Question 1

In the short run, a perfectly competitive firm

Accepted Answer

In the short run, a perfectly competitive firm can indeed make an economic profit, incur an economic loss, or break even (make zero economic profit) depending on market conditions and its cost structure.

Question 2

-Sue's Sea Shells by the Sea Shore is a perfectly competitive firm selling sea shells at the market price of $2 per dozen. Sue's Sea Shells by the Sea Shore has fixed costs of $40 per day and a variable cost schedule shown in the table above. Based on this information, we can expect the number of firms in the sea shell market to

Accepted Answer

The answer of 
-Sue's Sea Shells by the Sea Shore...

Question 3

For a perfectly competitive firm, as its output increases its marginal revenue _______ and its marginal cost _______.

Accepted Answer

In a perfectly competitive market, a firm's marginal revenue remains constant as it increases output, because the price is determined by the market and does not change with the quantity sold by an individual firm. However, marginal cost typically changes (usually increases) as output increases due to the law of diminishing returns.

Question 4

-Consider the perfectly competitive firm in the above figure. At what price will long- run equilibrium occur?

Accepted Answer

The answer of 
-Consider the perfectly competitive firm in the...

Question 5

-Based on the table above, what is the marginal revenue of the tenth unit of output?

Accepted Answer

Marginal revenue is the additional revenue from selling one more unit. If the table shows that the total revenue increases by $10 when the tenth unit is sold, then the marginal revenue of the tenth unit is $10.

Question 6

-The figure above shows a firm in a perfectly competitive market. The firm will shut down if price falls below

Accepted Answer

In a perfectly competitive market, a firm will shut down if the price falls below the average variable cost (AVC). P2 represents the point where price equals AVC.

Question 7

Suppose some firms in a perfectly competitive market are incurring an economic loss. As a result,

Accepted Answer

When firms in a perfectly competitive market incur economic losses, some will exit the market. This reduces supply, leading to an increase in the price of the good, which can help remaining firms return to profitability.

Question 8

A perfectly competitive firm maximises its profits by producing the amount of output such that

Accepted Answer

In a perfectly competitive market, a firm maximizes its profits by producing the quantity of output where marginal revenue (MR) equals marginal cost (MC).

Question 9

-The figure above shows a perfectly competitive firm. When the firm maximises its profit, its total revenue is

Accepted Answer

Total revenue is maximized when marginal revenue equals marginal cost. At this point, the firm is producing 10 units of output and selling them for $60 each. Therefore, total revenue is $600.

Question 10

Which of the following is NOT a defining characteristic of perfectly competitive industries?

Accepted Answer

In perfectly competitive markets, firms are price takers and cannot charge higher prices for their products based on brand name, as products are considered homogeneous.

Question 11

A market is perfectly competitive if

Accepted Answer

In a perfectly competitive market, there are many firms selling identical products, which means that no single firm can influence the market price of the product. This scenario is best described by option B.

Question 12

Congestion of airports and airspace causes the airline industry to experience external

Accepted Answer

Congestion of airports and airspace leads to inefficiencies and increased operational costs for airlines, which are external diseconomies. These diseconomies cause the long-run supply curve to slope upwards, as higher production levels lead to higher per unit costs.

Question 13

A perfectly competitive firm is initially earning zero economic profit. Then, a decrease in demand for the firm's product occurs. Of the following, in the long run which action listed below is the firm most likely to take?

Accepted Answer

In a perfectly competitive market, firms earn zero economic profit in the long run equilibrium. If demand for the firm's product decreases, the price the firm can charge will likely fall, leading to losses. Since firms in perfect competition are price takers and cannot influence market price through advertising or by altering their output significantly, the firm cannot recover its losses by increasing demand or production. Therefore, if the situation persists, the firm is most likely to exit the market to avoid continued losses.

Question 14

The difference between a firm's total revenue and its total opportunity cost is the firm's

Accepted Answer

Economic profit is the difference between a firm's total revenue and its total opportunity costs, including both explicit and implicit costs.

Question 15

When a firm is considered to be a "price taker" that means that the firm

Accepted Answer

A firm considered a "price taker" is unable to influence the market price of the good it sells, meaning it must accept the prevailing market price. This typically occurs in perfectly competitive markets where each firm's output is a small fraction of the total market.

Question 16

In the short run, an increase in demand for a good that is sold in a perfectly competitive market

Accepted Answer

In the short run, an increase in demand for a good in a perfectly competitive market leads to higher prices and quantities sold, which can increase the economic profits of existing firms as they benefit from the higher demand and prices before new firms enter the market to restore the long-run equilibrium.

Question 17

In a perfectly competitive market that is in long- run equilibrium, a rightward shift in the market demand curve results in

Accepted Answer

In a perfectly competitive market in long-run equilibrium, a rightward shift in the market demand curve would initially increase prices and profits, attracting new firms and leading to an eventual return to the original equilibrium price and profit levels, not the outcomes described in options A, B, or C.

Question 18

An example of a perfectly competitive firm is

Accepted Answer

A potato farmer in Australia is an example of a perfectly competitive firm because the market for potatoes is characterized by many sellers and buyers, homogeneous products, and easy entry and exit, which are characteristics of perfect competition.

Question 19

Tammy sells woollen hats in a perfectly competitive market. The marginal cost of producing one hat is $24. The marginal cost of producing a second hat is $26 and the marginal cost of producing a third hat is $28. The market price of a hat is $26. To maximise profit, Tammy produces _______ per day.

Accepted Answer

In a perfectly competitive market, Tammy should produce hats until the marginal cost equals the market price. The marginal cost of the second hat is $26, which equals the market price, so she should produce 2 hats to maximize profit.

Question 20

If firms in a competitive market are _______ then there is _______ for firms to _______ the industry.

Accepted Answer

C) In a competitive market, if firms are incurring economic losses, it creates an incentive for them to exit the industry to minimize their losses. This is because continuing operations under loss conditions is unsustainable in the long term.

Quiz 14: Perfect Competition