Deck 13: Perfect Competition

Question 1

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 true.

Answer 1

D

Question 2

One implication of goods being standardized in a market is:

A) the government regulations must promote competition and lower prices 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.

Answer 2

B

Question 3

The definition of a price taker is:

A) having market power.
B) having no control over the market price.
C) being competitive.
D) having government determine what you sell goods and services for.

Answer 3

B

Question 4

An example of a standardized good is:

A) grain.
B) granola cereal.
C) hamburgers.
D) digital cameras.

Question 5

An essential characteristic of a perfectly competitive market is:

A) buyers and sellers share market power.
B) sellers are price makers.
C) goods are standardized.
D) goods are unique.

Question 6

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.

Question 7

Standardized goods are:

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

Question 8

When firms have market power,it means that they:

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 9

Standardized goods and services refers to those that:

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

Question 10

Most markets in the United States:

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

Question 11

An example of a standardized good is:

A) cereal.
B) iron.
C) soda.
D) pizza.

Question 12

Transactions costs are defined to be the:

A) costs a buyer or seller incurs to make a transaction take place.
B) taxes they pay when purchasing a good or service.
C) fees they are charged if they purchase a good or service on credit.
D) costs a buyer faces if they re-sell a good or service.

Question 13

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 14

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 15

An essential characteristic of a perfectly competitive market is:

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 16

When firms have market power,it means that they:

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

Question 17

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

A) no competition and so 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 set their own price.
D) no control over the price they set because it is determined by government.

Question 18

A competitive market is one in which:

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

Question 19

A good that is perfectly standardized is:

A) likely to be interchangeable with others in the market.
B) indistinguishable to others in the market.
C) fairly close to others in the market.
D) determined to be the same by government.

Question 20

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 21

This table shows price and quantity produced for a single firm in a perfectly competitive market. Given the information in the table shown,what is the market price?

A) $20
B) $10
C) $2
D) $260

Question 22

A characteristic that is important,but not essential to defining a perfectly competitive market is:

A) goods are standardized.
B) buyers and sellers are price takers.
C) firms can freely enter and exit the market.
D) All of these are necessary to define a perfectly competitive market.

Question 23

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

A) calculated by total revenue divided by total output.
B) equal to marginal revenue.
C) equal to the market price.
D) All of these are true.

Question 24

Collusion is:

A) more likely when the threat of market entry is missing.
B) more likely in perfectly competitive markets.
C) less likely when the threat of market entry is missing.
D) not affected by firm's ability to enter a market.

Question 25

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

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

Question 26

If a firm in a perfectly competitive market faces a market price of $5,and it decides to produce 400 units,the firm's total revenue will be:

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

Question 27

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 the average total cost of a firm.
C) is taken as a constant by individual firms.
D) is higher than the marginal revenue of a firm

Question 28

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 market price.

Question 29

This table shows price and quantity produced for a single firm in a perfectly competitive market. Given the information in the table shown,what is the total revenue when 23 units are produced?

A) $230
B) $10
C) $23
D) $2.30

Question 30

If a perfectly competitive firm faces a market price of $3 per unit,and it 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 31

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

A) increase if marginal revenue is greater than it.
B) decrease if marginal revenue is greater than it.
C) always be the same as marginal revenue.
D) always be greater than average total cost.

Question 32

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

A) will remain constant regardless of an individual firm's output decision.
B) is equal to the average total cost of a firm.
C) is equal to the marginal cost of a firm.
D) All of these are true.

Question 33

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

A) innovation.
B) cost-cutting.
C) quality improvements.
D) All of these occur more often with free entry and exit.

Question 34

This table shows price and quantity produced for a single firm in a perfectly competitive market. Given the information in the table shown,what is the average revenue when 24 units are produced?

A) $240
B) $10
C) $24
D) $2.40

Question 35

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 is true of perfectly competitive markets.

Question 36

In perfectly competitive markets,transactions costs are:

A) generally quite high.
B) a natural byproduct of making the transaction.
C) low or nearly zero.
D) seen as a nuisance and generally ignored when making a transaction.

Question 37

In a perfectly competitive market,total revenue:

A) measures how much revenue the firm takes in from all sales less any costs they incur.
B) is equal to price multiplied by quantity sold.
C) varies due to changes in price, since quantity is constant.
D) should vary across firms.

Question 38

This table shows price and quantity produced for a single firm in a perfectly competitive market. Given the information in the table shown,what is the 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,the market price is:

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

Question 40

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 true.

Question 41

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 42

If a firm in a perfectly competitive market faces a market price of $4,and it decides to produce 700 units,the firm's average revenue will be:

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

Question 43

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

A) must be positive.
B) are maximized.
C) will increase if it produces less.
D) will increase if it produces more.

Question 44

If a firm in a perfectly competitive market faces a market price of $2,and it 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 is true.

Question 45

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

A) more as long as marginal cost is greater than marginal revenue.
B) less as long as marginal cost is less than marginal revenue.
C) at the level where marginal cost equals marginal revenue.
D) All of these are true.

Question 46

If a firm in a perfectly competitive market faces a market price of $7,and it 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 47

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 it earns on its last unit sold is zero.

Question 48

For a firm in a perfectly competitive market,if it produces 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) is impossible to tell if it is actually maximizing profits.

Question 49

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 50

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

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

Question 51

This table shows the total costs for various levels of output for a firm operating in a perfectly competitive market. According to the table shown,what is the market price?

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

Question 52

For a firm in a perfectly competitive market,if it 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) is impossible to tell how quantity should be changed without more information.

Question 53

This table shows the total costs for various levels of output for a firm operating in a perfectly competitive market. According to the table shown,what is the firm's total revenue when 4 units are produced?

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

Question 54

If a firm in a perfectly competitive market faces a market price of $8,and it 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 55

For a firm in a perfectly competitive market,if it 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 56

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

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

Question 57

A firm in a perfectly competitive market can maximize its profits by producing:

A) the level of output where marginal cost equals marginal revenue.
B) any level below where marginal cost equals marginal revenue.
C) any level beyond where marginal cost equals marginal revenue.
D) slightly below its maximal capacity.

Question 58

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

A) must be negative.
B) are maximized.
C) will increase if it produces less.
D) cannot be determined.

Question 59

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 60

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

A) keep producing more as long as marginal cost is less than marginal revenue.
B) produce less as long as marginal cost is greater than marginal revenue.
C) produce where marginal cost and marginal revenue are equal.
D) All of these are true.

Question 61

According to the graph shown,the 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 62

The MC of a firm:

A) crosses TC at its minimum.
B) crosses AVC and ATC at its minimum.
C) crosses MR at the above the profit-maximizing level of output.
D) is a horizontal line indicating that costs are constant in perfect competition.

Question 63

If the market price falls below the bottom of the firm's ATC curve:

A) there is no level of output at which the firm can make a profit.
B) the firm is earning profits.
C) the market price must be lower than the firm's AVC.
D) Total revenue must be higher than total cost.

Question 64

This table shows the total costs for various levels of output for a firm operating in a perfectly competitive market. According to the table shown,fixed costs must be:

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

Question 65

This table shows the total costs for various levels of output for a firm operating in a perfectly competitive market. According to the table shown,the firm's marginal revenue:

A) is constant.
B) increases as output increases.
C) decreases as output increases.
D) increases until the 3^rd unit, then decreases.

Question 66

According to the graph shown,producing 9 units earns profits that are:

A) lower than output of 11 units, and the firm should increase production.
B) higher than output of 11 units, and the firm should decrease production.
C) higher than output of 11 units, and the firm should increase production.
D) lower than output of 11 units, and the firm should decrease production.

Question 67

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 of these are true.

Question 68

According to the graph shown,producing 14 units:

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

Question 69

As long as market price remains above the average total cost,and the firm chooses the profit-maximizing level of output,it will:

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

Question 70

This table shows the total costs for various levels of output for a firm operating in a perfectly competitive market. According to the table shown,what is the firm's marginal revenue from the 3^rd unit produced?

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

Question 71

According to the graph shown,at point C the firm is earning:

A) higher profits than at point B, and they should produce more.
B) fewer profits than at point B, and they should produce more.
C) fewer profits than at point B, and they should produce less.
D) higher profits than at point B, and they should produce less.

Question 72

If a firm is earning a profit,then:

A) the ATC must be higher than the market price.
B) total revenue must be higher than total cost.
C) the ATC must be higher than AR.
D) MR is equal to MC.

Question 73

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

A) increases the profit-maximizing quantity.
B) lowers the profit-maximizing quantity.
C) is unrelated to the profit-maximizing quantity.
D) signifies the firm should leave the market.

Question 74

If the market price falls below a firm's minimum average total cost,the firm should:

A) definitely stop production.
B) definitely continue to operate at a loss.
C) consider how to minimize its losses.
D) pay only fixed costs.

Question 75

This table shows the total costs for various levels of output for a firm operating in a perfectly competitive market. According to the table shown,when 1 unit is produced:

A) marginal costs exceed marginal revenue, and the firm should produce more.
B) marginal revenue exceeds marginal costs, and the firm should produce more.
C) marginal revenue exceeds marginal costs, and the firm should produce less.
D) marginal costs exceed marginal revenue, and the firm should produce less.

Question 76

This table shows the total costs for various levels of output for a firm operating in a perfectly competitive market. According to the table shown,when 5 units are produced:

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

Question 77

According to the graph shown,the market price is:

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

Question 78

This table shows the total costs for various levels of output for a firm operating in a perfectly competitive market. According to the table shown,what is the firm's marginal cost from producing the 2^nd unit?

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

Question 79

This table shows the total costs for various levels of output for a firm operating in a perfectly competitive market. According to the table shown,the 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 80

This table shows the total costs for various levels of output for a firm operating in a perfectly competitive market. According to the table shown,the firm's marginal costs:

A) are constant.
B) increase as output increases.
C) decrease until the 2^nd unit, then increase.
D) increase until the 4^th unit, then decrease.