Deck 10: The Firm and the Industry Under Perfect Competition

Question 1

Perfect competition forms one extreme of the market structure spectrum.

Answer 1

True

Question 2

A price taking firm is able to sell its product just slightly above the current market price.

Answer 2

False

Question 3

The market for toothpaste is a good example of perfect competition.

Answer 3

False

Question 4

A perfectly competitive firm is a "price taker" because it cannot sell its product for more than the market price.

Question 5

Perfect competition is an ideal market structure.

Question 6

Under perfect competition, firms are relatively ignorant of the actions of their competitors.

Question 7

Perfectly competitive firms are known for being "price makers."

Question 8

Perfectly competitive markets are not the most efficient type.

Question 9

In perfectly competitive markets, some buyers do not have full information about the products available.

Question 10

It is relatively easy for a firm to enter a perfectly competitive market.

Question 11

Perfectly competitive markets feature relatively high barriers to entry.

Question 12

In perfect competition, there are differences in the products sold by various firms.

Question 13

Under the theory of perfect competition, firms and buyers know the availability and prices associated with all products in the market.

Question 14

In the long run, a perfectly competitive industry tends to develop differentiated products.

Question 15

A perfectly competitive firm is a "price maker."

Question 16

Perfect competition is characterized by numerous firms.

Question 17

A perfectly competitive firm may, under some circumstances, be able to affect the market price.

Question 18

Perfectly competitive markets have absolutely no drawbacks.

Question 19

Perfectly competitive markets are not the best at producing the goods that are desired by consumers.

Question 20

Perfect competition is characterized by numerous products with well-known brand names.

Question 21

A perfectly competitive firm will not operate where MC = MR but at MC = AC.

Question 22

In the short run, a perfectly competitive firm can either make a profit or exit the market.

Question 23

A firm operating at MC = MR must be making a profit.

Question 24

The short-run equilibrium output of a competitive firm is found by equating marginal cost with price.

Question 25

In perfectly competitive markets, firms operate where MC = MR and because of this, they are not making any economic profit.

Question 26

A perfectly competitive firm has a horizontal demand curve because it can sell as much as it wants at the market price.

Question 27

If a firm sells its output at a price greater than AC, it will earn economic profit.

Question 28

In the short run, a firm may have accounting losses and remain in operation.

Question 29

In the short run if TR < TC, a perfectly competitive firm will always shut down.

Question 30

In perfect competition, a firm's marginal revenue equals the price of the product.

Question 31

Once a firm's marginal revenue curve is known, the output level can be determined.

Question 32

In perfect competition, a firm's marginal revenue is the same as the demand curve at high levels of output.

Question 33

A perfectly competitive firm can maximize profits by producing the quantity at which MR exceeds MC by the greatest amount.

Question 34

A firm that knows the market price for its product and its costs can determine how much output that they wish to produce.

Question 35

In the short run, a perfectly competitive firm can make a profit, a loss, or shut down.

Question 36

In the short run, a perfectly competitive firm can make a profit, a loss, or go out of business.

Question 37

Firms in perfectly competitive markets are confined to making profits in the short run, but never a loss.

Question 38

The demand curve of a perfectly competitive firm is vertical.

Question 39

Total profit of a competitive firm can be found by multiplying profit per unit and units sold.

Question 40

If a firm sells its output at a price greater than AVC, it will earn economic profit.

Question 41

In the short run, if price is below AC, maximizing profits really means minimizing total losses.

Question 42

The opportunity cost of a given investment is the potential earnings forfeited by tying up money in the investment.

Question 43

The short-run supply curve for the perfectly competitive firm is that part of the marginal cost curve that lies above the average fixed cost curve.

Question 44

A firm will not choose to produce if total variable costs exceed total revenue.

Question 45

In the short run, only a limited number of new firms may enter a perfectly competitive market.

Question 46

Economic profit equals gross earnings minus the firm's direct costs.

Question 47

Zero economic profit means that the firm's owners receive no compensation for their investment.

Question 48

The short-run market demand curve in perfect competition is positively sloped.

Question 49

As long as TVC < TR, a firm will have a positive level of output in the short run.

Question 50

A perfectly competitive firm's short-run supply is infinite at the market price.

Question 51

The entry of new firms into a perfectly competitive market shifts the demand curve outward.

Question 52

In the short run, the lowest price that a perfectly competitive firm will accept without closing its doors is found by examining the average variable cost curve.

Question 53

Using only marginal revenue and marginal cost, we can determine whether a firm is incurring a profit or a loss.

Question 54

The implications of the zero economic profit condition in a perfectly competitive market implies that the opportunity cost of capital is integrated into the firm's cost relationships.

Question 55

The short-run supply curve for a perfectly competitive firm is that portion of the MC curve above the AVC curve.

Question 56

It pays the firm to produce only if total variable costs exceed total revenue.

Question 57

Zero profit in the economic sense means that firms are earning a normal rate of return.

Question 58

A price taking firm's short-run supply curve is perfectly elastic at the market price.

Question 59

For a firm in a perfectly competitive market, its short-run supply curve is that portion of the MC curve above where it intersects with the average total cost curve.

Question 60

The market demand curve in perfect competition is horizontal.

Question 61

For a perfectly competitive firm, the long-run supply curve is its long-run marginal cost curve.

Question 62

Firms in a perfectly competitive market produce at minimum average cost in the short run and the long run.

Question 63

The number of firms in a perfectly competitive industry is not fixed in the long run.

Question 64

A firm that is earning zero economic profit should go out of business.

Question 65

In the long run, a perfectly competitive firm maximizes profit so P = MC = AC.

Question 66

A market

A)may be an organized exchange.
B)refers to a set of sellers and buyers whose actions affect a commodity's price.
C)is that area in which buyers and sellers compete to affect a product's price.
D)All of the responses are correct.

Question 67

In the long run, a perfectly competitive firm earns no accounting profits.

Question 68

In the long run, any firm may enter or leave a perfectly competitive market.

Question 69

An industry supply curve is the horizontal summation of the supply curves of all of the individual firms.

Question 70

In long-run equilibrium in perfect competition, every firm is producing at minimum average cost.

Question 71

In a long-run equilibrium in a perfectly competitive market, the average firm earns positive economic profits.

Question 72

Subsidizing firms that pollute will reduce pollution in the long run.

Question 73

For a perfectly competitive firm, the long-run supply curve is the long-run average cost curve.

Question 74

In determining whether a market meets the conditions for perfect competition, it is necessary to

A)consider the number of firms in the market.
B)determine the appropriate size of the firm.
C)assess the production technology available to firms.
D)evaluate the promotional tools that can be used by firms.

Question 75

In long-run equilibrium, a firm in perfect competition has no economic profit.

Question 76

A firm that is operating at a loss may continue to operate for a while because of costs that it will still have to pay even if production ceases.

Question 77

To determine whether a market is perfectly competitive, economists examine the

A)number of firms in the market.
B)similarities among the products of the different firms in the market.
C)ease of entry and exit by firms in the market.
D)All of the responses are correct.

Question 78

In a long-run equilibrium in a perfectly competitive market, firms are selling at a price equal to marginal cost.

Question 79

Perfect competition requires that three conditions be satisfied.

Question 80

In a long-run equilibrium in a perfectly competitive market, firms are selling at a price equal to average cost.