Deck 10: Competitive Markets

Question 1

In long-run equilibrium, profits in a perfectly competitive industry equal:

A)zero.
B)the risk-adjusted cost of capital.
C)abnormal profits.
D)fixed and variable costs.

Answer 1

B

Question 2

For a firm in a perfectly competitive market equilibrium:

A)MR < MC.
B)AR = MC.
C)AR > AC.
D)AR > MR.

Answer 2

B

Question 3

In competitive markets, the marginal-cost (MC) curve is:

A)the firm's short-run supply curve.
B)falling so long as ATC < MC.
C)rising so long as ATC < MC.
D)U-shaped.

Answer 3

A

Question 4

In the market for personal computers, a viable potential entrant is:

A)Intel Corp.
B)Microsoft Corp.
C)Dell, Inc.
D)Hewlett-Packard Co.

Question 5

For a firm in a perfectly competitive market equilibrium:

A)MC must be rising.
B)MC must be falling.
C)MC < AC.
D)MC < AVC.

Question 6

Perfect competition is a market structure characterized by:

A)product quality differences among large and small firms.
B)free entry and exit.Firms are not restricted from entering or leaving the industry.
C)product quality information that is not known by all buyers and all sellers.
D)ruthless price competition that keeps P < AR.

Question 7

Legal rights such as patents and local, state, or federal licenses can present formidable:

A)barriers to entry.
B)barriers to mobility.
C)barriers to exit.
D)none of these.

Question 8

A market:

A)consists of all firms and individuals willing and able to buy or sell a particular product at a given time and place.
B)is confined to individuals and firms currently engaged in buying and selling a particular product.
C)describes the competitive environment in the market for any good or service.
D)is limited to individuals or firms posing a sufficiently credible threat of market entry to affect the price/output decisions of incumbent firms.

Question 9

In competitive markets, a normal profit equilibrium is always achieved when:

A)MR = MC.
B)AR = AC.
C)AR = AC and MC < AC.
D)none of these.

Question 10

The level of competition in a given market tends to fall if:

A)the minimum efficient scale of firms decreases.
B)the number of substitutes decreases.
C)import quotas are relaxed.
D)the number of potential entrants rises.