Deck 12: Perfect Competition and the Supply Curve

Question 1

Perfect competition is characterized by:

A) rivalry in advertising.
B) fierce quality competition.
C) the inability of any one firm to influence price.
D) widely recognized brands.

Answer 1

the inability of any one firm to influence price.

Question 2

A perfectly competitive firm is a:

A) price-taker.
B) price searcher.
C) cost maximizer.
D) quantity taker.

Answer 2

price-taker.

Question 3

An assumption of the model of perfect competition is:

A) discrimination.
B) difficult entry and exit.
C) many buyers and sellers.
D) limited information.

Answer 3

many buyers and sellers.

Question 4

The assumptions of perfect competition imply that:

A) individuals in the market accept the market price as given.
B) individuals can influence the market price.
C) the price will be fair.
D) the price will be high.

Question 5

Price-takers are individuals in a market who:

A) select a price from a wide range of alternatives.
B) select the lowest price available in a competitive market.
C) select the average of prices available in a competitive market.
D) have no ability to affect the price of a good in a market.

Question 6

One characteristic of a perfectly competitive market is that there are _____ sellers of the good or service.

A) one or two
B) a few
C) usually fewer than 10
D) many

Question 7

Which statement is NOT a characteristic of a perfectly competitive industry?

A) Firms seek to maximize profits.
B) Profits may be positive in the short run.
C) There are many firms.
D) Products are differentiated.

Question 8

Individuals in a market who must take the market price as given are:

A) quantity minimizers.
B) quantity takers.
C) price-takers.
D) price searchers.

Question 9

In a perfectly competitive industry,each firm:

A) is a price maker.
B) produces about half of the total industry output.
C) produces a differentiated product.
D) produces a standardized product.

Question 10

In the model of perfect competition:

A) the consumer is at the mercy of powerful firms that can set prices wherever they prefer.
B) individual firms can influence the price,but only slightly.
C) no individual or firm has enough power to affect price.
D) the price is determined by how many years are left in the product's patent.

Question 11

When a firm cannot affect the market price of the good that it sells,it is said to be a:

A) price-taker.
B) natural monopoly.
C) dominant firm.
D) cartel.

Question 12

If an Ontario grape stand operates in a perfectly competitive market,that stand's owner will be a:

A) price maker.
B) price taker.
C) price discriminator.
D) price maximizer.

Question 13

The assumptions of perfect competition imply that:

A) individuals in the market determine the market price.
B) firms in the market accept the market price as given.
C) there will be no new competition due to natural monopolies.
D) the price will be decreasing yearly.

Question 14

Which statement describes a necessary condition for perfect competition?

A) A small number of firms control a large share of the total market.
B) Movement into and out of the market is limited.
C) Firms produce a standardized product.
D) Extensive advertising is used to promote the firm's product.

Question 15

The perfectly competitive model does NOT assume:

A) a great number of buyers.
B) easy entry to and exit from the market.
C) a standardized product.
D) that firms attempt to maximize their total revenue.

Question 16

Which statement is NOT characteristic of perfect competition?

A) All firms produce the same standardized product.
B) There are many producers,and each has only a small market share.
C) There are many producers;one firm has a 25% market share,and all of the remaining firms have a market share of less than 2% each.
D) There are no obstacles to entry into or exit from the industry.

Question 17

For the Alberta beef industry to be classified as perfectly competitive,ranchers in Alberta must have _____ on prices and beef must be a _____ product.

A) no noticeable effect;standardized
B) a huge effect;standardized
C) a huge effect;differentiated
D) no noticeable effect;differentiated

Question 18

If a Quebec strawberry wholesaler operates in a perfectly competitive market,that wholesaler will have a _____ share of the market,and consumers will consider her strawberries and her competitors' strawberries to be _____.Therefore,_____ advertising will take place in this market.

A) large;standardized;no
B) small;standardized;little or no
C) small;differentiated;no
D) large;differentiated;extensive

Question 19

If all firms in an industry are price-takers:

A) each firm can sell at the price it wants to charge,provided it is not too different from the prices other firms are charging.
B) each firm takes the market price as given for its output level,recognizing that the price will change if it alters its output significantly.
C) an individual firm cannot alter the market price even if it doubles its output.
D) the market sets the price,and each firm can take it or leave it by setting a different price.

Question 20

The market for breakfast cereal contains hundreds of similar products,such as Froot Loops,cornflakes,and Rice Krispies,that are considered to be different products by different buyers.This situation violates the perfect competition assumption of:

A) many buyers and sellers.
B) a standardized product.
C) ease of entry.
D) ease of exit.

Question 21

When perfect competition prevails,which characteristic of firms are we likely to observe?

A) They erect and maintain barriers to new firms.
B) There are not many of them.
C) They all try to highlight the substantial product differentiation between producers.
D) They are all price-takers.

Question 22

A firm's total output times the price at which it sells that output is _____ revenue.

A) net
B) total
C) average
D) marginal

Question 23

Perfectly competitive firms will:

A) maximize total revenue by using the marginal decision rule.
B) increase output up to the point that the marginal revenue of an additional unit of output is greater than the marginal cost.
C) increase output up to the point that the marginal revenue of an additional unit of output is equal to the marginal cost.
D) always attempt to minimize average variable cost.

Question 24

In perfect competition:

A) a firm's total revenue is found by multiplying the market price by the firm's quantity of output.
B) the firm's total revenue curve is a downward-sloping line.
C) at any price,the more sold,the higher is a firm's marginal revenue.
D) the firm's total revenue curve is non-linear.

Question 25

If a perfectly competitive firm decreases production from 11 units to 10 units and the market price is $20 per unit,total revenue for 10 units is:

A) -$20.
B) $20.
C) $200.
D) $210.

Question 26

_____ almost always take the market price as given;that is,they are considered _____.However,this is often not true of _____.

A) Consumers;quantity minimizers;producers
B) Producers;quantity takers;consumers
C) Consumers and producers;price-takers;firms that produce a differentiated product
D) Producers;price searchers;consumers

Question 27

The competitive model of markets does NOT assume:

A) a large number of buyers.
B) easy entry into and exit from the market.
C) a standardized product.
D) patents and copyrights that serve as barriers to entry into the industry.

Question 28

Marginal revenue is a firm's:

A) ratio of profit to quantity.
B) ratio of average revenue to quantity.
C) price per unit times the number of units sold.
D) increase in total revenue when it sells an additional unit of output.

Question 29

A perfectly competitive firm will maximize profits when:

A) marginal revenue equals marginal cost.
B) marginal revenue is lower than average variable cost.
C) price is lower than marginal cost.
D) price is higher than marginal cost.

Question 30

Total revenue is a firm's:

A) change in revenue resulting from a unit change in output.
B) ratio of revenue to quantity.
C) difference between revenue and cost.
D) total output times the price of that output.

Question 31

The marginal revenue received by a firm in a perfectly competitive market:

A) is greater than the market price.
B) is less than the market price.
C) is equal to its average revenue.
D) increases with the quantity of output sold.

Question 32

Marginal revenue:

A) is the slope of the average revenue curve.
B) equals the market price in perfect competition.
C) is the change in quantity divided by the change in total revenue.
D) is the price divided by the change in quantity.

Question 33

People in the eastern part of Beirut are prevented by border guards from travelling to the western part of Beirut to shop for or sell food.This situation violates the perfect competition assumption of:

A) price-setting behaviour.
B) a small number of buyers and sellers.
C) differentiated goods.
D) ease of entry and exit.

Question 34

The demand curve faced by a single perfectly competitive firm is:

A) perfectly inelastic.
B) perfectly elastic.
C) downward sloping.
D) relatively but not perfectly elastic.

Question 35

If a perfectly competitive firm increases production from 10 units to 11 units and the market price is $20 per unit,total revenue for 11 units is:

A) $10.
B) $20.
C) $200.
D) $220.

Question 36

An assumption of the model of perfect competition is:

A) identical goods.
B) difficult entry and exit.
C) few buyers and sellers.
D) cooperation and interdependence between sellers.

Question 37

For a perfectly competitive firm,marginal revenue:

A) is less than price.
B) is greater than price.
C) decreases as the firm increases output.
D) is equal to price.

Question 38

In a perfectly competitive industry,the market demand curve is usually:

A) perfectly inelastic.
B) perfectly elastic.
C) downward sloping.
D) relatively elastic.

Question 39

The difference between total revenue and total cost is:

A) economic profit or loss.
B) nominal revenue.
C) average revenue.
D) marginal revenue.

Question 40

If a perfectly competitive gardening shop sells 30 evergreen bushes at $10 per bush,its marginal revenue is:

A) $10.
B) more than $10.
C) less than $10.
D) $300.

Question 41

For a firm producing at any level of output GREATER than the most profitable one,a reduction in output decreases total revenue _____ total cost.

A) by less than it decreases
B) by more than it decreases
C) by the same amount as it decreases
D) but not

Question 42

Zoe's Bakery operates in a perfectly competitive industry and has standard cost curves.The variable costs at Zoe's Bakery increase,so all of the cost curves (except fixed cost)shift upward.The demand for Zoe's pastries does not change,nor does the firm shut down.To maximize profits after the variable cost increase,Zoe's Bakery will _____ its price and _____ its level of production.

A) raise;increase
B) decrease;increase
C) raise;decrease
D) do nothing to;decrease

Question 43

If a perfectly competitive firm is producing a quantity where MC < MR,then profit:

A) is maximized.
B) can be increased by increasing production.
C) can be increased by decreasing production.
D) can be increased by decreasing the price.

Question 44

In perfect competition:

A) price and average variable cost are the same.
B) price and marginal revenue are the same.
C) price and total revenue are the same.
D) total revenue and total variable cost are the same.

Question 45

If a perfectly competitive firm is producing a quantity where MC > MR,then profit:

A) is maximized.
B) can be increased by increasing production.
C) can be increased by decreasing production.
D) can be increased by decreasing the price.

Question 46

The equilibrium price of a guidebook is $35 in the perfectly competitive guidebook industry.Our firm produces 10 000 guidebooks for an average total cost of $38,a marginal cost of $30,and an average variable cost of $30.Our firm,in the short run,should:

A) raise the price of guidebooks because the firm is losing money.
B) keep output the same because the firm is producing at a minimum average variable cost.
C) produce more guidebooks because the next guidebook produced will increase profit by $5.
D) shut down because the firm is losing money.

Question 47

If a firm in perfect competition sells 10 units of output at $5 per unit,its marginal revenue is:

A) $5.
B) more than $5 but less than $50.
C) $50.
D) $250.

Question 48

A perfectly competitive firm maximizes profit in the short run by producing the quantity at which:

A) TR = TC.
B) MR = MC.
C) Q × (P - ATC)= 0.
D) P < AVC.

Question 49

If a perfectly competitive firm sells 300 units of output at $1 per unit,its marginal revenue is:

A) less than $1.
B) $1.
C) more than $1 but less than $300.
D) $300.

Question 50

The marginal revenue received by a firm in a perfectly competitive market:

A) is unrelated to the market price.
B) is less than the market price.
C) is greater than the market price.
D) is the change in total revenue divided by the change in output.

Question 51

Marginal revenue is a firm's:

A) ratio of the change in total revenue to the change in output.
B) ratio of average revenue to total revenue.
C) profit per unit times the number of units sold.
D) increase in profit when it sells an additional unit of output.

Question 52

The slope of the total cost curve is:

A) marginal cost.
B) marginal revenue.
C) constant under perfect competition.
D) always negative.

Question 53

The slope of the total revenue curve is:

A) marginal cost.
B) net revenue.
C) equal to marginal revenue and is constant under perfect competition.
D) equal to marginal revenue and varies under perfect competition.

Question 54

If a perfectly competitive firm is producing a quantity where MC = MR,then profit:

A) is maximized.
B) can be increased by increasing production.
C) can be increased by decreasing production.
D) can be increased by decreasing the price.

Question 55

If a perfectly competitive firm sells 10 units of output at $30 per unit,its marginal revenue is:

A) $10.
B) $30.
C) more than $30.
D) $300.

Question 56

For a firm producing at any level of output LOWER than the most profitable one,an increase in output adds:

A) more to total cost than to total revenue.
B) more to total revenue than to total cost.
C) the same amount to total revenue as to total cost.
D) to total revenue but not to total cost.

Question 57

The price received by a firm in a perfectly competitive market:

A) is equal to the market price.
B) is less than the market price.
C) is greater than the market price.
D) decreases with the quantity of output sold by the firm.

Question 58

The profit-maximizing level of output for a perfectly competitive firm in the short run occurs where _____ equals _____.

A) marginal cost;price
B) marginal revenue;price
C) total revenue;total cost
D) average revenue;average total cost

Question 59

For a firm in a perfectly competitive market,_____ revenue equals _____.

A) marginal;total revenue
B) marginal;market price
C) net;price
D) net;marginal revenue

Question 60

Price in a perfectly competitive industry:

A) is determined by each firm,depending on its costs of production.
B) is always equal to marginal revenue for the firm.
C) must be greater than average total cost or the firm will shut down in the short run.
D) is indeterminate in the short run.

Question 61

Suppose a perfectly competitive firm can increase its profits by increasing its output.Then it must be true that the firm's _____ exceeds its _____.

A) marginal revenue;marginal cost
B) price;average total cost but is less than marginal cost
C) marginal cost;marginal revenue
D) price;marginal revenue

Question 62

In the short run,if P = ATC,a perfectly competitive firm:

A) produces output and earns zero economic profit.
B) produces output and earns an economic profit.
C) produces output and incurs an economic loss.
D) does not produce output and incurs an economic loss.

Question 63

Zoe's Bakery operates in a perfectly competitive industry.When the market price of iced cupcakes is $5,the profit-maximizing output level is 150 cupcakes.Her average total cost is $4,and her average variable cost is $3.Zoe's marginal cost is _____,and her short-run profit is _____.

A) $5;$150
B) $5;$300
C) $1;$150
D) $1;$300

Question 64

In the short run,if P > ATC,a perfectly competitive firm:

A) produces output and earns zero economic profit.
B) produces output and earns an economic profit.
C) produces output and incurs an economic loss.
D) does not produce output and earns economic profit.

Question 65

In perfectly competitive markets,if the price is _____,the firm will _____.

A) greater than ATC;make an economic profit
B) greater than the minimum ATC;break even
C) less than ATC;make an economic profit
D) less than ATC;break even

Question 66

In the short run,a perfectly competitive firm produces output and breaks even if the firm produces the quantity at which:

A) P < ATC.
B) P = ATC.
C) P > ATC.
D) P = (TR/Q + TC/Q)× Q.

Question 67

If a perfectly competitive firm is producing a quantity where P < MC,then profit:

A) is maximized.
B) can be increased by decreasing the price.
C) can be increased by increasing production.
D) can be increased by decreasing production.

Question 68

In the short run,a perfectly competitive firm produces output and earns ZERO economic profit if:

A) P < ATC.
B) P = ATC.
C) P < MC.
D) P > ATC.

Question 69

Consider a perfectly competitive firm in the short run.Assume that the firm produces the profit-maximizing output and earns economic profits.Which statement is definitely FALSE?

A) Price is equal to marginal cost.
B) Price is equal to marginal revenue.
C) Price is equal to average total cost.
D) Marginal cost is greater than average total cost.

Question 70

A perfectly competitive firm will earn a profit in the short run when it produces the profit-maximizing quantity of output and the price is:

A) greater than marginal cost.
B) less than marginal cost.
C) less than average variable cost.
D) greater than average total cost.

Question 71

If the price is greater than average total cost at the profit-maximizing quantity of output in the short run,a perfectly competitive firm will:

A) produce at a loss.
B) produce at a profit.
C) shut down production.
D) produce more than the profit-maximizing quantity.

Question 72

If a perfectly competitive firm is producing a quantity where P > MC,then the firm can increase profit by:

A) making no change in output or price because it is already maximizing profit.
B) increasing the price.
C) decreasing the price.
D) increasing production.

Question 73

Which statement is TRUE?

A) Profit per unit is price minus MC.
B) Total economic profit is per-unit profit times quantity.
C) If price is less than ATC,the firm will break even in the short run.
D) If price is less than marginal cost,the perfectly competitive firm should raise the price and increase output.

Question 74

A perfectly competitive firm will earn a profit and will continue producing the profit-maximizing quantity of output in the short run if the price is:

A) less than average fixed cost.
B) less than marginal cost.
C) greater than average variable cost but less than average total cost.
D) greater than average total cost.

Question 75

A competitive firm operating in the short run is producing the output level at which ATC is at a minimum.If ATC = $8 and MR = $9,to maximize profits (or minimize losses),this firm should:

A) increase output.
B) reduce output.
C) increase price.
D) do nothing,because it is already maximizing profits.

Question 76

If the price is greater than average total cost at the profit-maximizing quantity of output in the short run,a perfectly competitive firm will:

A) continue to produce at a loss.
B) produce at a profit.
C) shut down production.
D) reduce its fixed costs.

Question 77

Use the following to answer question 64:
(Figure: Total Revenue and Total Cost)Use Figure: Total Revenue and Total Cost.The MOST profitable level of output occurs at quantity:

A) F.
B) K.
C) L.
D) M.

Question 78

In the short run,a perfectly competitive firm produces output and earns an economic profit if:

A) P > ATC.
B) P = ATC.
C) P < MC.
D) P < ATC.

Question 79

For a perfectly competitive firm in the short run,if the firm produces the quantity at which _____,the firm _____.

A) P > ATC;is profitable
B) P < ATC;breaks even
C) P = ATC;incurs a loss
D) P < ATC;is profitable

Question 80

If a perfectly competitive firm is producing a quantity where P = MC,then profit:

A) is maximized.
B) can be increased by decreasing the quantity.
C) can be increased by decreasing the price.
D) can be increased by increasing production.