Question 1

A firm's total output times the price at which it sells that output is _____ revenue.

Accepted Answer

Total revenue is calculated by multiplying a firm's total output by the price at which it sells that output.

Question 2

For a perfectly competitive firm, marginal revenue:

Accepted Answer

For a perfectly competitive firm, marginal revenue is equal to price because the firm can sell as much output as it wants to at the going market price. Therefore, the marginal revenue curve is a horizontal line at the market price.

Question 3

Total revenue is a firm's:

Accepted Answer

Total revenue (TR) is calculated as the total output (Q) multiplied by the price (P) of each unit of output: TR = Q x P. Therefore, the correct choice is D, total output times the price of that output.

Question 4

Marginal revenue:

Accepted Answer

Marginal revenue equals the market price in perfect competition, as each additional unit sold in a perfectly competitive market sells at the same price as all previous units. Marginal revenue is not the slope of the average revenue curve (A), nor is it the change in quantity divided by the change in total revenue (C) or the price divided by the change in quantity (D).

Question 5

The demand curve for a perfectly competitive firm is:

Accepted Answer

The answer of The demand curve for a perfectly competitive...

Question 6

In perfect competition:

Accepted Answer

In perfect competition, a firm is a price taker and therefore the market price is fixed. The firm's total revenue is found by multiplying the market price by the firm's quantity of output.

Question 7

Perfectly competitive firms will:

Accepted Answer

Perfectly competitive firms will increase output up to the point that the marginal benefit of an additional unit of output is equal to the marginal cost. This is because in a perfectly competitive market, the price is determined by the market demand and the firms are price takers. Therefore, the firm only has control over the quantity they produce and must produce at the quantity where the marginal revenue (which is equal to the price in a perfectly competitive market) equals the marginal cost in order to maximize profits.

Question 8

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:

Accepted Answer

If the firm is perfectly competitive, it can sell each additional unit at the going market price of $20. Therefore, the additional revenue from producing and selling the 11th unit is $20.

Total revenue for 11 units:

Total revenue = price per unit x quantity 
Total revenue = $20 x 11 
Total revenue = $220

Question 9

In a perfectly competitive industry, the market demand curve is usually:

Accepted Answer

In a perfectly competitive industry, while individual firms face a perfectly elastic demand curve due to the presence of many sellers offering identical products, the market demand curve for the entire industry is downward-sloping. This reflects the overall market behavior, where the quantity demanded increases as the price decreases, and vice versa.

Question 10

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

Accepted Answer

In a perfectly competitive market, the marginal revenue a firm receives for each additional unit sold is equal to the market price, which is also equal to its average revenue. This is because firms in perfect competition are price takers and cannot influence the market price.

Question 11

A perfectly competitive firm will maximize profits when the:

Accepted Answer

A perfectly competitive firm will maximize profits when producing the quantity of output where marginal revenue (MR) equals marginal cost (MC) because at that point, the firm is producing the level of output where the additional revenue gained from producing one more unit is exactly equal to the additional cost incurred from producing that extra unit. This ensures that the firm is not wasting resources by producing too much or too little and is allocating its resources efficiently. Additionally, at this point, the firm's profits are the highest possible given its cost structure and the market price for the good.

Question 12

_____ almost always take the market price as given-that is, are considered _____-but this is often not true of _____.

Accepted Answer

Consumers and producers in perfectly competitive markets are considered price takers, meaning they accept the market price as given. However, firms that produce a differentiated product may have some pricing power and may engage in price searching behavior.

Question 13

If a perfectly competitive gardening shop sells 30 evergreen bushes at $10 per bush, its marginal revenue is:

Accepted Answer

In a perfectly competitive market, the marginal revenue of a firm is equal to the price of the product as the firm cannot influence the market price. Therefore, in this case, the marginal revenue of selling 30 evergreen bushes at $10 per bush will be $10.

Question 14

The competitive model assumes all of the following EXCEPT:

Accepted Answer

The competitive model assumes a large number of buyers, easy entry and exit from the market, and standardized products. It does not assume the presence of barriers to entry, such as patents and copyrights, which would limit competition.

Question 15

If a perfectly competitive firm decreases production from 11 units to 10 units and the market price is $20 per unit, total revenue for 10 units is:

Accepted Answer

The answer of If a perfectly competitive firm decreases production...

Question 16

An assumption of the model of perfect competition is:

Accepted Answer

The assumption of identical goods is a key characteristic of perfect competition. In this market structure, all firms produce and sell homogeneous products, so consumers cannot differentiate between the products of different firms.

Question 17

The difference between total revenue and total cost is:

Accepted Answer

The difference between total revenue and total cost is the economic profit or loss. It is calculated by subtracting the total cost from total revenue. A positive result indicates a profit, while a negative result indicates a loss.

Question 18

Marginal revenue is a firm's:

Accepted Answer

Marginal revenue is defined as the increase in total revenue when one additional unit of output is sold. It is calculated by subtracting the total revenue before the sale of the additional unit from the total revenue after the sale of the additional unit.

Question 19

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:

Accepted Answer

The perfect competition assumption of ease of entry and exit is violated in this situation because people are being prevented from traveling between different parts of the city to buy or sell goods.

Question 20

When perfect competition prevails, which of the following characteristics of firms are we likely to observe?

Accepted Answer

In perfect competition, firms are price takers, meaning they have no control over the price they charge for their product. Option A is incorrect because firms do not erect or maintain barriers to new firms in perfect competition, as entry and exit are easy. Option B is incorrect because there can be many firms in the market. Option C is incorrect because there is no product differentiation in perfect competition.

Quiz 11: Perfect Competition and the Supply Curve