Perfect Competition
In a free market described by free forces of demand and supply, perfect competition seems to prevail. It involves many suppliers, supplying to the same market, the same product and the quiz below tests on the subject.
- 1.The only requirement for a market to be perfectly competitive is for the market to have many buyers and sellers
- A.
True
- B.
False
- 2.For a competitive firm, marginal revenue equals the price of the goods it sells
- A.
True
- B.
False
- 3.If a competitive firm sells three times the amount of output, its total revenue also increases by a factor of three
- A.
True
- B.
False
- 4.A firm maximzies profit when it produces output up to the point where marginal cost equals marginal revenue
- A.
True
- B.
False
- 5.If marginal cost exceeds marginal revenue at a firm's current level of output, the firm can increase profit if i increases its level of output
- A.
True
- B.
False
- 6.A competitive firm's short-run supply curve is the portion of its marginal cost curve that lies above its average-total-cost curve
- A.
True
- B.
False
- 7.A competitive firm's long-run supply curve is the portion of its marginal-cost curve that lies above tis average-variable-cost curve
- A.
True
- B.
False
- 8.In the short run, if the price a firm receives for a good is above its average variable costs but below its average total costs of production, the firm will temporarily shut down
- A.
True
- B.
False
- 9.In a competitive market, both buyers and sellers are price takers
- A.
True
- B.
False
- 10.In the long run, if the price firms receive for their output is below their average total costs of production, some firms will exit the market.
- A.
True
- B.
False
- 11.In the short run, the market supply curve for a good is the sum of the quantities supplied by each firm at each price
- A.
True
- B.
False
- 12.The short-run market supply curve is more elastic than the long-run market supply curve
- A.
True
- B.
False
- 13.In the long run, perfectly competitive firms earn small but positive economic proifts
- A.
True
- B.
False
- 14.In the long run, if firms are identical and there is free entry and exit in the market, all firms in. the market operate at their efficient scale.
- A.
True
- B.
False
- 15.If the price of a good rises above the minimum average total cost of production, positive economic profits will cause new firms to enter the market, which drives the price back down to the minimum average total cost of production.
- A.
True
- B.
False
- 16.Which of the following is not a characteristic of a competitive market?
- A.
There are many buyers and sellers in the market
- B.
The goods offered for sale are largely the same
- C.
Firms can freely enter or exit the market
- D.
Firms generate small but positive economic profits in the long run
- E.
All of the above are characteristics of a competitive market
- 17.Which of the following markets would most closely satisfy the requirements for a competitive market?
- A.
Gold bullion
- B.
Electricity
- C.
Cable television
- D.
Soda
- E.
All of the above represent competitive markets
- 18.If a competitive firm doubles its output, its total revenue
- A.
More than doubles
- B.
Doubles
- C.
Less than doubles
- D.
Cannot be determined because the price of the good may rise or fall
- 19.For a competitive firm, marginal revenue i
- A.
Equal to the price of the good sold
- B.
Average revenue divided by the quantity sold
- C.
Total revenue divided by the price
- D.
Equal to the quantity of the good sold
- 20.The competitive firm maximizes profit when it produces output up to the point where
- A.
Marginal cost equals total revenue
- B.
Marginal revenue equals average revenue
- C.
Marginal cost equals marginal revenue
- D.
Price equals average variable cost
- 21.If a competitive firm is producing a level of output where marginal revenue exceeds marginal cost, the firm could increase profits if it
- A.
Increased production
- B.
Decreased production
- C.
Maintained production at the current level
- D.
Temporarily shut down
- 22.If a competitive firm is producing a level of output where marginal revenue exceeds marginal cost, the firm could increase profits if it
- A.
Increased production
- B.
Decreased production
- C.
Maintained production at the current level
- D.
Temporarily shut down
- 23.In the short run, the competitive firm's supply curve is the
- A.
Entire marginal-cost curve
- B.
Portion of the marginal-cost curve that lies above the average-total-cost curve
- C.
Portion of the marginal-cost curve that lies above the average-variable-cost curve
- D.
Upward-sloping potion of the average-total-cost curve
- E.
Upward-sloping portion of the average-variable-cost curve
- 24.In the long run, the competitive firm's supply curve is the
- A.
Entire marginal-cost curve
- B.
Portion of the marginal-cost curve that lies above the average-total-cost curve
- C.
Portion of the marginal-cost curve that lies above the average-total-cost curve
- D.
Upward-sloping portion of the average-total-cost curve
- E.
Upward-sloping portion of the average-variable-cost curve
- 25.A grocery store should close at night if the
- A.
Total costs of staying open are greater than the total revenue due to staying open
- B.
Total costs of staying open are less than the total revenue due to staying open
- C.
Variable costs of staying open are greater than the total revenue due to staying open
- D.
Variable costs of staying open are less than the total revenue due to staying open
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