Deck 15: Perfect Competition

Question 1

In which market structure do firms exist in very large numbers, each firm produces an identical product, and there is freedom of entry and exit?

A)monopoly
B)oligopoly
C)only perfect competition
D)only monopolistic competition
E)both perfect competition and monopolistic competition

Answer 1

C

Question 2

Perfect competition is characterized by all of the following EXCEPT

A)a large number of buyers and sellers.
B)no restrictions on entry into or exit from the industry.
C)considerable advertising by individual firms.
D)buyers and sellers are well informed about prices.
E)firms produce an identical product.

Answer 2

C

Question 3

One requirement for an industry to be perfectly competitive is that in the industry there

A)are a few firms who control the market.
B)are many firms for whom the efficient scale of production is small.
C)is one firm that sells a product with no close substitutes.
D)are many firms selling different products.
E)is a barrier to entry that makes the entry of new firms difficult.

Answer 3

B

Question 4

Which of the following is the best example of a perfectly competitive market?

A)farming
B)diamonds
C)athletic shoes
D)soft drinks
E)electricity distribution

Question 5

In which of the following market types do all firms sell products so identical that buyers do not care from which firm they buy?

A)perfect competition
B)monopolistic competition
C)oligopoly
D)monopoly
E)perfect competition and monopolistic competition

Question 6

One requirement for an industry to be perfectly competitive is that

A)sellers and buyers have imperfect information about prices.
B)established firms have no advantage over new firms.
C)established firms have a significant advantage over new firms.
D)different firms produce widely different products.
E)many firms produce slightly different products.

Question 7

________ a large number of firms competing by making similar but slightly different products.

A)Monopoly requires
B)Perfect competition requires
C)Monopolistic competition requires
D)Oligopoly requires
E)Both perfect competition and monopolistic competition require

Question 8

A market with a large number of sellers

A)can only be a perfectly competitive market.
B)might be an oligopoly or a perfectly competitive market.
C)might be a monopolistically competitive or a perfectly competitive market.
D)might be a perfectly competitive, monopolistically competitive, oligopoly, or monopoly market.
E)can only be a monopolistically competitive market.

Question 9

Each firm in a perfectly competitive industry

A)produces a good that is slightly different from that of the other firms.
B)produces a good that is identical to that of the other firms.
C)attains economies of scale so that its efficient size is large compared to the market as a whole.
D)has control over at least one unique resource to separate themselves from their competitors.
E)has an important influence on the market price of the good or service being produced.

Question 10

Which of the following market types has the fewest number of firms?

A)perfect competition
B)monopolistic competition
C)oligopoly
D)monopoly
E)perfect competition and monopolistic competition

Question 11

When one firm sells a good or service that has no close substitutes and a barrier blocks the entry of new firms, what type of market is this?

A)perfect competition
B)only monopoly
C)oligopoly
D)only monopolistic competition
E)either monopoly or monopolistic competition

Question 12

A market in which many firms sell identical products is

A)a monopoly.
B)an oligopoly.
C)only perfectly competition.
D)only monopolistic competition.
E)both perfect competition and monopolistic competition.

Question 13

A perfectly competitive market arises when

A)the market demand is small relative to the output of a firm.
B)there are many buyers but few sellers.
C)the market demand is very large relative to the output of one seller.
D)a firm has control over a unique resource.
E)each of the many firms produces a slightly different product.

Question 14

In part, perfect competition arises if
I∙each firm's minimum efficient scale is large relative to demand.
Ii∙each firm produces a good or service identical to those produced by its many competitors.
Iii∙there are significant barriers to entry.

A)i only
B)ii only
C)i and ii
D)iii only
E)ii and iii

Question 15

In which market structure does one firm sell a good or service with no close substitutes and there is a barrier blocking the entry of new firms?

A)only monopoly
B)only oligopoly
C)perfect competition
D)monopolistic competition
E)either monopoly or oligopoly

Question 16

One requirement for an industry to be perfectly competitive is that

A)there are no restrictions on entry into or exit from the market.
B)there are multiple restrictions on entry into or exit from the market.
C)there are many firms selling different products.
D)sellers and buyers have imperfect information about prices.
E)the many firms sell slightly different products.

Question 17

A perfectly competitive firm

A)sells a product that has perfect substitutes.
B)has a perfectly inelastic demand.
C)has a perfectly elastic supply.
D)Answers A and B are correct.
E)Answers A and C are correct.

Question 18

A monopoly occurs when

A)each of many firms produces a product that is slightly different from that of the other firms.
B)one firm sells a good that has no close substitutes and a barrier blocks entry for other firms.
C)there are many firms producing the same product.
D)a few firms control the market.
E)one firm is larger than the many other firms that make an identical product.

Question 19

The characteristics that describe a perfectly competitive industry include

A)many firms selling an identical product.
B)one firm selling to many buyers.
C)many firms selling a slightly differentiated product.
D)a few firms selling to many buyers.
E)None of the above answers is correct.

Question 20

What is the difference between perfect competition and monopolistic competition?

A)Perfect competition has a large number of small firms while monopolistic competition does not.
B)Perfect competition has barriers to entry while monopolistic competition does not.
C)Perfect competition has no barriers to entry, while monopolistic competition does.
D)In perfect competition, firms produce identical goods, while in monopolistic competition, firms produce slightly different goods.
E)In monopolistic competition, firms produce identical goods, while in perfect competition, firms produce slightly different goods.

Question 21

Normal profit is

A)the same thing as economic profit.
B)the return to entrepreneurship.
C)total revenue minus the total opportunity cost of production.
D)the point of profit when total revenue is maximized.
E)part of the firm's total revenue.

Question 22

In which market structure is there a large number of firms producing slightly differentiated products?

A)monopoly
B)oligopoly
C)only perfect competition
D)only monopolistic competition
E)either perfect competition or monopolistic competition

Question 23

The U.S.oil industry has only a few firms in it, so an economists is likely to describe the industry as

A)a monopoly.
B)an oligopoly.
C)perfectly competitive.
D)monopolistically competitive.
E)Both answers C and D can be correct.

Question 24

A firm in perfect competition is a price taker because

A)there are no good substitutes for its good.
B)many other firms produce identical products.
C)it is very large.
D)its demand curves are downward sloping.
E)it's demand curve is vertical at the profit-maximizing quantity.

Question 25

A perfectly competitive firm can

A)sell all of its output at the prevailing market price.
B)set a higher price to customers who are willing to pay more.
C)raise its price in order to increase its total revenue.
D)sell additional output only by lowering its price.
E)usually not sell all the output it produces, but still "over-produces" because there are some periods when it can sell the extra output at very profitable prices.

Question 26

The firm's over-riding objective is to

A)earn a normal profit.
B)maximize normal profit.
C)maximize economic profit.
D)maximize total revenue.
E)avoid an economic loss.

Question 27

To maximize its profit, in the short run a perfectly competitive firm decides

A)what price to charge for its product.
B)what quantity of output to produce.
C)whether to exit the market.
D)whether to increase the size of its plant.
E)how much advertising it should undertake.

Question 28

We know that a perfectly competitive firm is a price taker because

A)its MC curve slopes upward.
B)its ATC curve is U-shaped.
C)its demand curve is horizontal.
D)MC and ATC are equal at the profit-maximizing amount of output.
E)it has no supply curve.

Question 29

A market is classified as an oligopoly when

A)a few firms compete.
B)many firms produce a slightly differentiated product.
C)no matter how many firms are in the market, a barrier blocks entry by other new firms.
D)many firms produce the same product.
E)only one firm sells a product with no close substitutes.

Question 30

The price charged by a perfectly competitive firm is

A)the same as the market price.
B)different than the price charged by competing firms.
C)lower the more the firm produces.
D)higher the more the firm produces.
E)indeterminate.

Question 31

A market is classified as monopolistically competitive when

A)there is a barrier that blocks entry by other firms.
B)a small number of firms compete.
C)many firms produce the same product.
D)many firms produce a slightly differentiated product.
E)there is one firm that sells a good or service with no close substitutes.

Question 32

In which market structure are there a small number of firms competing?

A)only monopoly
B)only oligopoly
C)perfect competition
D)monopolistic competition
E)either monopoly or oligopoly

Question 33

A firm that is a price taker faces

A)an elastic supply curve.
B)an inelastic supply curve.
C)a perfectly elastic demand curve.
D)a perfectly inelastic demand curve.
E)an elastic but not perfectly elastic demand curve.

Question 34

A large number of sellers all selling an identical product implies which of the following?

A)market chaos
B)the inability of any seller to change the price of the product
C)large losses incurred by all sellers
D)horizontal market supply curves
E)vertical market supply curves

Question 35

For a perfectly competitive firm, the price of its good is equal to the firm's marginal revenue because

A)information about price changes is hard to come by for small sellers.
B)price and marginal revenue are the same economic concepts.
C)individual perfectly competitive firms cannot influence the market price by changing their output.
D)the firm's total revenue cannot be changed by anything the firms can do.
E)there are only a small number of firms in the market.

Question 36

In a perfectly competitive market, the type of decision a firm has to make is different in the short run than in the long run.Which of the following is an example of a perfectly competitive firm's short-run decision?

A)the profit-maximizing level of output
B)how much to spend on advertising and sales promotion
C)what price to charge buyers for the product
D)whether or not to enter or exit an industry
E)whether or not to change its plant size

Question 37

In a perfectly competitive market, one farmer's barley is

A)completely different from another farmer's barley.
B)a perfect substitute for another farmer's barley.
C)a monopolized product in that farmer's local market.
D)a monopolized product in the national market.
E)slightly different from another farmer's barley.

Question 38

Suppose Pat's Paints is a perfectly competitive firm.If Pat's Paints' marginal revenue equals $5 per can, and Pat decides to sell 100 cans of paint, Pat's total revenue equals

A)$5.
B)$100.
C)$500.
D)$20.
E)Information on the price of a can of paint is needed to answer the question.

Question 39

Which of the following market types has only a few competing firms?

A)perfect competition
B)monopolistic competition
C)oligopoly
D)monopoly
E)perfect competition and monopolistic competition

Question 40

A market is ________ when a small number of firms compete.

A)a monopoly
B)perfectly competitive
C)monopolistically competitive
D)an oligopoly
E)either monopolistically competitive or an oligopoly

Question 41

Because perfectly competitive firms are price takers, each firm faces a demand that is

A)perfectly inelastic.
B)perfectly elastic.
C)highly inelastic but never is it perfectly inelastic.
D)unit elastic.
E)highly elastic but never is it perfectly elastic.

Question 42

For a perfectly competitive firm, marginal revenue is

A)less than the price.
B)greater than the price.
C)equal to the price.
D)equal to the change in profit from selling one more unit.
E)undefined because the firm's demand curve is horizontal.

Question 43

How does the demand for any one seller's product in perfect competition compare to the market demand for that product?

A)They are identical.
B)The demand for any one seller is proportionally smaller but otherwise identical to the market demand.
C)The demand for any one seller's product is perfectly elastic while the market demand curve is downward sloping.
D)There is no demand for any one seller's competitively sold product.
E)The demand for any one seller's product is not perfectly elastic while the market demand is perfectly elastic.

Question 44

The market demand curve in a perfectly competitive market is ________ and the demand curve for a perfectly competitive firm's output is ________.

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

Question 45

If the market price of a product is $14 and all sellers are price takers, then which of the following is correct?

A)Each seller's total revenue line is graphed as an upward-sloping straight line.
B)The demand curve for each seller's product is a downward-sloping straight line.
C)Each seller can earn more total revenue by raising the price he or she charges above $14.
D)The demand curve for each seller's product is a downward-sloping but not necessarily a straight line.
E)Each seller's total revenue is graphed as an upside-down U-shaped curve.

Question 46

For a perfectly competitive firm, the market price of a good is

A)a given which the firm cannot change.
B)determined by the firm in order to maximize its profit.
C)equal to the firm's marginal revenue.
D)Answers A and B are correct.
E)Answers A and C are correct.

Question 47

If the wheat industry is perfectly competitive with a market price of $4 per bushel and Farmer Brown charged $5 per bushel, how many bushels would Farmer Brown sell?

A)some, but fewer than he would at a price of $4
B)more than he would at a price of $4
C)just as many as he would at a price of $4
D)none
E)More information is needed about the prices charged by the other wheat farmers.

Question 48

As a perfectly competitive firm produces more and more of a good, its economic profit

A)constantly increases.
B)constantly decreases.
C)first decreases, then increases.
D)first increases, then decreases.
E)does not change.

Question 49

In the above, a marginal revenue curve for a perfectly competitive firm is shown in Figure ________.

A)W
B)X
C)Y
D)Z
E)X and Figure Z

Question 50

Marginal revenue is

A)the change in total revenue from a one-unit increase in the quantity sold.
B)another name for total revenue.
C)the change in total cost from producing an additional unit of output.
D)the economic profit from producing an additional unit of output.
E)less than price for a perfectly competitive firm.

Question 51

In perfect competition, marginal revenue

A)increases as more is sold.
B)decreases as more is sold.
C)is equal to the market price.
D)is zero.
E)is always greater than marginal cost.

Question 52

If a firm in a perfectly competitive market faces an equilibrium price of $5, its marginal revenue

A)will be greater than $5.
B)will be less than $5.
C)maybe either greater or less than $5.
D)will also be $5.
E)will be any amount but $5.

Question 53

For a perfectly competitive palm tree nursery in South Carolina, the total revenue curve is

A)downward sloping.
B)a horizontal line.
C)upward sloping.
D)U-shaped.
E)undefined because the firm is perfectly competitive.

Question 54

If demand for a seller's product is perfectly elastic, which of the following is true?
I∙The firm will sell no output if it sets the price its product above the market price.
Ii∙There are many perfect substitutes for the seller's product.
Iii∙The firm will sell no output if it sets the price its product below the market price.

A)i only
B)ii only
C)iii only
D)i and ii
E)ii and iii

Question 55

Cynthia is an Oklahoma wheat farmer.The demand for her wheat is

A)perfectly inelastic.
B)inelastic but not perfectly inelastic.
C)elastic but not perfectly elastic.
D)perfectly elastic.
E)unit elastic.

Question 56

Elsie is a perfectly competitive dairy farmer.The market price of milk was $2.40 but just fell to $2.20 a gallon.Elsie

A)can sell as much milk as she wants at $2.20 a gallon.
B)will have to charge some customers $2.40 a gallon to stay in business.
C)will produce the same amount of milk at both prices.
D)can sell more at the lower price because the quantity demanded is higher at lower prices.
E)will be able to charge her initial customers $2.40 a gallon.

Question 57

The marginal revenue curve for a perfectly competitive firm is

A)horizontal.
B)vertical.
C)upward sloping.
D)downward sloping.
E)a straight line coming out of the origin with a 45 degree slope.

Question 58

For the perfectly competitive broccoli producers in California, the market demand curve for broccoli is

A)a horizontal line.
B)downward sloping.
C)nonexistent.
D)upward sloping.
E)the same as the demand curve each firm faces.

Question 59

A firm's marginal revenue is

A)the change in total revenue that results from a one-unit increase in the quantity sold.
B)total revenue minus total cost.
C)the change in total revenue minus the change in total cost.
D)the change in total revenue that results from an increase in the demand for the good or service.
E)less than the market price for a perfectly competitive firm.

Question 60

If a perfectly competitive firm raised the price of its product,

A)its profits would increase.
B)the quantity of output it sells decreases to zero.
C)rival firms will follow suit and raise their prices also.
D)the firm will be forced to advertise more.
E)its total revenue would rise but its total cost would rise by more.

Question 61

Mark owns a cattle ranch near Hugo, Oklahoma.Mark is currently producing beef at an output level where marginal revenue exceeds marginal cost.In order to maximize his profit, Mark should

A)not change his output.
B)decrease his output.
C)increase his output.
D)shut down his ranch.
E)probably change his output, but more information is needed to determine if he should increase, decrease, or not change it.

Question 62

A perfectly competitive firm will maximize profit when the quantity produced is such that the

A)firm's total revenue is equal to total cost.
B)firm's marginal revenue is equal to the price.
C)firm's marginal revenue is equal to its marginal cost.
D)price exceeds the firm's marginal cost by as much as possible.
E)firm's marginal revenue exceeds its marginal cost by the maximum amount possible.

Question 63

To increase its profit, a perfectly competitive firm will produce more output when

A)price is greater than average fixed cost.
B)price is greater than marginal cost.
C)marginal cost is less than average total cost.
D)average variable cost is greater than average fixed cost.
E)price is greater than average variable cost.

Question 64

Henry, a perfectly competitive lime grower in Southern California, notices that the market price of limes is greater than his marginal cost.What should Henry do?

A)expand his output to increase profits
B)shut down and incur a loss equal to his total fixed cost
C)advertise his limes to be able to sell more output
D)look for the output level where marginal revenue minus marginal cost is maximized
E)shut down and earn no profit but also incur no loss

Question 65

Shama is producing candles in a perfectly competitive market.When she produces 500 candles, her total cost is $250.If she produces one additional candle, her total cost increases to $260.In order to maximize her profit, she should produce the additional candle

A)if the market price for a candle is $12.
B)only if the market price exceeds $260 for a candle.
C)only if the market price exceeds $250 for a candle.
D)if the market price for a candle exceeds $0.50.
E)if her price exceeds her average total cost.

Question 66

Jennifer's Bakery Shop produces baked goods in a perfectly competitive market.If Jennifer decides to produce her 100th batch of cookies, the marginal cost is $120.She can sell this batch of cookies at a market price of $110.To maximize her profit, Jennifer should

A)not produce this additional batch.
B)produce this batch of cookies because they will help lower her average fixed cost.
C)charge $120 for this batch.
D)shut down.
E)produce this batch of cookies because their MR exceeds their MC.

Question 67

A perfectly competitive firm is earning an economic profit when total fixed costs increase.Assuming the firm does not shut down, in the short run the firm will

A)charge a higher price.
B)produce more output so the extra revenue will cover the increased costs.
C)produce less output to decrease total costs.
D)continue producing the same quantity as before but will make less economic profit.
E)continue producing the same quantity as before and continue making the same economic profit as before.

Question 68

As a perfectly competitive firm's output increases, its total revenue ________ and its total cost ________.

A)increases; increases
B)increases; decreases
C)decreases; increases
D)decreases; decreases
E)does not change; increases

Question 69

A perfectly competitive firm is producing at the quantity where marginal cost is $6 and average total cost is $4.The price of the good is $5.To maximize its profit, this firm should

A)raise its price.
B)lower its price.
C)increase its output.
D)decrease its output.
E)increase the price it charges for its product.

Question 70

During the winter, theme parks in Orlando close earlier than in the summer.The reason the theme parks close early during the winter is because during that season the marginal revenue from staying open later is ________ the marginal cost.

A)greater than
B)less than
C)equal to
D)zero compared to
E)not comparable to

Question 71

In a perfectly competitive industry, when a firm is producing so that its total revenue equals its total cost, the firm is

A)making an economic profit.
B)incurring an economic loss.
C)making zero economic profit.
D)definitely not maximizing its profit.
E)None of the above answers is correct because the relationship between total revenue and total cost has nothing to do with the firm's profit or loss.

Question 72

In a perfectly competitive market, the market price is $23.At the current level of output, a firm has a marginal cost of $28.What should the firm do?

A)produce a larger output to make more profit
B)nothing, it is currently maximizing profit
C)produce less output to make more profit
D)shut down
E)raise the price of its product

Question 73

For a perfectly competitive firm, profit is maximized at the output level where
I∙total revenue exceeds total cost by the largest amount.
Ii∙marginal revenue equals marginal cost.
Iii∙price equals marginal cost.

A)i only
B)ii only
C)ii and iii
D)i and ii
E)i, ii, and iii

Question 74

Suppose that a perfectly competitive firm's marginal revenue equals $12 when it sells 10 units of output.If the marginal cost of producing the 10th unit is $14, to maximize its profit the firm should

A)do nothing because it is already maximizing its profit.
B)decrease its production.
C)increase its production.
D)shut down.
E)increase the price it charges for its product.

Question 75

For a perfectly competitive firm, profit maximization occurs when output is such that

A)total revenue (TR)is maximized.
B)total cost (TC)is minimized.
C)marginal revenue (MR)= marginal cost (MC).
D)average total cost (ATC)is minimized.
E)total revenue (TR)equals total cost (TC).

Question 76

Jerry's Jellybean Factory produces 2,000 pounds of jellybeans per month and sells them in a perfectly competitive market.The marginal cost is $3 per pound, the average variable cost is $2 per pound, and the beans sell for $4 per pound.Jerry

A)is maximizing profit.
B)is incurring an economic loss and should shut down.
C)could increase his profit by producing more beans.
D)could increase his profit by producing fewer beans.
E)could increase his profit by raising the price of his beans.

Question 77

For a syrup producer in central Vermont, profit is maximized at the level of output for which total

A)revenue exceeds total cost by the largest amount.
B)revenue exceeds total cost by the smallest amount.
C)revenue is maximized.
D)cost is minimized.
E)revenue equals total cost.

Question 78

If a perfectly competitive wheat farmer is maximizing its profit and then increases its output, the farmer's

A)total revenue increases, but total cost rises by more so that the farmer's total profit decreases.
B)total revenue decreases and total cost increases, both thereby decreasing the farmer's total profit.
C)total revenue does not change but total cost increases, thereby decreasing the farmer's total profit.
D)marginal revenue increases, but so does marginal cost so that the farmer's total profit increases.
E)total revenue and total cost both rise but the effect on the farmer's total profit is uncertain.

Question 79

A firm maximizes its profit by producing the amount of output such that

A)marginal revenue equals marginal cost.
B)marginal revenue exceeds marginal cost by some amount.
C)marginal revenue is maximized.
D)marginal cost is minimized.
E)marginal revenue exceeds marginal cost by the maximum amount possible.

Question 80

If a perfectly competitive firm's marginal revenue is greater than its marginal cost, as it increases its output, its profit ________ and the price it can charge for its product ________.

A)increases; does not change
B)decreases; falls
C)increases; falls
D)decreases; rises
E)decreases; does not change