Deck 10: The Firm and the Industry Under Perfect Competition

Question 1

Perfectly competitive markets are not the best at producing the goods that are desired by consumers.

Answer 1

False

Question 2

Perfect competition forms one extreme of the market structure spectrum.

Answer 2

True

Question 3

Perfect competition is characterized by numerous firms.

Answer 3

True

Question 4

The market for toothpaste is a good example of perfect competition.

Question 5

In perfect competition, a firm's marginal revenue equals the price of the product.

Question 6

In the long run, a perfectly competitive industry tends to develop differentiated products.

Question 7

It is relatively easy for a firm to enter a perfectly competitive market.

Question 8

Perfectly competitive firms are known for being "price makers."

Question 9

Perfect competition is an ideal market structure.

Question 10

Under the theory of perfect competition, firms and buyers know the availability and prices associated with all products in the market.

Question 11

A perfectly competitive firm has a horizontal demand curve because it can sell as much as it wants at the market price.

Question 12

Perfectly competitive markets feature relatively high barriers to entry.

Question 13

A perfectly competitive firm may, under some circumstances, be able to affect the market price.

Question 14

Perfectly competitive markets are not the most efficient type.

Question 15

A perfectly competitive firm is a "price maker."

Question 16

Perfectly competitive markets have absolutely no drawbacks.

Question 17

A perfectly competitive firm is a "price taker" because it cannot sell its product for more than the market price.

Question 18

Under perfect competition, firms are relatively ignorant of the actions of their competitors.

Question 19

The demand curve of a perfectly competitive firm is vertical.

Question 20

In perfect competition there are differences in the products sold by various firms.

Question 21

The short-run equilibrium output of a competitive firm is found by equating marginal cost with price.

Question 22

In the short-run, the lowest price that a perfectly competitive firm will accept without closing its doors is found by examining the average variable cost curve.

Question 23

The short-run supply curve for a perfectly competitive firm is that portion of the MC curve above the AVC curve.

Question 24

In the short run, a firm may have accounting losses and remain in operation.

Question 25

Total profit of a competitive firm can be found by multiplying profit per unit times units sold.

Question 26

It pays the firm to produce only if total variable costs exceed total revenue.

Question 27

A perfectly competitive firm can maximize profits by producing the quantity at which MR exceeds MC by the greatest amount.

Question 28

Once a firm's marginal revenue curve is known, the output level can be determined.

Question 29

In the short-run if TR < TC, a perfectly competitive firm will always shut down.

Question 30

In the short run, if price is below AC, maximizing profits really means minimizing total losses.

Question 31

Using only marginal revenue and marginal cost, we can determine whether a firm is incurring a profit or a loss.

Question 32

A firm operating at MC = MR must be making a profit.

Question 33

A perfectly competitive firm will not operate where MC = MR but at MC = AC.

Question 34

If a firm sells its output at a price greater than AC, it will earn economic profit.

Question 35

If a firm sells its output at a price greater than AVC, it will earn economic profit.

Question 36

In the short run, a perfectly competitive firm can make a profit, a loss, or shut down.

Question 37

In the short run, a perfectly competitive firm can make a profit, a loss, or go out of business.

Question 38

As long as TVC < TR, a firm will have a positive level of output in the short run.

Question 39

The short-run supply curve for the perfectly competitive firm is that part of the marginal cost curve that lies above the average fixed cost curve.

Question 40

A perfectly competitive firm's short-run supply is infinite at the market price.

Question 41

A firm that is earning zero economic profit should go out of business.

Question 42

In the short-run, only a limited number of new firms may enter a perfectly competitive market.

Question 43

In long-run equilibrium in perfect competition, every firm is producing at minimum average cost.

Question 44

Zero economic profit means that the firm's owners receive no compensation for their investment.

Question 45

In a long-run equilibrium in a perfectly competitive market, firms are selling at a price equal to average cost.

Question 46

An industry supply curve is the horizontal summation of the supply curves of all of the individual firms.

Question 47

The short-run market demand schedule in perfect competition is positively sloped.

Question 48

In a long-run equilibrium in a perfectly competitive market, firms are selling at a price equal to marginal cost.

Question 49

The opportunity cost of a given investment is the potential earnings forfeited by tying up money in the investment.

Question 50

In the long run, a perfectly competitive firm maximizes profit so P = MC = AC.

Question 51

In the long run, a perfectly competitive firm earns no accounting profits.

Question 52

In long-run equilibrium, a firm in perfect competition has no economic profit.

Question 53

In a long-run equilibrium in a perfectly competitive market, the average firm earns positive economic profits.

Question 54

Economic profit equals gross earnings minus the firm's direct costs.

Question 55

For a perfectly competitive firm, the long-run supply curve is the long-run average cost curve.

Question 56

In the long run, any firm may enter or leave a perfectly competitive market.

Question 57

The market demand schedule in perfect competition is horizontal.

Question 58

The number of firms in a perfectly competitive industry is not fixed in the long run.

Question 59

The entry of new firms into a perfectly competitive market shifts the demand curve outward.

Question 60

Zero profit in the economic sense means that firms are earning a normal rate of return.

Question 61

The result that perfectly competitive firms produce at the lowest per-unit cost is derived from the assumptions of

A)homogeneous products.
B)few sellers.
C)firms facing horizontal demand curves.
D)free entry and exit.

Question 62

Subsidizing firms that pollute will reduce pollution in the long run.

Question 63

Which of the following is not a characteristic of perfect competition?

A)Firms and consumers all have perfect information about the good and market.
B)Sellers can enter the market easily.
C)All goods sold are identical.
D)All consumers have identical individual demand curves.

Question 64

One of the following is not a characteristic of perfect competition.Which is it?

A)Firms advertise to increase their market share.
B)Profits are low in the long run.
C)Consumers pay little attention to brand names.
D)Firms pay no attention to their competitors' output levels.

Question 65

A firm that is operating at a loss may continue to operate for a while because of costs that it will still have to pay even if production ceases.

Question 66

Economists study perfect competition

A)because many markets are perfectly competitive.
B)for its descriptive realism.
C)to establish a benchmark by which to measure the performance of the economy.
D)All of the above are correct.

Question 67

Firms in perfect competition are often described as price

A)takers.
B)makers.
C)setters.
D)leaders.

Question 68

Perfect competition is the term used to describe

A)an industry in which all businessmen are honest and accommodating.
B)an industry in which numerous firms produce identical products.
C)an industry untouched by government regulation.
D)the kind of industry any American would support.

Question 69

The strength of the competition faced by a company can profoundly affect its

A)pricing.
B)output decisions.
C)input decisions.
D)All of the above are correct.

Question 70

A perfectly competitive firm is a price

A)giver.
B)taker.
C)maker.
D)leader.

Question 71

Which of the following most resembles a perfectly competitive market?

A)the stock market
B)the publishing industry
C)the steel industry
D)the new car market

Question 72

To determine whether a market is perfectly competitive, economists examine the

A)number of firms in the market.
B)similarities among the products of the different firms in the market.
C)ease of entry and exit by firms in the market.
D)All of the above are correct.

Question 73

A firm facing a horizontal demand curve

A)cannot affect the price it receives for its output.
B)always produces at an output at which P = MR.
C)faces perfectly elastic demand for its product.
D)All of the above are correct.

Question 74

A market

A)may be an organized exchange.
B)refers to a set of sellers and buyers whose actions affect a commodity's price.
C)is that area in which buyers and sellers compete to affect a product price.
D)All of the above are correct.

Question 75

Which of the following is a characteristic of a perfectly competitive market?

A)a few large firms
B)firms producing specialized products in order to attract consumers
C)each individual firm having some control over the market price
D)a large number of small firms

Question 76

Firms in a perfectly competitive market produce at minimum average cost in the short run and the long run.

Question 77

In a market with perfectly competitive firms, the market demand curve is usually ____ and the demand curve facing each individual firm ____.

A)upward sloping; horizontal
B)downward sloping; horizontal
C)horizontal; downward sloping
D)downward sloping; downward sloping

Question 78

Perfect competition requires that three conditions be satisfied.

Question 79

Which requirement for perfect competition rules out trade associations or other collusive arrangements in which firms work together to influence price?

A)Freedom of entry and exit.
B)Homogeneity of product.
C)Perfect information.
D)Numerous small firms and customers.

Question 80

Which of the following is closest to the economist's definition of perfect competition?

A)the airline industry
B)the soft drink industry
C)the fishing industry
D)cellular telephone service