers; quantity-minimizers; producers
B.Producers; quantity-takers; consumers
C.Consumers and producers; price-takers; firms that produce a differentiated product
D.Producers; price-searchers; consumers

Question 23

In a perfectly competitive industry, the market demand curve is usually:
A.perfectly inelastic.
B.perfectly elastic.
C.downward sloping.
D.relatively elastic.

Question 24

Total revenue is a firm's:
A.change in revenue resulting from a unit change in output.
B.ratio of revenue to quantity.
C.difference between revenue and cost.
D.total output times the price at which it sells that output.

Question 25

For a perfectly competitive firm, marginal revenue:
A.is less than price.
B.is greater than price.
C.decreases as the firm increases output.
D.is equal to price.

Question 26

An assumption of the model of perfect competition is:
A.identical goods.
B.difficult entry and exit.
C.few buyers and sellers.
D.cooperation and interdependence between sellers.

Question 27

A firm's total output times the price at which it sells that output is:
A.net revenue.
B.total revenue.
C.average revenue.
D.marginal revenue.

Question 28

The demand curve for a perfectly competitive firm is:

A)perfectly inelastic.
B)perfectly elastic.
C)downward sloping.
D)relatively but not perfectly elastic.

Question 29

When perfect competition prevails, which of the following characteristics of firms are we likely to observe?
A.They spend time erecting and maintaining barriers to new firms.
B.There are not many of them.
C.They all try to highlight the substantial product differentiation between producers.
D.They are all price-takers.

Question 30

Marginal revenue is a firm's:
A.ratio of profit to quantity.
B.ratio of average revenue to quantity.
C.price per unit times the number of units sold.
D.increase in total revenue when it sells an additional unit of output.

Question 31

Perfectly competitive firms will:
A.maximize total revenue by using the marginal decision rule.
B.increase output up to the point that the marginal benefit of an additional unit of output is greater than the marginal cost.
C.increase output up to the point that the marginal benefit of an additional unit of output is equal to the marginal cost.
D.always attempt to minimize average variable cost.

Question 32

The competitive model assumes all of the following except:
A.a large number of buyers.
B.easy entry into and easy exit from the market.
C.standardized product.
D.patents and copyrights.

Question 33

People in the eastern part of Beirut are prevented by border guards from traveling to the western part of Beirut to shop for (or sell) food.This situation violates the perfect competition assumption of:
A.price-setting behavior.
B.a small number of buyers and sellers.
C.differentiated goods.
D.ease of entry and exit.

Question 34

The marginal revenue received by a firm in a perfectly competitive market:

A)is greater than the market price.
B)is less than the market price.
C)is equal to its average revenue.
D)increases with the quantity of output sold.

Question 35

If a perfectly competitive firm increases production from 10 units to 11 units and the market price is $20 per unit, total revenue for 10 units is:
A.$10.
B.$20.
C.$200.
D.$210.

Question 36

The difference between total revenue and total cost is:
A.economic profit or loss.
B.nominal revenue.
C.average revenue.
D.marginal revenue.

Question 37

If a perfectly competitive gardening shop sells 30 evergreen bushes at a price of $10 per bush, its marginal revenue is:
A.$10.
B.more than $10.
C.less than $10.
D.$300.

Question 38

An assumption of the model of perfect competition is:
A.discrimination.
B.difficult entry and exit.
C.many buyers and sellers.
D.limited information.

Question 39

If a perfectly competitive firm increases production from 10 units to 11 units and the market price is $20 per unit, total revenue for 11 units is:
A.$10.
B.$20.
C.$200.
D.$220.

Question 40

Marginal revenue:
A.is the slope of the average revenue curve.
B.equals the market price in perfect competition.
C.is the change in quantity divided by the change in total revenue.
D.is the price divided by the change in quantity.

Question 41

The slope of the total cost curve is:
A.marginal cost.
B.marginal revenue.
C.constant under perfect competition.
D.always negative.

Question 42

The marginal revenue received by a firm in a perfectly competitive market:
A.is unrelated to the market price.
B.is less than the market price.
C.is greater than the market price.
D.is the change in total revenue divided by the change in output.

Question 43

If a perfectly competitive firm is producing a quantity where MC < MR, then profit:

A)is maximized.
B)can be increased by increasing production.
C)can be increased by decreasing production.
D)can be increased by decreasing the price.

Question 44

The equilibrium price of a guidebook is $35 in the perfectly competitive guidebook industry.Our firm produces 10,000 guidebooks for an average total cost of $38, marginal cost of $30, and average variable cost of $30.Our firm should:
A.raise the price of guidebooks, because the firm is losing money.
B.keep output the same, because the firm is producing at minimum average variable cost.
C.produce more guidebooks, because the next guidebook produced increases profit by $5.
D.shut down, because the firm is losing money.

Question 45

If it produces, a perfectly competitive firm will maximize profits when the:
A.marginal revenue equals marginal cost.
B.marginal revenue is lower than average variable cost.
C.price is lower than marginal cost.
D.price is higher than marginal cost.

Question 46

The price received by a firm in a perfectly competitive market:
A.is equal to the market price.
B.is less than the market price.
C.is greater than the market price.
D.decreases with the quantity of output sold by the firm.

Question 47

If a firm in perfect competition sells 10 units of output at a market price of $5 per unit, its marginal revenue is:
A.$5.
B.more than $5 but less than $50.
C.$50.
D.$250.

Question 48

In perfect competition:
A.price and marginal cost are the same.
B.price and marginal revenue are the same.
C.price and total revenue are the same.
D.total revenue and total variable cost are the same.

Question 49

Marginal revenue is a firm's:
A.ratio of the change in total revenue to the change in output.
B.ratio of average revenue to total revenue.
C.profit per unit times the number of units sold.
D.increase in profit when it sells an additional unit of output.

Question 50

If a perfectly competitive firm is producing a quantity where MC > MR, then profit:

A)is maximized.
B)can be increased by increasing production.
C)can be increased by decreasing production.
D)can be increased by decreasing the price.

Question 51

For a firm in a perfectly competitive market:
A.marginal revenue equals total revenue.
B.marginal revenue equals market price.
C.net revenue equals price.
D.net revenue equals marginal revenue.

Question 52

The slope of the total revenue curve is:
A.marginal cost.
B.net revenue.
C.constant under perfect competition.
D.varying under perfect competition.

Question 53

If a perfectly competitive firm sells 10 units of output at a price of $30 per unit, its marginal revenue is:
A.$10.
B.$30.
C.less than $30.
D.$300.

Question 54

For a firm producing at any level of output greater than the most profitable one, a reduction in output decreases:
A.total cost more than total revenue.
B.total revenue more than total cost.
C.total revenue by the same amount as total cost.
D.total revenue but not total cost.

Question 55

Zoe's Bakery operates in a perfectly competitive industry.The variable costs at Zoe's Bakery increase, so all of the cost curves (with the exception of fixed cost) shift leftward.The demand for Zoe's pastries does not change, nor does the firm shut down.To maximize profits after the variable cost increase, Zoe's Bakery will ________ its price and its level of
production.
A.raise; increase
B.decrease; increase
C.raise; decrease
D.do nothing to; decrease

Question 56

The profit-maximizing level of output for a perfectly competitive firm in the short run occurs where:
A.marginal cost equals price.
B.marginal revenue equals price.
C.total revenue equals total cost.
D.average revenue equals average total cost.

Question 57

A perfectly competitive firm maximizes profit by producing the quantity at which:
A.TR = TC.
B.MR = MC.
C.Q × (P - ATC) = 0.
D.P > AVC.

Question 58

For a firm producing at any level of output lower than the most profitable one, an increase in output adds:
A.more to total cost than to total revenue.
B.more to total revenue than to total cost.
C.the same amount to total revenue as to total cost.
D.to total revenue but not to total cost.

Question 59

If a perfectly competitive firm sells 300 units of output at a market price of $1 per unit, its marginal revenue is:
A.less than $1.
B.$1.
C.more than $1 but less than $300.
D.$300.

Question 60

Price in a perfectly competitive industry:
A.is determined by each firm, depending on its costs of production.
B.is always equal to marginal revenue for the firm.
C.must be greater than ATC or the firm will shut down in the short run.
D.is indeterminate in the short run.

Question 61

If a perfectly competitive firm is producing a quantity where P < MC, then profit:
A.is maximized.
B.can be increased by decreasing the price.
C.can be increased by increasing production.
D.can be increased by decreasing production.

Question 62

For a perfectly competitive firm in the short run:
A.if the firm produces the quantity at which P > ATC, then the firm is profitable.
B.if the firm produces the quantity at which P < ATC, then the firm breaks even.
C.if the firm produces the quantity at which P = ATC, then the firm incurs a loss.
D.if the firm produces the quantity at which P < ATC, then the firm is profitable.

Question 63

In the short run, a perfectly competitive firm produces output and earns an economic profit if:
A.P > ATC.
B.P = ATC.
C.P < AVC.
D.AVC > P > ATC.

Question 64

In perfectly competitive markets, if the price is ________, the firm will _.
A.greater than ATC; make an economic profit
B.greater than the minimum AVC; shut down
C.greater than the minimum AVC but less than ATC; make an economic profit
D.less than ATC; make an economic profit

Question 65

Which of the following is true?
A.Profit per unit is price minus AVC.
B.Total economic profit is per-unit profit times quantity.
C.If price is less than ATC, the firm will shut down in the short run.
D.If price is less than marginal cost, the perfectly competitive firm should raise the price and increase output.

Question 66

In the short run, a perfectly competitive firm produces output and breaks even if:

A)the firm produces the quantity at which P < ATC.
B)the firm produces the quantity at which P = ATC.
C)the firm produces the quantity at which P > ATC.
D)the firm produces the quantity at which P = (TR/Q + TC/Q) × Q.

Question 67

If a perfectly competitive firm is producing a quantity where P > MC, then profit:
A.is maximized.
B.can be decreased by increasing the price.
C.can be increased by decreasing the price.
D.can be increased by increasing production.

Question 68

Zoe's Bakery operates in a perfectly competitive industry.When the market price of iced cupcakes is $5, the profit-maximizing output level is 150 cupcakes.Her average total cost is
$4, and her average variable cost is $3.Zoe's marginal cost is , and her short-run
profits are:
A.$5; $150
B.$5; $300
C.$1; $150
D.$1; $300

Question 69

Suppose a perfectly competitive firm can increase its profits by increasing its output.Then it must be true that the firm's:
A.marginal revenue exceeds its marginal cost.
B.price exceeds its average variable cost but is less than average total cost.
C.marginal cost exceeds its marginal revenue.
D.price exceeds its marginal revenue.

Question 70

If a perfectly competitive firm is producing a quantity where P = MC, then profit:
A.is maximized.
B.can be increased by decreasing the quantity.
C.can be increased by decreasing the price.
D.can be increased by increasing production.

Question 71

Consider a perfectly competitive firm in the short run.Assume the firm produces the profit- maximizing output and that it earns economic profits.At the profit-maximizing output, all of the following are correct except:
A.price is equal to marginal cost.
B.price is equal to marginal revenue.
C.price is equal to average total cost.
D.marginal cost is greater than average total cost.

Question 72

If the price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:
A.produce at a loss.
B.produce at a profit.
C.shut down production.
D.produce more than the profit-maximizing quantity.

Question 73

In the short run, if P = ATC, a perfectly competitive firm:
A.produces output and earns zero economic profit.
B.produces output and earns an economic profit.
C.produces output and incurs an economic loss.
D.does not produce output and incurs an economic loss.

Question 74

A perfectly competitive firm will earn a profit and will continue producing the profit-maximizing quantity of output in the short run if the price is:
A.greater than the average fixed cost.
B.less than marginal cost.
C.greater than average variable cost, but less than average total cost.
D.greater than average total cost.

Question 75

In the short run, if P > ATC, a perfectly competitive firm:
A.produces output and earns zero economic profit.
B.produces output and earns an economic profit.
C.produces output and incurs an economic loss.
D.does not produce output and earns economic profit.

Question 76

A perfectly competitive firm will earn a profit in the short run when it produces the profit- maximizing quantity of output and the price is:
A.greater than marginal cost.
B.less than marginal cost.
C.less than average variable cost.
D.greater than average total cost.

Question 77

A competitive firm operating in the short run is producing at the output level at which ATC is at a minimum.If ATC = $8 and MR = $9, in order to maximize profits (or minimize losses), this firm should:
A.increase output.
B.reduce output.
C.shut down.
D.do nothing; the firm is already maximizing profits.

Question 78

If a perfectly competitive firm is producing a quantity where MC = MR, then profit:
A.is maximized.
B.can be increased by increasing production.
C.can be increased by decreasing production.
D.can be increased by decreasing the price.

Question 79

In the short run, a perfectly competitive firm produces output and earns zero economic profit if:
A.P > ATC
B..P = ATC.
C.P < AVC.
D.AVC > P > ATC.

Question 80

If the price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:
A.continue to produce at a loss.
B.produce at a profit.
C.shut down production.
D.reduce its fixed costs.