Question 1

In a perfectly competitive market, many firms produce many different varieties of the same product.

Accepted Answer

In a perfectly competitive market, many firms produce identical or homogeneous products, not different varieties.

Question 2

The existence of positive economic profits in an industry attracts new entrants into the industry.

Accepted Answer

Positive economic profits signal that an industry is lucrative, encouraging new firms to enter and compete for those profits.

Question 3

In the short run when the number of firms in the market is fixed, the market supply curve is just the horizontal sum of all the firms' marginal cost curves.

Accepted Answer

In the short run, the market supply curve is derived by horizontally summing the individual supply curves of all firms, which are based on their marginal cost curves.

Question 4

A firm will continue to operate in the long run as long as price exceeds long-run average variable cost.

Accepted Answer

The answer of A firm will continue to operate in...

Question 5

The marginal cost curve is a competitive firm's supply curve; it shows how many units of output a firm will be willing to sell at different prices.

Accepted Answer

In a competitive market, the marginal cost curve above the average variable cost represents the firm's supply curve, indicating the quantity of output the firm is willing to supply at various prices.

Question 6

Firms continue to produce (illegally) counterfeit computer software and documentation. Some of the illegal copies are Microsoft products, though Microsoft still has a large share of the market for its products. The presence of enforced copyright protection laws indicates that the market for Microsoft software cannot be considered a competitive market because:

Accepted Answer

The presence of enforced copyright protection laws creates significant barriers to entry, which is a characteristic of a non-competitive market.

Question 7

Each firm in perfect competition:

Accepted Answer

In perfect competition, each firm is a price taker and sets its output level based on the market price, which is determined by the overall supply and demand in the market.

Question 8

In a perfectly competitive market, firms set:

Accepted Answer

In a perfectly competitive market, firms are price takers and cannot set prices; they can only decide the quantity to produce based on the market price.

Question 9

In a perfectly competitive market, economic forces are controlled by government policy makers.

Accepted Answer

In a perfectly competitive market, economic forces are determined by supply and demand, with minimal government intervention.

Question 10

Which of the following is one of the necessary conditions for perfect competition?

Accepted Answer

In perfect competition, there are no barriers to entry, allowing firms to freely enter and exit the market.

Question 11

In a perfectly competitive market, market prices are determined by:

Accepted Answer

The answer of In a perfectly competitive market, market prices...

Question 12

If long-run average total cost exceeds marginal revenue, a perfectly competitive firm will incur losses.

Accepted Answer

In a perfectly competitive market, if long-run average total cost (LRATC) exceeds marginal revenue (MR), the firm is not covering its costs, leading to losses.

Question 13

In perfect competition, price is equal to marginal revenue.

Accepted Answer

In perfect competition, firms are price takers, meaning they sell their products at the market price, which is equal to marginal revenue for each additional unit sold.

Question 14

The profit-maximizing output level minimizes average total cost.

Accepted Answer

The profit-maximizing output level occurs where marginal cost equals marginal revenue, not where average total cost is minimized.

Question 15

Because only competitive firms are price takers, only competitive firms have supply curves.

Accepted Answer

The answer of Because only competitive firms are price takers,...

Question 16

For a perfectly competitive firm, the profit-maximizing output level occurs where marginal cost equals price.

Accepted Answer

In perfect competition, firms are price takers, and the profit-maximizing condition is where marginal cost (MC) equals marginal revenue (MR), which is also the price (P) in this market structure.

Question 17

An increase in market price, given a fixed number of firms, causes market supply to shift to the right.

Accepted Answer

An increase in market price does not cause the market supply curve to shift; it causes movement along the supply curve. A shift in supply would require a change in factors other than price, such as technology or input costs.

Question 18

Perfectly competitive firms:

Accepted Answer

Perfectly competitive firms are price takers because they are small relative to the market and cannot influence the market price. They must accept the market price as given.

Question 19

Barriers to entry:

Accepted Answer

Barriers to entry restrict the number of firms in an industry by making it difficult for new firms to enter the market, thus limiting competition.

Question 20

An assumption of a competitive market is that both buyers and sellers are price takers. When we go to the mall to shop for clothing or to the grocery to buy food, what do we usually observe?

Accepted Answer

In most retail settings like malls or grocery stores, sellers set the prices for goods, making them price makers, while buyers accept these prices, making them price takers.

Quiz 13: Perfect Competition