Deck 10: The Firm and the Industry under Perfect Competition

Question 1

Perfect competition is characterized by numerous firms.

Answer 1

True

Question 2

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

Answer 2

False

Question 3

The demand curve of a perfectly competitive firm is vertical.

Answer 3

False

Question 4

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

Question 5

Perfectly competitive markets feature relatively high barriers to entry.

Question 6

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

Question 7

Perfectly competitive markets are not the most efficient type.

Question 8

A perfectly competitive firm is a "price maker."

Question 9

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

Question 10

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

Question 11

Perfectly competitive markets have absolutely no drawbacks.

Question 12

Perfect competition is an ideal market structure.

Question 13

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

Question 14

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

Question 15

Perfect competition forms one extreme of the market structure spectrum.

Question 16

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

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

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

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

Question 28

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 29

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

Question 30

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

Question 31

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 32

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

Question 33

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

Question 34

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

Question 35

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

Question 36

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

Question 37

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

Question 38

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

Question 39

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

Question 40

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

Question 41

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

Question 42

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

Question 43

The market demand schedule in perfect competition is horizontal.

Question 44

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

Question 45

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

Question 46

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

Question 47

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

Question 48

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

Question 49

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

Question 50

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

Question 51

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

Question 52

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

Question 53

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

Question 54

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

Question 55

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

Question 56

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

Question 57

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

Question 58

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

Question 59

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

Question 60

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

Question 61

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

Question 62

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 63

Which of the following decisions cannot be taken by a firm in a perfectly competitive market?

A) Market exit decision
B) Market price of the product
C) Quantity of output it can produce
D) Entering a market

Question 64

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

Question 65

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 66

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 67

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 68

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 69

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

Question 70

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 71

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 72

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 73

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 74

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 75

What is the nature of the elasticity of the demand curve faced by perfectly competitive firm?

A) Perfectly inelastic
B) Perfectly elastic
C) Unit elastic
D) Highly elastic

Question 76

Firms in perfect competition are often described as price

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

Question 77

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 78

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 79

A perfectly competitive firm is a price

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

Question 80

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.