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Perfect Competition

question
Firms in a prefect competitive market are said to be "price takers " - that is once the market determines an equilibrium price for a product, firms must accept this price. If you sell a product in a perfectly competitive market, but you are not happy with its price, would you raise the price, even by a cent?

No, you would not raise the price.

Yes, you would raise the price enough to meet your target pricing.

Yes, you would raise the price slightly.
answer
No, you would not raise the price.
question
If a perfect competitive firm is producing output at a point where marginal revenue is equal to marginal cost, then it should:

Stick with that level of production in order to maximize profits.

Increase output in order to maximize profits.

Decrease output in order to maximize profits.
answer
Stick with that level of production in order to maximize profits.
question
The profit-maximizing choice for a perfectly competitive firm will occur where marginal revenue is equal to ________.

Variable revenue

Marginal cost

Fixed cost
answer
Marginal cost
question
What is the shape of a marginal revenue curve for a perfectly competitive firm?

It slopes upward

It is flat

It slopes downward
answer
It is flat
question
What two lines on a cost curve diagram intersect at the zero-profit point?

The average cost curve and the variable revenue curve.

The average cost curve and the marginal revenue curve.

The average variable cost curve and the variable revenue curve.
answer
The average cost curve and the marginal revenue curve.
question
Which of the following are assumptions of perfect competition?

There are many buyers and sellers.

consumers have all the relevant information to make rational buying decisions.

The products are identical.
answer
There are many buyers and sellers.

consumers have all the relevant information to make rational buying decisions.

The products are identical.
question
Long-run equilibrium in perfectly competitive markets meets what two important conditions?

utility efficiency

allocative efficiency

productive efficiency
answer
allocative efficiency

productive efficiency
question
When new firms enter a perfectly competitive market, what is the impact on prices?

Prices go up.

Prices go down.

There is no impact on prices.
answer
Prices go down.
question
The demand curve for a firm in a perfectly competitive market is different from that of the entire market. The market demand curve ________, while the perfectly competitive firm's demand curve ________.​

slopes upward : is a horizontal line

is a horizontal line : slopes upward

slopes downward : is a horizontal line
answer
slopes downward : is a horizontal line
question
Kate's 24-Hour Breakfast Diner menu offers one item, a $5.00 breakfast special. Kate's variable costs (e.g., servers, cooks, electricity, food, etc.) per meal average $3.95. Her fixed costs (e.g., rent, insurance, cleaning supplies and business license) per meal average $1.25. Since the market is highly competitive, Kate should:

lay-off her staff, break her lease, and close the business down immediately.

keep the business open in the short-run, and plan to expand the business in the long-run.

raise her prices above the perfectly competitive level set by the market.

keep the business open in the short-run, but plan to go out of business in the long-run.
answer
keep the business open in the short-run, but plan to go out of business in the long-run.
question
In the ________, the perfectly competitive firm will react to losses by ________ .

long run : increasing capital inputs

long run : reducing production or shutting down

short run : increasing physical inputs
answer
long run : reducing production or shutting down
question
________ refers to the additional revenue gained from selling one more unit.

Accounting profit

Total revenue

Marginal revenue

Economic profit
answer
Marginal revenue
question
Suppose there is a perfectly competitive market for grapefruit. If the price for grapefruit is lower than the marginal cost of producing grapefruit, what will happen in the long run, in order for the market to achieve productive and allocative efficiency?

The same amount of grapefruit will continue to be produced

Fewer grapefruit will be produced

More grapefruit will be produced
answer
Fewer grapefruit will be produced
question
Which of the following statement(s) are true for a perfectly competitive firm that is seeking to maximize profits?

The best production choice is at a quantity where price is equal to marginal cost.

Price is equal to marginal revenue.

A profit-seeking firm should expand production into the zone where marginal cost is greater than marginal revenue.
answer
Price is equal to marginal revenue.

The best production choice is at a quantity where price is equal to marginal cost.
question
A perfectly competitive firm should shut down immediately in order to incur only fixed costs whenever the price is:

lower than the zero-profit point.

higher than the average total cost.

higher than the average variable cost.

lower than the average variable cost.
answer
lower than the average variable cost.
question
If marginal cost is rising in a competitive firm's short-run production process and its average variable cost is falling as output is increased, then:

marginal cost is below average variable cost.

marginal cost is below average fixed cost.

marginal cost is above average variable cost.

average fixed cost is constant.
answer
marginal cost is below average variable cost.
question
All of the following are characteristics of Perfect Competition except:

Large number of buyers and sellers.

Incomplete information about prices.

Ease of entry and exit.

Identical goods.
answer
Incomplete information about prices.
question
When firms exit a perfectly competitive market, what is the impact on prices?

Prices go up.

Prices go down.

There is no impact on prices.
answer
Prices go up.
question
What two lines on a cost curve diagram intersect at the zero-profit point?​
​
The average cost curve and the variable revenue curve.

​​The average cost curve and the marginal revenue curve.

The average variable cost curve and the variable revenue curve. ​
answer
​​The average cost curve and the marginal revenue curve.
question
In a perfectly competitive market, if a firm raises the price of its product from the prevailing market price of $179 to $199, it:

will cause the firm to recover some of its opportunity costs.

could likely result in a notable loss of sales to competitors.

is a sure sign the firm is raising the given price in the market.

will likely cause the firm to reach its shutdown point immediately.
answer
could likely result in a notable loss of sales to competitors.
question
Why are some producers forced to sell their products at the prevailing market price?

Price takers find market analysis is too costly.

They are very small players in the overall market.

High degree of similarity to competitor's products.

They can increase output without affecting quality
answer
High degree of similarity to competitor's products.
question
If the price that a firm charges is higher than its ________ cost of production for that quantity produced, then the firm will earn profits.

marginal

average

fixed

variable
answer
average
question
Given the data provided in the table below, what will the fixed costs equal for production at quantity (Q) level 4?
QPTCTRMRMCProfit
0$5$9
1$5$10
2$5$12
3$5$15
4$5$19
5$5$24
6$5$30
7$5$45

$36.00

$35.00

$4.00

$9.00
answer
$9.00
question
In the ________, if profits are not possible, the perfectly competitive firm will seek out the quantity of output where ________.

long run : fixed costs can be eliminated

long run : variable costs can be increased

short run : fixed costs can be reduced

short run : losses are smallest
answer
short run : losses are smallest
question
Which of the following statements accurately explains why profits for firms in a perfectly competitive industry tend to vanish in the long run?

Prices drop when other perfectly competitive firms see an opportunity to earn profits and enter the market.

Firms that experience losses try to increase supply to cover their costs, leading to zero profits.

The demand for products falls over time, so firms are unable to generate revenue.
answer
Prices drop when other perfectly competitive firms see an opportunity to earn profits and enter the market.
1 of 25
question
Firms in a prefect competitive market are said to be "price takers " - that is once the market determines an equilibrium price for a product, firms must accept this price. If you sell a product in a perfectly competitive market, but you are not happy with its price, would you raise the price, even by a cent?

No, you would not raise the price.

Yes, you would raise the price enough to meet your target pricing.

Yes, you would raise the price slightly.
answer
No, you would not raise the price.
question
If a perfect competitive firm is producing output at a point where marginal revenue is equal to marginal cost, then it should:

Stick with that level of production in order to maximize profits.

Increase output in order to maximize profits.

Decrease output in order to maximize profits.
answer
Stick with that level of production in order to maximize profits.
question
The profit-maximizing choice for a perfectly competitive firm will occur where marginal revenue is equal to ________.

Variable revenue

Marginal cost

Fixed cost
answer
Marginal cost
question
What is the shape of a marginal revenue curve for a perfectly competitive firm?

It slopes upward

It is flat

It slopes downward
answer
It is flat
question
What two lines on a cost curve diagram intersect at the zero-profit point?

The average cost curve and the variable revenue curve.

The average cost curve and the marginal revenue curve.

The average variable cost curve and the variable revenue curve.
answer
The average cost curve and the marginal revenue curve.
question
Which of the following are assumptions of perfect competition?

There are many buyers and sellers.

consumers have all the relevant information to make rational buying decisions.

The products are identical.
answer
There are many buyers and sellers.

consumers have all the relevant information to make rational buying decisions.

The products are identical.
question
Long-run equilibrium in perfectly competitive markets meets what two important conditions?

utility efficiency

allocative efficiency

productive efficiency
answer
allocative efficiency

productive efficiency
question
When new firms enter a perfectly competitive market, what is the impact on prices?

Prices go up.

Prices go down.

There is no impact on prices.
answer
Prices go down.
question
The demand curve for a firm in a perfectly competitive market is different from that of the entire market. The market demand curve ________, while the perfectly competitive firm's demand curve ________.​

slopes upward : is a horizontal line

is a horizontal line : slopes upward

slopes downward : is a horizontal line
answer
slopes downward : is a horizontal line
question
Kate's 24-Hour Breakfast Diner menu offers one item, a $5.00 breakfast special. Kate's variable costs (e.g., servers, cooks, electricity, food, etc.) per meal average $3.95. Her fixed costs (e.g., rent, insurance, cleaning supplies and business license) per meal average $1.25. Since the market is highly competitive, Kate should:

lay-off her staff, break her lease, and close the business down immediately.

keep the business open in the short-run, and plan to expand the business in the long-run.

raise her prices above the perfectly competitive level set by the market.

keep the business open in the short-run, but plan to go out of business in the long-run.
answer
keep the business open in the short-run, but plan to go out of business in the long-run.
question
In the ________, the perfectly competitive firm will react to losses by ________ .

long run : increasing capital inputs

long run : reducing production or shutting down

short run : increasing physical inputs
answer
long run : reducing production or shutting down
question
________ refers to the additional revenue gained from selling one more unit.

Accounting profit

Total revenue

Marginal revenue

Economic profit
answer
Marginal revenue
question
Suppose there is a perfectly competitive market for grapefruit. If the price for grapefruit is lower than the marginal cost of producing grapefruit, what will happen in the long run, in order for the market to achieve productive and allocative efficiency?

The same amount of grapefruit will continue to be produced

Fewer grapefruit will be produced

More grapefruit will be produced
answer
Fewer grapefruit will be produced
question
Which of the following statement(s) are true for a perfectly competitive firm that is seeking to maximize profits?

The best production choice is at a quantity where price is equal to marginal cost.

Price is equal to marginal revenue.

A profit-seeking firm should expand production into the zone where marginal cost is greater than marginal revenue.
answer
Price is equal to marginal revenue.

The best production choice is at a quantity where price is equal to marginal cost.
question
A perfectly competitive firm should shut down immediately in order to incur only fixed costs whenever the price is:

lower than the zero-profit point.

higher than the average total cost.

higher than the average variable cost.

lower than the average variable cost.
answer
lower than the average variable cost.
question
If marginal cost is rising in a competitive firm's short-run production process and its average variable cost is falling as output is increased, then:

marginal cost is below average variable cost.

marginal cost is below average fixed cost.

marginal cost is above average variable cost.

average fixed cost is constant.
answer
marginal cost is below average variable cost.
question
All of the following are characteristics of Perfect Competition except:

Large number of buyers and sellers.

Incomplete information about prices.

Ease of entry and exit.

Identical goods.
answer
Incomplete information about prices.
question
When firms exit a perfectly competitive market, what is the impact on prices?

Prices go up.

Prices go down.

There is no impact on prices.
answer
Prices go up.
question
What two lines on a cost curve diagram intersect at the zero-profit point?​
​
The average cost curve and the variable revenue curve.

​​The average cost curve and the marginal revenue curve.

The average variable cost curve and the variable revenue curve. ​
answer
​​The average cost curve and the marginal revenue curve.
question
In a perfectly competitive market, if a firm raises the price of its product from the prevailing market price of $179 to $199, it:

will cause the firm to recover some of its opportunity costs.

could likely result in a notable loss of sales to competitors.

is a sure sign the firm is raising the given price in the market.

will likely cause the firm to reach its shutdown point immediately.
answer
could likely result in a notable loss of sales to competitors.
question
Why are some producers forced to sell their products at the prevailing market price?

Price takers find market analysis is too costly.

They are very small players in the overall market.

High degree of similarity to competitor's products.

They can increase output without affecting quality
answer
High degree of similarity to competitor's products.
question
If the price that a firm charges is higher than its ________ cost of production for that quantity produced, then the firm will earn profits.

marginal

average

fixed

variable
answer
average
question
Given the data provided in the table below, what will the fixed costs equal for production at quantity (Q) level 4?
QPTCTRMRMCProfit
0$5$9
1$5$10
2$5$12
3$5$15
4$5$19
5$5$24
6$5$30
7$5$45

$36.00

$35.00

$4.00

$9.00
answer
$9.00
question
In the ________, if profits are not possible, the perfectly competitive firm will seek out the quantity of output where ________.

long run : fixed costs can be eliminated

long run : variable costs can be increased

short run : fixed costs can be reduced

short run : losses are smallest
answer
short run : losses are smallest
question
Which of the following statements accurately explains why profits for firms in a perfectly competitive industry tend to vanish in the long run?

Prices drop when other perfectly competitive firms see an opportunity to earn profits and enter the market.

Firms that experience losses try to increase supply to cover their costs, leading to zero profits.

The demand for products falls over time, so firms are unable to generate revenue.
answer
Prices drop when other perfectly competitive firms see an opportunity to earn profits and enter the market.
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