Deck 9: Perfect Competition

Question 1

A perfectly competitive firm's pricing decision depends on:

A)whether the firm wants to maximize profits.
B)whether the firm wants to maximize sales revenue.
C)the firm's costs.
D)whether it wants to compete with other firms in the market.
E)the market supply and demand.

Answer 1

E

Question 2

Why is a perfectly competitive firm said to be a price taker?

A)It produces such a good which is not produced by any other firm in the market.
B)It faces the downward sloping market demand curve.
C)The firm's individual production is insignificant relative to production in the industry.
D)There does not exist any barrier to the entry of new firms in the industry.
E)The firm's marginal-revenue curve is downward sloping.

Answer 2

C

Question 3

Suppose Atlas Publishing,a perfectly competitive firm,currently produces 2,000 maps per day at a total cost of $1,600.At its current level of output,Atlas is producing where the marginal revenue curve intersects a rising marginal-cost curve.Which of the following can be concluded about Atlas Publishing?

A)It is maximizing profit.
B)It should produce more to maximize profit.
C)It is maximizing losses.
D)It should produce less to maximize profit.
E)It should produce more to break-even.

Answer 3

A

Question 4

If an individual firm in a market is a price taker,then:

A)it faces a horizontal demand curve.
B)it is operating in a monopolistically competitive market.
C)it sells its product at the market price that is solely determined by the buyers.
D)it faces a positively sloped marginal revenue curve.
E)it faces significant barriers to exit from the market.

Question 5

Perfect competition describes firm behavior when:

A)there are few firms producing identical products.
B)there are few firms producing highly differentiated products.
C)there are many firms producing identical products and entry is easy.
D)there are many firms producing highly differentiated products.
E)there are so few firms operating that government intervention is required to ensure fairness.

Question 6

Quickie Inc.,a perfectly competitive firm,currently maximizes profit by producing 400 units of output.If its marginal cost is equal to $25 and its average total cost is $20,then how much is it earning in economic profit?

A)Economic profit is always equal to zero in perfect competition.
B)$10,000
C)$8,000
D)$2,000
E)$4,000

Question 7

Which of the following statements characterizes perfect competition?

A)Producers enjoy complete freedom of entry and exit from the industry.
B)Producers sell differentiated products.
C)Producers are price makers.
D)Consumers are price makers.
E)The firm is not free to choose the quantity that it wishes to produce.

Question 8

For which of the following types of firms does the average revenue curve coincide with the marginal revenue curve?

A)A monopolist
B)An oligopoly firm
C)A monopolistically competitive firm
D)A perfectly competitive firm
E)A monopsonist

Question 9

The model of perfect competition best applies to markets with:

A)a few firms selling identical products.
B)a few firms selling differentiated products.
C)many firms selling differentiated products.
D)many firms selling identical products.
E)significant barriers to entry and exit.

Question 10

If the market price of oats is $2.5 per bushel and a farmer decides to sell at $2.8 per bushel,he is likely to sell:

A)more than 5 bushels per day.
B)more than 10 bushels per day.
C)less than 5 bushels per day.
D)10 bushels per day.
E)nothing.

Question 11

Which of the following is true of the model of perfect competition?

A)There is a high degree of product differentiation.
B)Consumers do not have adequate information concerning the prices and quality of products in the market.
C)There are significant barriers to entry and exit.
D)There are only a few,large firms in the market.
E)An individual firm cannot affect the market price.

Question 12

Many agricultural products,such as wheat,are produced by thousands of different producers that grow essentially the same product.The market structure model that would best characterize such a market is:

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

Question 13

The market-demand curve for a product in a perfectly competitive market:

A)is horizontal.
B)is downward sloping.
C)is vertical.
D)has elasticity equal to 1.
E)is positively sloped.

Question 14

One assumption of the model of perfect competition is that entry into the market is easy.This implies that:

A)there are government licensing requirements for a firm to enter the market.
B)there are not significant economies of scale relative to the size of the market.
C)one firm has gained a patent in the industry.
D)significant economies of scale do exist in the industry.
E)there is no government intervention.

Question 15

Which of the following statements concerning perfect competition is not true?

A)Firms are price takers.
B)The demand curve facing the individual firm is horizontal.
C)The firm's demand curve is identical to its marginal revenue curve.
D)The firms produce differentiated products.
E)If the firm raises its price,it will lose all of its customers.

Question 16

Which of the following faces a horizontal demand curve?

A)A monopolistic firm
B)An oligopolistic firm
C)A perfectly competitive firm
D)A monopolistically competitive firm
E)A duopolistic firm

Question 17

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

A)it will sell less but earn more revenue.
B)it will sell less but earn the same revenue.
C)it will sell exactly the same amount.
D)whether it sells less or more depends on elasticity.
E)it will sell nothing.

Question 18

The perfectly competitive producer's demand curve is:

A)perfectly elastic.
B)the market-demand curve.
C)downward sloping but more elastic than the market-demand curve.
D)perfectly inelastic.
E)vertical.

Question 19

At the profit-maximizing output level for a perfectly competitive firm,if the firm increases its price,it will:

A)increase profits.
B)reduce total cost more than total revenue.
C)increase total revenue more than total cost.
D)increase total cost more than total revenue.
E)cause the firm to lose all of its sales.

Question 20

At the twenty-fifth anniversary of the Woodstock Festival in 1994,there were many vendors who sold tie-dyed t-shirts.No matter where one went,each vendor was selling these t-shirts for $15 apiece.Which market structure model would best characterize such a situation?

A)Perfect competition
B)Monopolistic competition
C)Monopoly
D)Oligopoly
E)Duopoly

Question 21

The table given below shows the price of each unit of the product manufactured by a firm and the marginal cost of producing different units of the output. Table: 9.1
According to the information in Table 9.1,this firm will maximize profit when total output is equal to _____ units.

A)nine
B)eight
C)seven
D)six
E)five

Question 22

If a perfectly competitive firm's price increases,then:

A)the marginal-cost curve will shift up.
B)the demand curve faced by the firm will shift to the left.
C)marginal cost will fall as output declines.
D)the marginal-revenue curve for the firm will shift up.
E)the marginal-cost curve for the firm will shift down.

Question 23

In which of the following situations will a perfectly competitive firm's profit always increase when it increases its output?

A)When price is greater than marginal revenue
B)When price is less than marginal revenue
C)When price is greater than marginal cost
D)When price is less than marginal cost
E)When price is equal to marginal cost

Question 24

To maximize profits in the short run,a perfectly competitive firm will produce that output at which:

A)marginal revenue equals demand.
B)price equals marginal revenue.
C)price equals marginal cost.
D)marginal revenue equals average total cost.
E)total revenue equals total cost.

Question 25

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.1 In Figure 9.1,the firm's profit is equal to the area:

A)OIWR.
B)JKEF
C)OKET
D)LMNG
E)OJFS

Question 26

The table given below shows the total revenue and total cost of a firm at different levels of output. Table 9.2
Consider the perfectly competitive firm described in Table 9.2.How many units of the good should the firm produce to maximize profit?

A)16 units
B)17 units
C)18 units
D)19 units
E)20 units

Question 27

If in the short run,at the profit maximizing level of output,the average revenue curve of a competitive firm lies above the average cost curve:

A)the firm is incurring losses.
B)the firm is just able to cover its total cost.
C)the firm enjoys above-normal profits.
D)the firm must shut down.
E)the firm is barely able to cover its variable costs.

Question 28

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.1 In Figure 9.1,average fixed cost at the profit-maximizing output is equal to ______.

A)UH
B)UG
C)GH
D)UN
E)HN

Question 29

The table given below shows the price of each unit of the product manufactured by a firm and the marginal cost of producing different units of the output.
Table: 9.1
Refer to Table 9.1.If the market price of the good falls to $0.80 per unit,the firm:
A.should decrease its output to seven units.
B.should decrease its output to seven units.
C.should increase its output to ten units.
D.should produce nine units.
E.should keep its output level unchanged.

Question 30

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.1 In Figure 9.1,the firm maximizes its profit at an output level of _____ units.

A)R
B)S
C)T
D)U
E)V

Question 31

A firm's total revenue is $400 for 8 units of output,$600 for 12 units of output,and $1,100 for 22 units of output.Evidently this firm is operating in a(n):

A)perfectly competitive market.
B)monopolistic market.
C)duopolistic market.
D)monopolistically competitive market.
E)oligopolistic market.

Question 32

The table given below shows the price of each unit of the product manufactured by a firm and the marginal cost of producing different units of the output. Table: 9.1
Refer to Table 9.1.The firm depicted in the table is a(n):

A)monopolist.
B)oligopolist.
C)monopolistically competitive firm.
D)perfectly competitive firm.
E)monopsonist.

Question 33

The table given below shows the total revenue and total cost of a firm at different levels of output. Table 9.2
Consider the perfectly competitive firm described in Table 9.2.How much profit will the firm make if it is a profit maximizer?

A)$20
B)$45
C)$46
D)$80
E)$50

Question 34

A perfectly competitive firm produces 50 units of output at equilibrium in the short run.The total cost borne by the firm is $300 and the average revenue is $2.Therefore:

A)is just breaking even.
B)is earning positive profits.
C)is facing a positively sloped demand curve.
D)is suffering losses.
E)is experiencing diseconomies of scale.

Question 35

The table given below shows the total revenue and total cost of a firm at different levels of output. Table 9.2
What is the equilibrium price for the perfectly competitive firm described in Table 9.2?

A)$2
B)$4
C)$6
D)$8
E)$10

Question 36

Suppose a perfectly competitive firm's total revenue equals $210 and its output is 70 units when the firm's marginal-cost curve intersects its marginal-revenue curve.Since the firm is a profit-maximizing firm,what is marginal revenue equal to?

A)$15
B)$3
C)$30
D)$7
E)$70

Question 37

Given a perfectly competitive market structure at the profit-maximizing output level,a firm's total fixed cost is $10,total variable cost is $100,marginal revenue is $4,and the quantity demanded is 50.The total profit earned by the firm is:

A)$70.
B)$65.
C)$90.
D)$70.
E)$75.

Question 38

A perfectly competitive firm maximizes its profit when:

A)its marginal revenue is equal to its marginal cost.
B)its marginal revenue is greater than its marginal cost.
C)its marginal cost is negative.
D)its marginal cost is greater than its marginal revenue.
E)its marginal cost is minimum.

Question 39

A perfectly competitive firm incurs loss in the short run if at the profit maximizing level of output:

A)the marginal revenue curve lies below the marginal cost curve.
B)the marginal revenue curve lies above the average revenue curve.
C)the average cost curve lies below the average revenue curve.
D)the average revenue curve lies below the average cost curve.
E)marginal revenue curve lies above the marginal cost curve.

Question 40

The table given below shows the price of each unit of the product manufactured by a firm and the marginal cost of producing different units of the output. Table: 9.1
According to the information in Table 9.1,the marginal revenue of the firm:

A)is equal to the marginal cost at each level of output.
B)is equal to price times output.
C)is equal to price times marginal cost.
D)is equal to $1 at all levels of the output.
E)decreases with an increase in output.

Question 41

A firm whose price is below its average cost:

A)is earning negative economic profit.
B)is earning positive economic profit.
C)is just breaking even.
D)is earning zero economic profit.
E)is earning zero accounting profit.

Question 42

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.2 MC: Marginal cost curve
MR: Marginal revenue curve
ATC: Average-total-cost curve
AVC: Average-variable-cost curve
Refer to Figure 9.2.If the marginal-revenue curve would have intersected the average-total-cost curve at its lowest point and the firm maximized profit,then total revenue would have been equal to:

A)$500.
B)$550.
C)$600.
D)$450.
E)$400.

Question 43

Suppose that in a perfectly competitive market,the market supply of a good increases.As a result,the individual firm's:

A)supply curve would shift outward and the firm would increase output.
B)supply curve would shift inward and the firm would decrease output.
C)average-total-cost curve would shift upward and the firm would increase output.
D)marginal-revenue curve would shift upward and the firm would increase output.
E)marginal-revenue curve would shift downward and the firm would decrease output.

Question 44

The figure given below shows the revenue and the cost curves of a perfectly competitive firm. Figure 9.3 In Figure 9.3,at equilibrium,the firm enjoys a profit of:

A)$69.
B)$42.
C)$60.
D)$27.
E)$48.

Question 45

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.2 MC: Marginal cost curve
MR: Marginal revenue curve
ATC: Average-total-cost curve
AVC: Average-variable-cost curve
Refer to Figure 9.2.If the marginal-revenue curve would have intersected the average-total-cost curve at the latter's lowest point and the firm maximized profit,then total profit would have been equal to:

A)$30.
B)zero.
C)-$10.
D)$20.
E)-$20.

Question 46

In the short run a firm continues to produce only if it can cover the:

A)fixed costs.
B)sunk costs.
C)explicit costs.
D)variable costs.
E)implicit costs.

Question 47

A perfectly competitive firm decides to shut down if:

A)the price falls below the average-total-cost.
B)average revenue falls below the average-variable-cost.
C)the price falls below the marginal cost.
D)the average revenue curve lies below the marginal cost curve.
E)the total revenue is less than total cost.

Question 48

The figure given below shows the revenue and the cost curves of a perfectly competitive firm. Figure 9.3 In Figure 9.3,the firm will have to suspend its operations if the price falls below _____.

A)$2
B)$4
C)$10
D)$11
E)$14

Question 49

The figure given below shows the revenue and the cost curves of a perfectly competitive firm. Figure 9.3 In Figure 9.3,the profit maximizing output of the firm is _____ units.

A)4
B)16
C)11
D)7
E)14

Question 50

If the marginal cost exceeds the marginal revenue,a perfectly competitive firm should:

A)raise the level of output to maximize profit.
B)keep the level of output constant.
C)raise the level of output to minimize loss.
D)reduce the level of output to minimize loss.
E)shut down.

Question 51

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.2 MC: Marginal cost curve
MR: Marginal revenue curve
ATC: Average-total-cost curve
AVC: Average-variable-cost curve
Refer to Figure 9.2.The firm will suspend production if the price falls below:

A)$30.
B)$50.
C)$10.
D)$20.
E)$35.

Question 52

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.2 MC: Marginal cost curve
MR: Marginal revenue curve
ATC: Average-total-cost curve
AVC: Average-variable-cost curve
Refer to Figure 9.2.What is the firm's total fixed cost at the profit-maximizing output level?

A)$400
B)$300
C)$600
D)$450
E)$500

Question 53

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.2 MC: Marginal cost curve
MR: Marginal revenue curve
ATC: Average-total-cost curve
AVC: Average-variable-cost curve
Refer to Figure 9.2.What is the profit-maximizing price and output level?

A)$35 and 10 units
B)$50 and 15 units
C)$50 and 20 units
D)$20 and 20 units
E)$35 and 20 units

Question 54

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.2 MC: Marginal cost curve
MR: Marginal revenue curve
ATC: Average-total-cost curve
AVC: Average-variable-cost curve
Refer to Figure 9.2.Compute the profit earned by the firm at the profit-maximizing level of output.

A)$300
B)$450
C)$700
D)$500
E)$350

Question 55

The minimum point of the _____ curve is called the shutdown price.

A)average-fixed-cost
B)marginal cost
C)average -total-cost
D)total fixed cost
E)average-variable-cost

Question 56

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.2 MC: Marginal cost curve
MR: Marginal revenue curve
ATC: Average-total-cost curve
AVC: Average-variable-cost curve
According to Figure 9.2,the break-even price of the firm is:

A)$30.
B)$50.
C)$20.
D)$10.
E)$35.

Question 57

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.2 MC: Marginal cost curve
MR: Marginal revenue curve
ATC: Average-total-cost curve
AVC: Average-variable-cost curve
Refer to Figure 9.2.If the market price falls to $10,the firm would produce:

A)nothing.
B)15 units.
C)5 units.
D)10 units.
E)20 units.

Question 58

The figure given below shows the revenue and the cost curves of a perfectly competitive firm. Figure 9.3 Refer to Figure 9.3 and calculate the firm's total revenue at the profit maximizing level of output.

A)$200.
B)$169.
C)$196.
D)$225.
E)$154.

Question 59

At an output level above the profit-maximizing one for a perfectly competitive firm,a reduction in output will:

A)reduce total revenue more than total cost.
B)reduce total cost more than total revenue.
C)increase total revenue more than total cost.
D)increase total cost more than total revenue.
E)decrease total revenue and total cost by the same amount.

Question 60

The figure given below shows the revenue and the cost curves of a perfectly competitive firm. Figure 9.3 Refer to Figure 9.3 and calculate the total fixed cost borne by the firm at the profit maximizing level of the output.

A)$28
B)$84
C)$70
D)$56
E)$42

Question 61

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.5 MC: Marginal cost curve
MR: Marginal revenue curve.
ATC: Average-total-cost curve
AVC: Average-variable-cost curve
Assume the price facing the firm in Figure 9.5 is P_1.Which of the following statements is true?

A)Total revenue for the firm is area 0BDQ₁.
B)The firm should produce Q₂.
C)Total cost for the firm is area 0P₁EQ₁.
D)The firm's total revenue is more than sufficient to cover its variable costs,so it should remain in operation.
E)The firm should shut down because price per unit received is less than average total cost.

Question 62

The figure given below shows the demand and cost curves of a perfectly competitive firm. Figure: 9.4 D: Demand curve
MC: Marginal cost curve
ATC: Average-total cost curve
AVC: Average-variable-cost curve
Refer to Figure 9.4.At the profit-maximizing output level,which of the following is true?

A)The firm is making a profit of $10 per unit.
B)The firm is making a profit of $45 per unit.
C)The firm is losing $35 per unit.
D)The firm is losing $10 per unit.
E)The firm is breaking even.

Question 63

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.5 MC: Marginal cost curve
MR: Marginal revenue curve.
ATC: Average-total-cost curve
AVC: Average-variable-cost curve
According to Figure 9.5,the firm has:

A)profits equal to the area AP₁EF.
B)profits equal to the area P₁BDE.
C)losses equal to the area 0AFQ₁.
D)losses equal to the area P₁BDE.
E)no profit no loss.

Question 64

The figure given below shows the revenue and the cost curves of a perfectly competitive firm. Figure 9.3 Refer to Figure 9.3 and identify the price level at which the firm earns only normal profit.

A)$4
B)$8
C)$10
D)$2
E)$14

Question 65

The figure given below shows the demand and cost curves of a perfectly competitive firm. Figure: 9.4 D: Demand curve
MC: Marginal cost curve
ATC: Average-total cost curve
AVC: Average-variable-cost curve
Refer to Figure 9.4.The presence of the average-variable-cost curve suggests that the firm is operating:

A)in the short run.
B)in the long run.
C)at a gain.
D)in a monopoly.
E)at a zero profit.

Question 66

In the short run,the firm's break-even point is:

A)the minimum point of the firm's demand curve.
B)the minimum point of the firm's average-total-cost curve.
C)the minimum point of the firm's average-variable-cost curve.
D)the minimum point of the firm's marginal-cost curve.
E)the minimum point on the average-fixed-cost curve.

Question 67

When revenue is less than total cost but more than variable cost it implies:

A)the firm is enjoying positive economic profits.
B)the firm is earning normal profits.
C)the firm can cover its variable cost and a part of its fixed costs.
D)the firm is unable to cover its costs and should shut down.
E)the firm is able to cover all its fixed and variable costs.

Question 68

The permanent shut down point of a perfectly competitive firm in the long run is:

A)the minimum point of the AVC curve.
B)the minimum point of the MC curve.
C)the minimum point of the AR curve.
D)the minimum point of the ATC curve.
E)the minimum point of the AFC curve.

Question 69

The figure given below shows the demand and cost curves of a perfectly competitive firm. Figure: 9.4 D: Demand curve
MC: Marginal cost curve
ATC: Average-total cost curve
AVC: Average-variable-cost curve
According to Figure 9.4,the firm's shutdown price is:

A)above $60.
B)$60.
C)$50.
D)between $50 and $60.
E)less than $15.

Question 70

If a profit-maximizing,perfectly competitive firm is producing at a loss in the short run,then it implies that:

A)marginal revenue must be less than marginal cost.
B)price must be less than the average variable cost.
C)price must be less than average total cost but greater than average variable cost.
D)the average revenue curve must lie below the average variable cost curve but above the average fixed cost curve.
E)price must be less than both average variable cost and average fixed cost.

Question 71

Some competitive firms are willing to operate at a loss in the short run because:

A)their average variable cost is less than the price.
B)their fixed costs are less than their current losses.
C)their average total cost is less than the price.
D)they do not attempt to maximize profits or minimize losses.
E)their revenues are at least able to cover their fixed costs.

Question 72

In the short run,a firm attempting to minimize losses:

A)must leave the industry in order to maximize opportunity costs.
B)will produce as long as marginal cost equals marginal revenue.
C)will produce as long as total revenue exceeds total variable cost.
D)will produce as long as total revenue exceeds total fixed cost.
E)will produce as long as competitors continue to produce.

Question 73

If a profit-maximizing,perfectly competitive firm is making only a normal profit in the short run,then the firm is in:

A)disequilibrium.
B)equilibrium where MR exceeds minimum ATC.
C)equilibrium where MR equals minimum AVC.
D)equilibrium where P = AFC.
E)equilibrium where P = ATC

Question 74

A firm should not necessarily shut down if:

A)total revenue is less than total variable cost.
B)losses are greater than fixed costs.
C)the demand curve facing the firm lies below its average variable cost curve.
D)price is less than average variable cost.
E)losses exceed variable costs.

Question 75

In the short run,certain costs,such as rent on land and equipment,must be paid whether or not any output is produced.These are:

A)the firm's variable costs.
B)the firm's break-even costs.
C)the firm's sunk costs.
D)the firm's marginal costs.
E)the firm's fixed costs.

Question 76

Since the beginning of the millennium,the United States has witnessed closure of many Internet start-up companies.According to the model of perfect competition,these companies must have shut down in the short run because:

A)the price they were charging was too high to attract customers.
B)the price they were charging was too low to provide sufficient revenues.
C)they weren't earning enough revenue to cover their total costs.
D)they were not earning enough revenue to cover their total variable costs.
E)they were not earning enough revenue to cover their total fixed costs.

Question 77

The figure given below shows the demand and cost curves of a perfectly competitive firm. Figure: 9.4 D: Demand curve
MC: Marginal cost curve
ATC: Average-total cost curve
AVC: Average-variable-cost curve
Refer to Figure 9.4.The total profit or loss for the firm is:

A)$500 profit.
B)$2,500 profit.
C)$2,500 loss.
D)$650 loss.
E)$500 loss.

Question 78

For a perfectly competitive firm in the short run,which of the following statements is true?

A)A price above minimum average variable cost,but below average total cost will produce an economic profit.
B)A price below minimum average variable cost will cause the firm to shut down.
C)Marginal cost is parallel to the axis showing quantity of output.
D)Price is always greater than marginal revenue.
E)Every firm contributes a significant amount to the total market output.

Question 79

In the short run a competitive firm is said to break-even if,at the equilibrium:

A)price is equal to marginal revenue.
B)price is equal to average revenue.
C)price is equal to average variable cost.
D)price is equal to the average total cost.
E)price is equal to marginal cost.

Question 80

If a firm in a perfectly competitive market is operating at its profit-maximizing level of output and suddenly faces a reduction in the price it can charge for its product,will the firm suspend operations?

A)No,because it can always raise its prices in the short run.
B)No,because it can always raise its prices in the long run.
C)No,as long as the firm earns sufficient revenue to pay all of the variable costs.
D)Yes,since it never makes sense to operate at a loss,even in the short run.
E)No,because it always makes sense to operate at a loss,even in the long run.