Deck 9: Perfect Competition

Question 1

Firms are assumed to be price takers in a perfectly competitive market because

A)they are not allowed by law to charge any price other than the market price
B)they must accept any price offered by consumers
C)they earn high enough profits at the market price,so they do not want to hurt consumers by raising their prices
D)each firm is too small to influence the market price
E)there are too few buyers in the market to absorb price changes

Answer 1

each firm is too small to influence the market price

Question 2

The number of sellers in a market is considered to be large when

A)the total exceeds 100
B)no single buyer can affect the price through his or her demand for the product
C)they cannot be easily counted
D)no single seller can affect the price by changing its level of output
E)no seller controls more than 20 percent of the total market supply

Answer 2

no single seller can affect the price by changing its level of output

Question 3

All of the following are characteristics of a perfectly competitive market,except one.Which is the exception?

A)a large number of sellers
B)a standardized product
C)no barriers to entry
D)sellers can easily exit the market
E)an intensive rivalry among the sellers

Answer 3

an intensive rivalry among the sellers

Question 4

Firms in a perfectly competitive market cannot influence

A)the quantity of the good that they produce
B)how much labor to use in production
C)how much capital to employ in production
D)the level of advertising that they use
E)the price of the product they sell

Question 5

Which of the following factors would be the most useful in determining the structure of a market?

A)the number of firms in the market
B)the price of the product sold in the market
C)the size of the physical structure
D)the geographical dispersion of the market
E)the age of the market

Question 6

In a perfectly competitive market,the good or service cannot differ substantially among sellers.

Question 7

Which of the following helps to classify an industry's market structure?

A)the long-run equilibrium price
B)the impact of industry expansion on input prices
C)the existence of barriers to entry
D)the shape of the short-run average total cost curve
E)the existence of economic profit in the short run

Question 8

The characteristics of a market that influence the behavior of market participants is (are)known as

A)perfect competition
B)market power
C)barriers to entry
D)market structure
E)monopolistic competition

Question 9

Of the following products,which is most standardized?

A)pizza
B)concrete
C)automobiles
D)clothing
E)paintings

Question 10

Which of the following is the closest to being a perfectly competitive firm?

A)a hot dog vendor in New York
B)Microsoft Corporation
C)Ford Motor Company
D)the campus bookstore
E)a public university

Question 11

The distinguishing characteristics of different market structures include

A)how frequently the product is purchased
B)the extent of capitalization in the industry
C)the presence or absence of technological innovation
D)the presence or absence of collusion
E)both the number of sellers and the number of buyers

Question 12

The automobile market is an example of a perfectly competitive market.

Question 13

Which of the following is a characteristic of perfect competition?

A)easy entry into or exit from the market
B)a small number of buyers
C)a high degree of government regulation
D)a differentiated product
E)a high degree of collusion

Question 14

The number of sellers in an industry,in part,defines its market

A)performance
B)standard
C)demand curve
D)structure
E)profile

Question 15

All of the following help define market structure,except one.Which is the exception?

A)number of sellers
B)barriers to entry
C)barriers to exit
D)standardization of product
E)how firms are organized (i.e. ,as proprietorships,partnerships,or corporations)

Question 16

One of the defining characteristics of a perfectly competitive market is

A)a small number of sellers
B)a large number of buyers and a small number of sellers
C)a standardized product
D)significant nonprice competition among firms
E)an inefficient information system

Question 17

Barriers to entry into a market could include all of the following,except one.Which is the exception?

A)government restrictions
B)brand loyalty
C)large marginal costs
D)licensing fees
E)large fixed costs

Question 18

Which of the following is not a basic characteristic of a perfectly competitive market?

A)a large number of buyers and sellers
B)significant nonprice competition among firms
C)a standardized product produced by firms
D)no barriers to entry
E)no barriers to exit

Question 19

Market structure is determined by the

A)volume of discounts,the quantity of foreign exchange,and the effects of Federal Reserve policy
B)influence of government policy,the number of qualified buyers,and the effect of generally accepted accounting principles
C)number of buyers and sellers,whether the product is standardized,whether there is free entry and exit,and how well informed the buyers and sellers are about the market
D)volume of discounts,the effect of generally accepted accounting principles,and Federal Reserve policy
E)influence of government policy,the quantity of foreign exchange,and the effects of Federal Reserve policy

Question 20

Knowing the number of firms in a market is the only information needed to identify the structure of that market.

Question 21

The demand curve facing a typical firm in a perfectly competitive market is horizontal.

Question 22

Perfect competition is characterized by a(n)

A)large number of buyers and sellers,each one a price taker
B)single seller and many buyers
C)small number of sellers offering differentiated products
D)intense rivalry among several competitors
E)small number of buyers and sellers who negotiate the market price

Question 23

Which of the following is true about perfect competition?

A)Each firm faces a downward-sloping demand curve.
B)Each firm must face a horizontal demand curve.
C)Firms are price-makers.
D)Marginal cost equals average cost.
E)Firms can increase sales by lowering their price.

Question 24

A perfectly competitive firm

A)can increase total revenue by raising its price
B)can sell more goods by lowering its price
C)can sell more goods by raising its price
D)cannot increase sales or total revenue by changing its price
E)typically tries to offer lower prices than rival firms

Question 25

Java Joe sells 200 cups of coffee each day in a perfectly competitive market at the market price of $2.00 per cup.If Java Joe independently decreased its price per cup to $1.50,

A)its sales would rise to 250 cups
B)its revenue would decrease
C)its revenue would rise
D)its total revenue would equal $200
E)the market price will fall to $0.75 as other coffee sellers match the price cut

Question 26

Which of the following products is most likely to be produced by a perfectly competitive firm?

A)color televisions
B)breakfast cereal
C)legal services
D)corn
E)notebook computers

Question 27

If one firm sets the market price

A)the market is perfectly competitive
B)the market is not perfectly competitive
C)there are a large number of buyers who can buy from a wide range of competitors
D)there is free entry into the market
E)its product must be a standardized commodity,produced by many competitors

Question 28

Which of the following would prevent a market from being classified as perfectly competitive?

A)there are many buyers and sellers in the market
B)it is easy for new firms to enter the market
C)it is easy for existing firms to exit the market
D)buyers perceive significant differences among the products of different sellers
E)each buyer purchases only a tiny fraction of the total market quantity

Question 29

Under perfect competition,

A)a single seller sets the price
B)sellers can easily enter or exit the market
C)a small number of sellers offer differentiated products
D)a government franchise protects sellers
E)an intense rivalry between two powerful firms determines the market price

Question 30

Under conditions of perfect competition,if any one buyer increases her purchases,the market price

A)rises
B)remains unchanged
C)falls
D)either rises or falls
E)will change,but in an unpredictable fashion

Question 31

In perfect competition,

A)there are typically two or three equally powerful firms
B)a large number of sellers offer a differentiated product
C)the firm is a price taker
D)marginal revenue cannot be calculated because the firm's demand is perfectly elastic
E)the market demand and the firm's demand are perfectly elastic

Question 32

The model of perfect competition is most likely to apply to a market where

A)it is difficult for existing firms to exit the market
B)there are a few buyers,and they are uninformed about the degree of product standardization
C)there are many existing sellers,but it is difficult for new sellers to enter the market
D)one dominant seller must negotiate with one dominant buyer
E)there are many sellers,and they produce a standardized product

Question 33

A firm that operates in a perfectly competitive market

A)controls its own price,but accepts its output level as given
B)controls both its own price and its own output level
C)controls its own output level,but accepts its price as given
D)accepts both its output level and its price as given
E)controls its own price,its own output level,and its own costs

Question 34

In a perfectly competitive market,the market demand curve is horizontal.

Question 35

In perfect competition,no individual producer can significantly affect the market price because

A)the market is regulated by the government
B)each producer is ignorant of the market price
C)each producer provides a very small portion of the total market supply
D)strictly enforced collusion prevents any producer from acting independently
E)each firm's product is so different that there is no market price

Question 36

A firm in a perfectly competitive market can increase total revenue by raising the price of its product.

Question 37

In a perfectly competitive market,the

A)market demand curve is horizontal
B)short-run market supply curve is horizontal
C)short-run market demand curve slopes upward
D)short-run market supply curve slopes downward
E)market demand curve slopes downward

Question 38

Ken's Lawn Service Co.operates in a perfectly competitive market.Why doesn't Ken try to increase his revenue by lowering his price below the prevailing market price?

A)He can sell as much as he wishes to at the market price.
B)He faces a perfectly inelastic demand curve,so a price change will have no impact on revenue.
C)Government regulations prevent it.
D)If he lowers his price,he will lose all his sales since he faces a horizontal demand curve.
E)Agreements with other lawn service companies require him to sell at the market price.

Question 39

Under perfect competition

A)the only major difference between firms is the mark-up they use to determine prices
B)a single seller sets the price
C)a small number of sellers offer a differentiated product
D)sellers offer a standardized product
E)a small number of buyers and sellers negotiate the market price

Question 40

The term price taker is used to describe a situation in which consumers have no influence over the market price for a good or service and must take whatever price is set by the economically powerful firms.

Question 41

In perfect competition,the demand curve facing a firm is a horizontal line at the market price because

A)marginal revenue equals total revenue
B)of the law of demand
C)price always exceeds average total cost
D)marginal cost equals average cost
E)the firm is a price taker

Question 42

Suppose that a firm chose an output level where the total cost and total revenue curves intersect.At this level of output,

A)the firm is maximizing profits
B)the firm is minimizing losses
C)profit is zero
D)total revenue is maximized
E)total cost is minimized

Question 43

In perfect competition

A)the demand curve facing the firm is a horizontal line at the market price
B)marginal revenue equals total revenue
C)total revenue always exceeds variable cost
D)price always exceeds average total cost
E)marginal cost always equals average cost

Question 44

When marginal revenue equals price for all levels of output,the firm is operating in a perfectly competitive market.

Question 45

Figure 9-1 shows the marginal cost and average total cost curves for a perfectly competitive firm.If the market price is $10,then

A)the firm earns $10 profit on each unit sold
B)the firm earns $8 profit on each unit sold
C)marginal revenue equals $10
D)the firm is losing money in the short run
E)marginal cost always equals marginal revenue

Question 46

A firm can maximize profits in the short run by producing output where

A)MC = MR and the MC curve crosses the MR curve from above (as long as P>AVC)
B)TC = TR
C)MR - MC = TR - TC
D)MC = MR and the MC curve crosses the MR curve from below (as long as P>AVC)
E)TR = TC and the TC curve crosses the TR curve from below

Question 47

If a firm is a price taker,then the demand curve it faces is perfectly

A)elastic and above its marginal revenue curve
B)elastic and lies on top of its marginal revenue curve
C)elastic and below its marginal revenue curve
D)inelastic and above its marginal revenue curve
E)inelastic and the same as its marginal revenue curve

Question 48

Jim's Shoe Shine Shop operates in a perfectly competitive market.If its marginal revenue is $5 per shine,then

A)the next shine will bring in less than $5 in additional revenue
B)the next shine will bring in more than $5 in additional revenue
C)the market price per shine is $5
D)price is less than $5
E)price is equal to total revenue at all output levels

Question 49

In the short run under perfect competition,an individual firm should increase output as long as

A)marginal revenue exceeds marginal cost
B)total revenue exceeds total cost
C)price exceeds marginal revenue
D)total revenue is rising
E)marginal revenue is rising

Question 50

Which of the following is always true for a perfectly competitive firm?

A)Marginal revenue is below price.
B)Marginal revenue exceeds price.
C)The market demand curve is a horizontal line.
D)Price equals marginal revenue.
E)The market supply curve is a horizontal line.

Question 51

For a perfectly competitive firm,

A)marginal revenue equals total revenue
B)total revenue always exceeds total cost
C)price always exceeds average total cost
D)marginal cost always equals average cost
E)the marginal revenue curve and the demand curve lie on top of each other

Question 52

A perfectly competitive firm's total revenue curve

A)is a horizontal line
B)is a vertical line
C)is constant
D)has a negative slope
E)has a constant positive slope

Question 53

Firms are assumed to

A)maximize profit per unit of output
B)maximize total revenue
C)maximize assets
D)produce at the lowest point on their average total cost curve
E)maximize profit

Question 54

If a firm is operating in a perfectly competitive market in which the market price equals $12,then its

A)marginal revenue is $12
B)marginal revenue is less than $12
C)marginal revenue is greater than $12
D)marginal cost is less than $12
E)marginal cost is greater than $12

Question 55

A perfectly competitive firm's marginal revenue

A)curve is a vertical line
B)equals price
C)rises at a constant rate
D)rises at an increasing rate
E)falls at a constant rate

Question 56

Figure 9-1 shows the marginal cost and average total cost curves for a perfectly competitive firm.If the market price is $10,and the firm produces more than 200

A)the firm earns less profit per unit than if it produced 200 but more total profit.
B)the firm earns more profit per unit than if it produced 200 and more total profit.
C)the firm earns less profit per unit than if it produced 200 and less total profit.
D)the firm earns more profit per unit than if it produced 200 but may make a loss.
E)the firm will instantly go from making a profit to making a loss

Question 57

For a perfectly competitive firm,

A)marginal revenue is the same as the market price
B)marginal revenue equals total revenue
C)to earn an economic profit,it must be larger than its competitors
D)price always exceeds average total cost
E)marginal cost is always equal to average cost

Question 58

The change in a firm's total revenue due to selling an additional unit of output is known as

A)marginal revenue
B)average revenue
C)price
D)marginal cost
E)marginal revenue product

Question 59

In order for a firm to face a perfectly elastic demand curve,it must

A)be a large firm selling a standardized product
B)be a small producer selling a standardized product
C)be a small producer;its product may or may not be standardized
D)be a large producer selling a non-standardized product
E)sell a standardized product,but the size of the firm is irrelevant

Question 60

Under perfect competition,the demand curve facing a firm and the firm's marginal revenue curve are

A)vertical at the firm's chosen output level
B)both vertical,but the demand curve is further to the right than the marginal revenue curve
C)both vertical,but the marginal revenue curve is further to the right than the demand curve
D)both horizontal at the level of the market price
E)both horizontal,but the demand curve is above the marginal revenue curve

Question 61

The firm will do best if it produces that quantity of output for which

A)marginal cost equals average cost
B)profit per unit is greatest
C)marginal revenue equals total revenue
D)marginal revenue equals marginal cost
E)marginal revenue exceeds marginal cost

Question 62

If a firm's marginal revenue exceeds its marginal cost,it should

A)raise its price
B)advertise more
C)lay off a few employees
D)cut back its overhead
E)increase its output

Question 63

If average variable cost exceeds price for a perfectly competitive firm in the short run,then it could increase profits by raising its price.

Question 64

A perfectly competitive firm produces in a market where the prevailing price is $25.At its current output level of 10,000 units,its average total cost equals $15.The firm is earning

A)a total money profit of $100,000
B)a total economic profit of $100,000
C)a total money profit of $250,000
D)a total economic profit of $250,000
E)both a total money profit and a total economic profit of $100,000

Question 65

Figure 9-2 shows the total revenue and total cost data for a perfectly competitive firm.The marginal revenue of producing the sixth unit of output is

A)$0
B)less than $20
C)$20
D)more than $20
E)$120

Question 66

In short-run equilibrium,the perfectly competitive firm of Figure 9-3 will charge

A)$5
B)$7
C)$8
D)$10
E)more than $10

Question 67

Figure 9-5 shows the total revenue and total cost data for a perfectly competitive firm.The profit earned at the profit-maximizing output level is

A)$80
B)$10
C)$0
D)$20
E)$15

Question 68

If a perfectly competitive firm like the one depicted in Figure 9-3 produces 275 units

A)its profit will be larger than if it produces only 475
B)its profit will be exactly the same as if it produces 475
C)its profit will be smaller than if it produces only 475
D)it will be forced to shutdown
E)its profit will be smaller than if it produced 475 but it will still make a profit.

Question 69

Which of the following expressions equals profit per unit of output?

A)MR - MC
B)P - AVC
C)MR - P
D)P - ATC
E)MR - ATC

Question 70

A firm maximizes its profit by producing that quantity of output for which

A)marginal revenue equals total revenue
B)marginal revenue exceeds marginal cost by the greatest amount
C)price is the greatest distance above average total cost
D)the difference between total revenue and total cost is the greatest
E)marginal cost equals average cost

Question 71

If average cost rises as a firm increases its output level,

A)profits are not being maximized
B)marginal cost is greater than average cost
C)profits are maximized
D)marginal revenue is positive
E)total cost is minimized

Question 72

Which of the following defines total profit?

A)average revenue minus average cost
B)marginal cost times output
C)marginal revenue minus marginal cost
D)total revenue minus total cost
E)average cost divided by output

Question 73

In short-run equilibrium,the perfectly competitive firm of Figure 9-3 will produce

A)zero units of output
B)200 units of output
C)275 units of output
D)475 units of output
E)575 units of output

Question 74

Figure 9-4 shows marginal cost for a firm in a perfectly competitive market.Suppose that the market price is $20.What is the profit-maximizing level of output?

A)0
B)1
C)4
D)5
E)6

Question 75

If a perfectly competitive firm like the one depicted in Figure 9-3 produces 575 units

A)its profit will be larger than if it produces only 475
B)its profit will be exactly the same as if it produces 475
C)its profit will be smaller than if it produces only 475
D)it will be forced to shutdown
E)its profit will be smaller than if it produced 475 but it will still make a profit.

Question 76

Figure 9-2 shows the total revenue and total cost data for a perfectly competitive firm.To maximize profits,how many units of output should it produce?

A)1
B)3
C)4
D)5
E)6

Question 77

Figure 9-2 shows the total revenue and total cost data for a perfectly competitive firm.At what output level will the firm break even?

A)1
B)2
C)3
D)4
E)5

Question 78

Carla's Candy Store is maximizing profits by producing 1,000 pounds of candy per day.If Carla's fixed costs unexpectedly increase and the market price remains constant,then the profit-maximizing level of output

A)is less than 1,000 pounds
B)is still 1,000 pounds
C)is more than 1,000 pounds
D)will increase
E)cannot be determined without more information

Question 79

In order to maximize profit,a perfectly competitive firm should select the level of output where

A)marginal revenue equals price
B)marginal cost equals marginal revenue
C)price exceeds marginal cost
D)price exceeds marginal revenue
E)total revenue equals total cost

Question 80

As long as price is greater than average variable cost,a firm maximizes its profit by producing that quantity of output for which

A)average revenue equals average total cost
B)the price is the highest
C)marginal revenue equals marginal cost
D)average total cost is minimized
E)average variable cost is minimized