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
Correct Answer
B. False -
- 2.
For a competitive firm, marginal revenue equals the price of the goods it sells
- A.
True
- B.
False
Correct Answer
A. True -
- 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
Correct Answer
A. True -
- 4.
A firm maximzies profit when it produces output up to the point where marginal cost equals marginal revenue
- A.
True
- B.
False
Correct Answer
A. True -
- 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
Correct Answer
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
Correct Answer
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
Correct Answer
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
Correct Answer
B. False -
- 9.
In a competitive market, both buyers and sellers are price takers
- A.
True
- B.
False
Correct Answer
A. True -
- 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
Correct Answer
A. True -
- 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
Correct Answer
A. True -
- 12.
The short-run market supply curve is more elastic than the long-run market supply curve
- A.
True
- B.
False
Correct Answer
B. False -
- 13.
In the long run, perfectly competitive firms earn small but positive economic proifts
- A.
True
- B.
False
Correct Answer
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
Correct Answer
A. True -
- 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
Correct Answer
A. True -
- 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
Correct Answer
D. Firms generate small but positive economic profits in the long run -
- 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
Correct Answer
A. Gold bullion -
- 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
Correct Answer
B. Doubles -
- 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
Correct Answer
A. Equal to the price 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
Correct Answer
C. Marginal cost equals marginal revenue -
- 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
Correct Answer
A. Increased production -
- 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
Correct Answer
A. Increased production -
- 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
Correct Answer
C. Portion of the marginal-cost curve that lies above 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
Correct Answer
B. Portion of the marginal-cost curve that lies above the average-total-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
Correct Answer
C. Variable costs of staying open are greater than the total revenue due to staying open -
- 26.
The long-run market supply curve
- A.
Is always more elastic than the short-run market supply curve
- B.
Is always less elastic than the short-run market supply curve
- C.
Has the same elasticity as the short-run market supply curve
- D.
Is always perfectly elastic
Correct Answer
A. Is always more elastic than the short-run market supply curve -
- 27.
In the long run, some firms will exit the market if the price of the good offered for sale is less than
- A.
Marginal revenue
- B.
Marginal cost
- C.
Average revenue
- D.
Average total cost
Correct Answer
D. Average total cost -
- 28.
If all firms in a market have identical cost structures and if inputs used in the production of the good in that market are readily available, then the long-run market supply curve for that good should be
- A.
Perfectly elastic
- B.
Downward sloping
- C.
Upward sloping
- D.
Perfectly inelastic
Correct Answer
A. Perfectly elastic -
- 29.
If an input necessary for production is in limited supply so that an expansion of the industry raises costs for all existing firms in the market, then the long-run market supply curve for a good could be
- A.
Perfectly elastic
- B.
Downward sloping
- C.
Upward sloping
- D.
Perfectly inelastic
Correct Answer
C. Upward sloping -
- 30.
If the long-run market supply curve for a good is perfectly elastic, an increase in the demand for that good will, in the long run, cause
- A.
An increase in the price of the good and an increase in the number of firms in the market
- B.
An increase in the price of the good but no increase in the number of firms in the market
- C.
An increase in the number of firms in the market but no increase in the price of the good
- D.
No impact on either the price of the good or the number of firms in the market
Correct Answer
C. An increase in the number of firms in the market but no increase in the price of the good -
- 31.
In long-run equilibrium in a competitive market, firms are operating at
- A.
The minimum of their average-total-cost curves
- B.
The intersection of marginal cost and marginal revenue
- C.
Their efficient scale
- D.
Zero economic profit
- E.
All of the above
Correct Answer
E. All of the above -
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Current Version
-
Mar 15, 2022Quiz Edited by
ProProfs Editorial Team -
Feb 02, 2015Quiz Created by
Dwessler
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