Deck 13: Perfect Competition

Question 1

Most markets in the United States:

A)have some degree of competitiveness but are not perfectly competitive.
B)have very few competitive features and are regulated by the government.
C)are monopolies.
D)are perfectly competitive.

Answer 1

have some degree of competitiveness but are not perfectly competitive.

Question 2

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

A)Grain
B)Granola cereal
C)Hamburgers
D)Digital cameras

Answer 2

Grain

Question 3

Which is not an essential characteristic of a perfectly competitive market?

A)Goods are standardized.
B)Buyers have perfect information.
C)Goods from one seller cannot be distinguished from another's.
D)Firms have limited market power.

Answer 3

Firms have limited market power.

Question 4

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

A)Cereal
B)Iron
C)Soda
D)Pizza

Question 5

A price taker is a buyer or seller who:

A)has complete control over setting the market price.
B)can influence the market price.
C)has no control over setting the market price.
D)has the goal of maximizing market share, not profits.

Question 6

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

A)Buyers and sellers share market power.
B)Sellers are price makers.
C)Goods are standardized.
D)Goods are unique.

Question 7

A competitive market is one in which:

A)fully informed price-taking buyers and sellers easily trade a standardized good.
B)a few large sellers compete for a majority of the market share.
C)government oversees the market's operation.
D)individual sellers and buyers have a lot of influence over market price.

Question 8

Transaction costs are:

A)costs a buyer or seller incurs to make an exchange take place.
B)taxes a buyer or seller pays when purchasing a good or service.
C)fees a buyer is charged when purchasing a good or service on credit.
D)costs a buyer faces upon reselling a good or service.

Question 9

In a perfectly competitive market, price takers exist because there are:

A)few sellers and many buyers.
B)few buyers and many sellers.
C)many buyers and sellers.
D)few sellers and buyers.

Question 10

Firms that have market power:

A)are price takers.
B)can noticeably affect the market price.
C)can not affect the market quantity offered for sale.
D)can earn as much profit as they want.

Question 11

Perfectly competitive markets:

A)are more of an idealized model economists use than a real-life occurrence.
B)are the most common type of market in the United States.
C)tend to have relatively few buyers.
D)tend to have relatively few sellers.

Question 12

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

A)Buyers and sellers have no control over the market price.
B)Sellers are selling unique products.
C)Buyers have complete control over the market price and sellers have none.
D)Sellers have complete control over the market price and buyers have none.

Question 13

Standardized goods are:

A)regulated by government quality standards.
B)easily substitutable and not distinguishable.
C)the most common type of good produced.
D)sold in markets with regulated price systems.

Question 14

A good that is perfectly standardized is:

A)likely to be complementary to other goods in the market.
B)indistinguishable from other goods in the market.
C)completely different from other goods in the market.
D)determined by government to be a standard good.

Question 15

Standardized goods and services:

A)are interchangeable.
B)have close substitutes.
C)are unique.
D)are regulated by government.

Question 16

A price taker:

A)has market power.
B)has no control over the market price.
C)is competitive.
D)sells at a price determined by government.

Question 17

An essential characteristic of a perfectly competitive market is that buyers and sellers have:

A)no competition and must set the market price on their own.
B)so much competition that they must work together perfectly to set a market price.
C)so much competition that they have no ability to set their own prices.
D)no control over the price they set because it is determined by government.

Question 18

Commodities:

A)are a special type of standardized good.
B)have no product differentiation.
C)are identical regardless of who produced them.
D)All of these are correct.

Question 19

Firms that have market power:

A)can noticeably affect the market price.
B)have no control over the market price.
C)can noticeably affect the market quantity available for sale.
D)do not noticeably affect the market quantity offered for sale.

Question 20

When a market contains standardized goods:

A)government regulations must promote competition for the market to be efficient.
B)there are no information asymmetries.
C)the similarity in products may be real or perceived.
D)the market has a low degree of competition.

Question 21

For firms that sell one product in a perfectly competitive market, average revenue will:

A)increase if marginal revenue decreases.
B)decrease if marginal revenue increases.
C)always be equal to marginal revenue.
D)always be greater than average total cost.

Question 22

Which of the following is an important characteristic of perfectly competitive markets? Goods are standardized. Buyers and sellers are price takers. Firms can freely enter and exit the market.

A)I and II only
B)II and III only
C)I only
D)I, II, and III

Question 23

The table shown displays the total and marginal costs for a single firm in a perfectly competitive market.

If the price in this market is $16, what is the average revenue when 6 units are produced?

A)$96
B)$16
C)$13
D)$6

Question 24

In a perfectly competitive market, producers:

A)are able to sell as much as they want without affecting the market price.
B)can influence the price upward by restricting output.
C)often undercut the competition's price and force firms to leave the market.
D)None of these are true.

Question 25

In perfectly competitive markets, transaction costs are:

A)generally quite high.
B)approximately 10 percent of the cost of the good or service.
C)low or nearly zero.
D)generally ignored when making a transaction.

Question 26

For firms that sell one product in a perfectly competitive market, the market price:

A)can be influenced by one firm's output decision.
B)is equal to a firm's average total cost.
C)is equal to a firm's marginal revenue.
D)decreases as the firm increases output.

Question 27

Having free entry and exit in a market can help drive:

A)innovation.
B)cost-cutting.
C)quality improvements.
D)All of these are true.

Question 28

Firms are more likely to collude:

A)when there are barriers to market entry.
B)in perfectly competitive markets.
C)when they can easily enter the market.
D)when the market has no transactions costs.

Question 29

For firms that sell one product in a perfectly competitive market, the market price:

A)will remain constant regardless of any one firm's output decision.
B)is equal to a firm's average total cost.
C)is equal to a firm's marginal cost.
D)All of these are correct.

Question 30

For firms that sell one product in a perfectly competitive market, marginal revenue is:

A)the additional revenue gained from selling one more unit.
B)equal to average revenue.
C)equal to market price.
D)All of these are correct.

Question 31

For firms that sell one product in a perfectly competitive market, average revenue is equal to:

A)total revenue divided by total output.
B)marginal revenue.
C)the market price.
D)All of these are correct.

Question 32

The table shown displays the total and marginal costs for a single firm in a perfectly competitive market.

What is the market price?

A)$20
B)$10
C)$8
D)$12

Question 33

The table shown displays the total and marginal costs for a single firm in a perfectly competitive market.

If the price in this market is $12, what is the total revenue when 6 units are produced?

A)$72
B)$4
C)$12
D)$58

Question 34

For firms that sell one product in a perfectly competitive market, marginal revenue is always:

A)greater than the market price.
B)less than the market price.
C)equal to the market price.
D)equal to average total cost.

Question 35

In a perfectly competitive market, total revenue:

A)is how much a firm receives from all sales minus any costs incurred.
B)is calculated by multiplying price times quantity sold.
C)varies due to changes in price, since quantity is constant.
D)should vary across firms.

Question 36

Allowing firms to freely enter and exit a market can: drive business profits up. increase demand for a product. encourage innovation. reduce prices for consumers.

A)I and II
B)III and IV
C)II and IV
D)I, II, and III

Question 37

If a perfectly competitive firm facing a market price of $3 per unit decides to produce 30,000 units, the market price will likely:

A)increase.
B)decrease.
C)stay the same.
D)increase initially and then decrease.

Question 38

The table shown displays the price and quantity produced of a good for a single firm in a perfectly competitive market.

What is the firm's marginal revenue when 25 units are produced?

A)$250
B)$25
C)$10
D)$20

Question 39

For firms that sell one product in a perfectly competitive market, average revenue is:

A)calculated by total output divided by total revenue.
B)equal to marginal cost.
C)equal to the market price.
D)greater than the market price.

Question 40

For firms that sell one product in a perfectly competitive market, the market price is:

A)constant, regardless of quantity sold.
B)equal to a firm's average revenue.
C)equal to a firm's marginal revenue.
D)All of these are true.

Question 41

Firms in perfectly competitive markets who wish to maximize profits should produce:

A)more if marginal cost is greater than marginal revenue.
B)less if marginal cost is less than marginal revenue.
C)an amount at which marginal cost equals marginal revenue.
D)All of these are correct.

Question 42

If a firm in a perfectly competitive market facing a market price of $8 decides to increase its production from 300 units to 550 units, the firm's total revenue will:

A)increase from $2,400 to $4,400.
B)decrease from $4,400 to $2,400.
C)stay the same at $8.
D)likely rise, but it cannot be determined by how much.

Question 43

A firm in a perfectly competitive market can maximize its profits by producing the level of output:

A)where marginal cost equals marginal revenue.
B)below where marginal cost equals marginal revenue.
C)above where marginal cost equals marginal revenue.
D)that is slightly below the firm's maximum capacity.

Question 44

If a firm in a perfectly competitive market is producing at a level of output where marginal costs are equal to marginal revenue, it:

A)should cut back production to increase profits.
B)should increase production to increase profits.
C)is producing a profit-maximizing quantity.
D)may or may not need to change production, but this cannot be known without more information.

Question 45

Because firms in perfectly competitive markets can sell any quantity without driving down prices, they should:

A)produce as much as possible to maximize profits.
B)produce at the lowest cost per unit to maximize profits.
C)try to flood the market.
D)increase quantity until the additional profit earned on the last unit sold is zero.

Question 46

Firms in perfectly competitive markets typically have:

A)one profit-maximizing level of output.
B)several profit-maximizing levels of output to choose from.
C)two profit-maximizing levels of output to choose from.
D)no chance of maximizing profits since they have no control over market price.

Question 47

Firms in perfectly competitive markets who wish to maximize profits should produce where ______ are equal.

A)marginal revenue and marginal cost
B)marginal revenue and market price
C)marginal revenue and average revenue
D)marginal cost and average cost

Question 48

The profit-maximizing level of output for any firm in a perfectly competitive market is to produce where:

A)MC = MR.
B)MC > MR.
C)MC < MR.
D)MR = P*.

Question 49

If a firm in a perfectly competitive market facing a market price of $2 decides to increase its production from 2,000 units to 4,000 units, the firm's marginal revenue:

A)will increase from $4,000 to $8,000.
B)will decrease from $8,000 to $4,000.
C)will stay the same.
D)None of these are correct.

Question 50

If a firm in a perfectly competitive market is producing at a level of output where marginal costs are less than marginal revenue, the firm's profit:

A)must be positive.
B)is maximized.
C)will increase if production decreases.
D)will increase if production increases.

Question 51

When a firm faces a perfectly competitive market and buys its inputs from perfectly competitive markets, the only choice the firm has to affect its profits is to:

A)increase its selling price.
B)change the quantity it produces.
C)decrease the selling price.
D)decrease its cost of production lower than other firms.

Question 52

If a firm in a perfectly competitive market is producing at a level of output where marginal costs are less than marginal revenue, it:

A)should cut back production to increase profits.
B)should increase production to increase profits.
C)is producing a profit-maximizing quantity.
D)should invest more in advertising in order to raise revenues.

Question 53

If a firm in a perfectly competitive market is producing at a level of output where marginal cost exceeds marginal revenue, it:

A)should cut back production to increase profits.
B)should increase production to increase profits.
C)is producing a profit-maximizing quantity.
D)may or may not be maximizing profits.

Question 54

If a firm in a perfectly competitive market is producing at a level of output where marginal costs exceed marginal revenue, the firm's profits:

A)must be negative.
B)are maximized.
C)will increase if production decreases.
D)cannot be determined.

Question 55

If a firm in a perfectly competitive market facing a market price of $7 decides to increase its production from 4,000 to 12,000 units, the firm's marginal revenue will:

A)diminish once diminishing marginal product sets in.
B)rise once diminishing marginal product sets in.
C)stay the same.
D)increase from $28,000 to $84,000.

Question 56

Firms in perfectly competitive markets who wish to maximize profits should:

A)produce more if marginal cost is less than marginal revenue.
B)produce less if marginal cost is greater than marginal revenue.
C)produce an amount at which marginal cost and marginal revenue are equal.
D)All of these are correct.

Question 57

If a firm in a perfectly competitive market facing a market price of $5 decides to produce 400 units, what will the firm's total revenue be?

A)$5
B)$400
C)$2,000
D)$405

Question 58

Firms in perfectly competitive markets who wish to maximize profits should produce:

A)where marginal revenue equals market price.
B)as many units as their scale allows.
C)at capacity, planning to expand in the long run.
D)where total profit is the greatest.

Question 59

If a firm in a perfectly competitive market facing a market price of $4 decides to produce 700 units of a good, what will the firm's average revenue be?

A)$4
B)$2,800
C)$175
D)$700

Question 60

The table shown displays the total costs for various levels of output for a firm operating in a perfectly competitive market.

What is the market price?

A)$500
B)$150
C)$50
D)$27.50

Question 61

The graph shown displays the marginal cost and marginal revenue curves for a perfectly competitive firm. Producing nine units will earn the firm _______ profits than those earned at an output of 11 units, so the firm should _______ production.

A)lower; increase
B)higher; decrease
C)higher; increase
D)lower; decrease

Question 62

The table shown displays the total costs for various levels of output for a firm operating in a perfectly competitive market.

What are the firm's fixed costs?

A)$10
B)$200
C)$60
D)Fixed costs cannot be determined by the information in the table.

Question 63

The table shown displays the total costs for various levels of output for a firm operating in a perfectly competitive market.

What is the firm's marginal revenue from the third unit produced?

A)$50
B)$90
C)$150
D)$60

Question 64

The table shown displays the total costs for various levels of output for a firm operating in a perfectly competitive market.

What is the firm's marginal cost from producing the second unit?

A)$10.00
B)$7.50
C)$27.50
D)$20.00

Question 65

The table shown displays the total costs for various levels of output for a firm operating in a perfectly competitive market.

This firm's marginal costs:

A)are constant.
B)increase as output increases.
C)decrease up through the second unit, then increase.
D)increase up through the fourth unit, then decrease.

Question 66

The graph shown displays the marginal cost and marginal revenue curves for a perfectly competitive firm. What is the market price?

A)$15
B)$9
C)$11
D)$20

Question 67

The graph shown displays the marginal cost and marginal revenue curves for a perfectly competitive firm. This firm's profits at point A are:

A)higher than those at point B.
B)lower than those at point B.
C)the same as those at point B.
D)higher than those at point C.

Question 68

As long as average revenue remains above average total cost:

A)total revenue will be higher than total cost.
B)the firm will be making profits.
C)price will be greater than average total cost.
D)All are correct.

Question 69

The marginal cost of a firm:

A)crosses total cost at its minimum.
B)crosses average variable cost and average total cost at their respective minima.
C)crosses marginal revenue at a point above the profit-maximizing level of output.
D)is a horizontal line, indicating that costs are constant in perfect competition.

Question 70

As long as the market price remains above a firm's average total cost, and the firm chooses to produce at the profit-maximizing level of output, the firm will:

A)earn positive profits.
B)earn zero profits.
C)incur a loss.
D)Any of these is possible.

Question 71

For a firm in a perfectly competitive market, a price decrease:

A)raises the profit-maximizing quantity.
B)lowers the profit-maximizing quantity.
C)does not affect the profit-maximizing quantity.
D)signifies that the firm should leave the market.

Question 72

The table shown displays the total costs for various levels of output for a firm operating in a perfectly competitive market.

When five units are produced:

A)profits are maximized.
B)profits are positive.
C)the firm is producing less than the profit-maximizing quantity.
D)the firm is producing more than the profit-maximizing quantity.

Question 73

The table shown displays the total costs for various levels of output for a firm operating in a perfectly competitive market.

This firm's profit is:

A)maximized at 3 units of output.
B)maximized at 4 units of output.
C)maximized at 5 units of output.
D)not maximized at any level of output given.

Question 74

The graph shown displays the marginal cost and marginal revenue curves for a perfectly competitive firm. According to the graph shown, the firm earns _______ profits at point C than at point B, so the firm should _______ production.

A)higher; increase
B)lower; increase
C)lower; decrease
D)higher; decrease

Question 75

The table shown displays the total costs for various levels of output for a firm operating in a perfectly competitive market.

When one unit is produced, _______ exceed _______, and the firm should produce _______.

A)marginal costs; marginal revenue; more
B)marginal revenue; marginal costs; more
C)marginal revenue; marginal costs; less
D)marginal costs; marginal revenue; less

Question 76

The graph shown displays the marginal cost, average total cost, and marginal revenue curves for a perfectly competitive firm. What is the market price?

A)$12
B)$8
C)$120
D)$14

Question 77

The graph shown displays the marginal cost and marginal revenue curves for a perfectly competitive firm. Producing 14 units:

A)is not as profitable as producing 11 units.
B)will earn the firm negative profits.
C)is more profitable than producing 9 or 11 units.
D)will earn the firm zero profit.

Question 78

The table shown displays the total costs for various levels of output for a firm operating in a perfectly competitive market.

This firm's marginal revenue:

A)is constant.
B)increases as output increases.
C)decreases as output increases.
D) increases up through the third unit, then decreases.

Question 79

The graph shown displays the marginal cost and average total cost curves for a perfectly competitive firm. If marginal revenue equals $50, producing 140 units: is not as profitable as producing 120 units.will earn the firm negative profits.will earn more revenue than producing 100 units.

A)I only
B)II and III only
C)I and III only
D)I, II, and III

Question 80

The table shown displays the total costs for various levels of output for a firm operating in a perfectly competitive market.

What is the firm's total revenue when four units are produced?

A)$160
B)$50
C)$200
D)$40