Deck 5: Perfect Competition

Question 1

Which of the following is an example of a homogeneous good?

A)digital cameras
B)jeans
C)green peppers
D)toothpaste

Answer 1

C

Question 2

In a perfectly competitive market, firms .

A)are price takers
B)face legal barriers
C)face transaction costs
D)have market power

Answer 2

A

Question 3

In a competitive market, buyers have _ _ impact on the market price and sellers have impact on the market price.

A)no; no
B)some; no
C)some; some
D)no; some

Answer 3

A

Question 4

All of the following are characteristics of a perfectly competitive market except which one?

A)homogeneous goods
B)no transaction costs
C)no perfect information
D)no barriers to entry

Question 5

Which of the following is an example of a perfectly competitive market?

A)the market for laundry detergent
B)the market for designer jeans
C)the market for soybeans
D)the market for paper towels

Question 6

All of the following are characteristics of a perfectly competitive market except which one?

A)perfect information
B)no transaction costs
C)heterogeneous goods
D)no barriers to entry

Question 7

All of the following are characteristics of a perfectly competitive market except which one?

A)no transaction costs
B)barriers to entry
C)many buyers and sellers
D)homogeneous goods

Question 8

If a firm is a price taker, this means that the firm _ .

A)has the ability to change the price of the good or service
B)has transaction costs
C)has market power
D)has no ability to change the price of the good or service

Question 9

Which of the following is an example of a perfectly competitive market?

A)the market for hot dogs
B)the market for cotton
C)the market for breakfast cereal
D)the market for frozen chicken nuggets

Question 10

Which of the following is an example of a perfectly competitive market?

A)the market for ice cream
B)the market for nickel
C)the market for sliced sandwich bread
D)the market for multivitamins

Question 11

Economic competition refers to .

A)an intense rivalry among individual firms
B)an intense rivalry among buyers in a market
C)a market structure and the behavior of the buyers and sellers in that market
D)a market structure in which there is an intense rivalry among individual firms and buyers

Question 12

Which of the following is an example of a homogeneous good?

A)laundry detergent
B)fresh green beans
C)shampoo
D)conditioner

Question 13

In a perfectly competitive market, firms .

A)have free entry
B)face legal barriers
C)must obtain a patent in order to sell in the market
D)must obtain a copyright in order to sell in the market

Question 14

Which of the following is an example of a homogeneous good?

A)sunglasses
B)smart phones
C)jeans
D)yellow onions

Question 15

Which of the following is an example of a homogeneous good?

A)t- shirts
B)books
C)pajamas
D)lemons

Question 16

All of the following are homogeneous goods except which one?

A)sawdust
B)toothpaste
C)fresh parsley
D)white onions

Question 17

Which of the following is an example of a homogeneous good?

A)lipstick
B)avocados
C)deodorant
D)flip flops

Question 18

Which of the following is an example of a homogeneous good?

A)laundry detergent
B)green cabbage
C)hot dogs
D)potato chips

Question 19

All of the following are characteristics of a perfectly competitive market except which one?

A)perfect information
B)homogeneous goods
C)no barriers to entry
D)transaction costs

Question 20

If a market has no barriers to entry, this means .

A)firms are required to purchase a patent
B)there is free entry into the market
C)new firms are preventing from entering the market
D)it is costless for firms to enter

Question 21

Which of the following is an example of a perfectly competitive market?

A)the market for breakfast cereal
B)the market for coffee drinks
C)the market for cake mix
D)the market for copper

Question 22

Economic competition refers to a market structure in which there is an intense rivalry among individual firms.

Question 23

All of the following are examples of perfectly competitive markets except which one?

A)the market for yellow onions
B)the market for red peppers
C)the market for sunglasses
D)the market for cotton

Question 24

The market for makeup is not perfectly competitive because .

A)makeup is not a homogeneous good
B)there are few sellers
C)there are few buyers
D)sellers are price takers

Question 25

In perfectly competitive market, the price of a good or service is the transaction cost.

Question 26

An individual corn farmer is example of a perfectly competitive firm.

Question 27

Which of the following is an example of a perfectly competitive market?

A)the market for women's running shoes
B)the market for minivans
C)the market for cucumbers
D)the market for lipstick

Question 28

If a perfectly competitive firm is producing 500 units of output and the marginal revenue from producing the 500th unit of output is $4 and the marginal cost is $3.50, which of the following is true?

A)The firm should increase production.
B)The firm is producing the profit-maximizing output.
C)The firm is taking a loss from producing the 500th unit.
D)The firm should decrease production.

Question 29

A perfectly competitive firm is producing the profit-maximizing output level when their variable cost increases. If the market price does not change, to maximize profit, the firm will need to .

A)increase production
B)maintain the current output level
C)increase production by the amount of the variable cost increase
D)decrease production

Question 30

If a perfectly competitive firm is producing 500 units of output and the marginal revenue from producing the 500th unit of output is $3 and the marginal cost is $3.50, which of the following is true?

A)The firm should increase production.
B)The firm is producing the profit-maximizing output.
C)The firm is earning a profit from producing the 500th unit.
D)The firm should decrease production.

Question 31

It can cost a firm hundreds of thousands of dollars to enter a perfectly competitive market.

Question 32

A perfectly competitive firm's marginal cost curve is .

A)U- shaped
B)vertical
C)downward sloping
D)horizontal

Question 33

All of the following are true for a perfectly competitive firm's demand curve except which one?

A)It is equal to the market price at all quantities.
B)It is perfectly elastic.
C)It is downward sloping.
D)It is horizontal.

Question 34

All of the following are true for a perfectly competitive firm's demand curve except which one?

A)It is perfectly elastic.
B)It is horizontal.
C)It is equal to the market demand curve.
D)It is equal to the market price at all quantities.

Question 35

Because perfectly competitive markets have free entry, it is costless for firms to enter the market.

Question 36

The market for jeans is not perfectly competitive because .

A)jeans are not a homogeneous good
B)sellers are price takers
C)there are few sellers
D)there are few buyers

Question 37

A perfectly competitive firm is producing the profit-maximizing output level when their variable cost decreases. If the market price does not change, to maximize profit, the firm will need to .

A)increase production
B)decrease production by the amount of the variable cost decrease
C)decrease production
D)maintain the current output level

Question 38

Marginal analysis .

A)compares the marginal benefit and marginal cost of an action
B)maximizes the difference between marginal revenue and total cost
C)compares the total benefit and total cost of an action
D)maximizes the difference between marginal revenue and marginal cost

Question 39

All of the following are true for a perfectly competitive firm's marginal revenue except which one?

A)It is horizontal.
B)It is identical to the firm's demand curve.
C)It is downward sloping.
D)It is equal to the market price.

Question 40

To maximize profits, a manager must select the quantity of output that _ .

A)maximizes the difference between marginal revenue and marginal cost
B)maximizes the difference between total revenue and total cost
C)maximizes the difference between marginal revenue and total cost
D)maximizes the difference between total revenue and marginal cost

Question 41

A perfectly competitive firm's short- run supply curve is its curve above its minimum .

A)marginal cost; average fixed cost
B)average fixed cost; marginal cost
C)marginal cost; average variable cost
D)average variable cost; marginal cost

Question 42

If a perfectly competitive firm is incurring an economic loss, it is always cost minimizing to shut down.

Question 43

If a perfectly competitive firm is earning the competitive return, then the market price is equal to the firm's average variable cost.

Question 44

If a perfectly competitive firm is producing at the output level where marginal revenue is equal to marginal cost and at this output level, the firm's average variable cost is $3 and the market price is $2, the firm .

A)should increase production
B)is earning a competitive return
C)should shut- down
D)should decrease production

Question 45

If a perfectly competitive firm is producing at the output level where marginal revenue is equal to marginal cost and at this output level, the market price is equal to the firm's average total cost, the firm is _.

A)not producing at the profit-maximizing output level
B)earning economic profits
C)incurring an economic loss
D)earning a competitive return

Question 46

The table above shows the total cost for Happy Cows, a perfectly competitive dairy farm, at various levels of production. The price for Happy Cows dairy is $10 per unit of dairy product.
Refer to the table above. If Happy Cows is currently producing 501 units of dairy products, which of the following statements is true?

A)Happy Cows is producing the profit- maximizing output level.
B)Happy Cows is earning a competitive return at this output level.
C)Happy Cows can increase profit by decreasing production.
D)Happy Cows can increase profit by increasing production.

Question 47

The table above shows the total cost for Happy Cows, a perfectly competitive dairy farm, at various levels of production. The price for Happy Cows dairy is $10 per unit of dairy product.
Refer to the table above. What is the marginal revenue of producing the 500th unit of dairy product?

A)$5,000
B)$10
C)$1,545
D)$15

Question 48

If a perfectly competitive firm is producing at the output level where marginal revenue is equal to marginal cost and at this output level, the market price exceeds the firm's average total cost, the firm is _.

A)incurring an economic loss
B)not producing at the profit-maximizing output level
C)earning economic profits
D)earning a competitive return

Question 49

If a perfectly competitive firm is producing at the output level where marginal revenue is equal to marginal cost and at this output level, the firm's total revenue is less than its variable cost, the firm .

A)is earning a competitive return
B)should increase production
C)should decrease production
D)should shut- down

Question 50

A perfectly competitive firm is producing 1,200 units, which is their profit-maximizing output level. The market price for their good is $5 and the firm's average total cost to produce the 1,200 units is $4.50. What is their profit or loss from producing the 1,200 units?

A)- $600
B)- $550
C)$1,200
D)$600

Question 51

A perfectly competitive firm is producing 700 units, which is their profit-maximizing output level. The market price for their good is $2 and the firm's average total cost to produce the 700 units is $0.50. What is their profit or loss from producing the 700 units?

A)- $1,050
B)$1,750
C)$1,050
D)- $1,750

Question 52

The sum of the quantity supplied by all firms in the short- run at various prices is equal to the short- run _ curve.

A)market average variable cost
B)market supply
C)market average total cost
D)market demand

Question 53

The table above shows the total cost for Happy Cows, a perfectly competitive dairy farm, at various levels of production. The price for Happy Cows dairy is $10 per unit of dairy product.
Refer to the table above. At the profit- maximizing output level, how much does Happy Cows earn in profit?

A)$3,460
B)$5,000
C)$3,455
D)$1,530

Question 54

If a perfectly competitive firm is producing at the output level where marginal revenue is equal to marginal cost and at this output level, the market price is less than the firm's average total cost, the firm is _.

A)not producing at the profit-maximizing output level
B)earning a competitive return
C)earning economic profits
D)incurring an economic loss

Question 55

The table above shows the total cost for Happy Cows, a perfectly competitive dairy farm, at various levels of production. The price for Happy Cows dairy is $10 per unit of dairy product.
Refer to the table above. What is the marginal cost of producing the 500th unit of dairy product?

A)$10
B)$15
C)$5,000
D)$1,545

Question 56

The table above shows the total cost for Happy Cows, a perfectly competitive dairy farm, at various levels of production. The price for Happy Cows dairy is $10 per unit of dairy product.
Refer to the table above. What is the profit- maximizing output level for Happy Cows?

A)501
B)500
C)498
D)499

Question 57

A perfectly competitive firm's short- run supply curve is its marginal cost curve above the minimum average total cost.

Question 58

Changes in a perfectly competitive firm's variable cost will change the profit-maximizing output level.

Question 59

If a perfectly competitive firm is producing the profit-maximizing output level when their variable cost increase, with no change in the market price, the new profit- maximizing output level will be found below their current output level.

Question 60

A perfectly competitive firm is producing 1,100 units, which is their profit-maximizing output level. The market price for their good is $4 and the firm's average total cost to produce the 1,100 units is $4 Which of the following is true?

A)The firm is earning an economic profit.
B)The firm should increase its production.
C)The firm is incurring an economic loss.
D)The firm is earning a competitive return.

Question 61

In response to an increase in the market demand, to maximize short- run profits, managers of perfectly competitive firms will _ production and move along the marginal cost curve.

A)increase; upward
B)decrease; downward
C)decrease; upward
D)increase; downward

Question 62

Perfectly competitive firms are earning economic profits at a market price of $6 and an average total cost of $5. If new firms enter and increase the average total cost for all firms, the market price will _ _ until _ .

A)fall; it reaches the new lower average total cost
B)increase; it reaches the new higher average total cost
C)increase; economic profits are equal to zero
D)fall; it reaches the new higher average total cost

Question 63

Perfectly competitive firms are earning economic profits at a market price of $10 and an average total cost of $8. If new firms enter and increase the average total cost for all firms, the market price will _ _ until _ .

A)fall; economic profit is equal to zero
B)increase; it reaches $10
C)increase; economic profit is equal to zero
D)fall; it reaches $8

Question 64

At its current level of quantity, a perfectly competitive firm's marginal revenue is $3.25, its short- run marginal cost is $3.25 and its long- run marginal cost is $3.25. Which of the following statements is true?

A)The firm is maximizing both its short- run and long- run profit.
B)The firm is maximizing its long- run profit, but not its short- run profit.
C)The firm is not maximizing its short- run or long- run profit.
D)The firm is maximizing its short- run profit, but not its long- run profit.

Question 65

If at its current production level, a perfectly competitive firm's marginal revenue and long- run marginal cost are equal to $1.50 and its long- run average cost is $1.50, which of the following statements is true?

A)The firm is earning zero economic profit.
B)The firm should expect the market price of its product to fall.
C)The firm should expect to earn positive economic profit indefinitely.
D)The firm should expect the market price of its product to increase.

Question 66

At its current level of quantity, a perfectly competitive firm's marginal revenue is $3.25, its short- run marginal cost is $3.25 and its long- run marginal cost is $3.00. Which of the following statements is true?

A)The firm should increase its production to maximize profit in the short- run.
B)The firm is maximizing its long- run profit, but not its short- run profit.
C)The firm should decrease its production to maximize profit in the short- run.
D)The firm is maximizing its short- run profit, but not its long- run profit.

Question 67

In a perfectly competitive market, a decrease in the market demand will shift the perfectly competitive firm's curve .

A)marginal cost; upward
B)demand; upward
C)demand; downward
D)marginal cost; downward

Question 68

Perfectly competitive firms are earning economic profits at a market price of $5 and an average total cost of $4. If new firms enter and do not affect the cost for all firms, the market price will until it reaches .

A)fall; $5
B)fall; $4
C)increase; $4
D)increase; $5

Question 69

In a perfectly competitive market, an increase in the market demand will shift the perfectly competitive firm's curve .

A)marginal cost; upward
B)demand; downward
C)marginal cost; downward
D)demand; upward

Question 70

If a perfectly competitive firm is producing an output level that sets its marginal revenue equal to its short- run marginal cost (MR = MC)and its long- run marginal cost (MR = LMC), the firm .

A)is maximizing its long- run profit, but not its short- run profit
B)is maximizing its short- run and long- run profit
C)is maximizing its short- run profit, but not its long- run profit
D)should increase production to maximize its short- run and long- run profit

Question 71

In response to an increase in the market demand, to maximize short- run profits, managers of perfectly competitive firms will _ production by employing inputs.

A)increase; more fixed
B)decrease; less variable
C)increase; more variable
D)decrease; less fixed

Question 72

If at its current production level, a perfectly competitive firm's marginal revenue and long- run marginal cost are equal to $0.50 and its long- run average cost is $0.35, which of the following statements is true?

A)The firm should expect to earn positive economic profit indefinitely.
B)The firm should expect the market price of its product to fall.
C)The firm should expect the market supply curve to decrease.
D)The firm should expect the market price of its product to increase.

Question 73

In a perfectly competitive market, an increase in the market demand will shift the perfectly competitive firm's curve .

A)marginal cost; upward
B)marginal revenue; upward
C)marginal revenue; downward
D)marginal cost; downward

Question 74

At its current level of quantity, a perfectly competitive firm's marginal revenue is $2.50, its short- run marginal cost is $2.50 and its long- run marginal cost is $2.00. Which of the following statements is true?

A)The firm should decrease its production to maximize profit in the short- run.
B)The firm should increase its production to maximize profit in the short- run.
C)The firm is maximizing its short- run profit, but not its long- run profit.
D)The firm is maximizing its long- run profit, but not its short- run profit.

Question 75

If at its current production level, a perfectly competitive firm's marginal revenue and long- run marginal cost are equal to $5 and its long- run average cost is $4, which of the following statements is true?

A)The firm should expect to earn positive economic profit indefinitely.
B)The firm should expect the market supply curve to decrease.
C)The firm should expect the market price of its product to increase.
D)The firm should expect the market price of its product to fall.

Question 76

Perfectly competitive firms are earning economic profits at a market price of $18 and an average total cost of $15. If new firms enter and increase the average total cost for all firms, the market price will _ _ until _ .

A)increase; economic profits are equal to zero
B)increase; it reaches the new higher average total cost
C)fall; it reaches the new lower average total cost
D)fall; it reaches the new higher average total cost

Question 77

In response to a decrease in the market demand, to maximize short- run profits, managers of perfectly competitive firms will _ production and move along the marginal cost curve.

A)decrease; downward
B)increase; upward
C)decrease; upward
D)increase; downward

Question 78

In a perfectly competitive market, a decrease in the market demand will shift the perfectly competitive firm's curve .

A)marginal cost; upward
B)marginal revenue; upward
C)marginal revenue; downward
D)marginal cost; downward

Question 79

If at its current production level, a perfectly competitive firm's marginal revenue and long- run marginal cost are equal to $1.50 and its long- run average cost is $1.65, which of the following statements is true?

A)The firm should expect to earn positive economic profit indefinitely.
B)The firm should expect the market price of its product to increase.
C)The firm should expect the market supply curve to increase.
D)The firm should expect the market price of its product to fall.

Question 80

In response to a decrease in the market demand, to maximize short- run profits, managers of perfectly competitive firms will _ production by employing inputs.

A)decrease; less variable
B)increase; more fixed
C)increase; more variable
D)decrease; less fixed