Perfect Competition

1. A firm maximzies profit when it produces output up to the point where marginal cost equals marginal revenue

True

False

2. For a competitive firm, marginal revenue equals the price of the goods it sells

True

False

3. 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.

True

False

4. If a competitive firm is producing a level of output where marginal revenue exceeds marginal cost, the firm could increase profits if it

Increased production

Decreased production

Maintained production at the current level

Temporarily shut down

5. 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.

True

False

6. In a competitive market, both buyers and sellers are price takers

True

False

7. 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.

True

False

8. The competitive firm maximizes profit when it produces output up to the point where

Marginal cost equals total revenue

Marginal revenue equals average revenue

Marginal cost equals marginal revenue

Price equals average variable cost

9. The only requirement for a market to be perfectly competitive is for the market to have many buyers and sellers

True

False

10. If a competitive firm sells three times the amount of output, its total revenue also increases by a factor of three

True

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

True

False

12. For a competitive firm, marginal revenue i

Equal to the price of the good sold

Average revenue divided by the quantity sold

Total revenue divided by the price

Equal to the quantity of the good sold

13. Which of the following is not a characteristic of a competitive market?

There are many buyers and sellers in the market

The goods offered for sale are largely the same

Firms can freely enter or exit the market

Firms generate small but positive economic profits in the long run

All of the above are characteristics of a competitive market

14. If a competitive firm doubles its output, its total revenue

More than doubles

Doubles

Less than doubles

Cannot be determined because the price of the good may rise or fall

15. 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

True

False

16. 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

True

False

17. If a competitive firm is producing a level of output where marginal revenue exceeds marginal cost, the firm could increase profits if it

Increased production

Decreased production

Maintained production at the current level

Temporarily shut down

18. In the long run, perfectly competitive firms earn small but positive economic proifts

True

False

19. The long-run market supply curve

Is always more elastic than the short-run market supply curve

Is always less elastic than the short-run market supply curve

Has the same elasticity as the short-run market supply curve

Is always perfectly elastic

20. 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

Perfectly elastic

Downward sloping

Upward sloping

Perfectly inelastic

21. The short-run market supply curve is more elastic than the long-run market supply curve

True

False

22. In the long run, some firms will exit the market if the price of the good offered for sale is less than

Marginal revenue

Marginal cost

Average revenue

Average total cost

23. A competitive firm's short-run supply curve is the portion of its marginal cost curve that lies above its average-total-cost curve

True

False

24. A competitive firm's long-run supply curve is the portion of its marginal-cost curve that lies above tis average-variable-cost curve

True

False

25. In the short run, the competitive firm's supply curve is the

Entire marginal-cost curve

Portion of the marginal-cost curve that lies above the average-total-cost curve

Portion of the marginal-cost curve that lies above the average-variable-cost curve

Upward-sloping potion of the average-total-cost curve

Upward-sloping portion of the average-variable-cost curve

26. In the long run, the competitive firm's supply curve is the

Entire marginal-cost curve

Portion of the marginal-cost curve that lies above the average-total-cost curve

Upward-sloping portion of the average-total-cost curve

Upward-sloping portion of the average-variable-cost curve

27. A grocery store should close at night if the

Total costs of staying open are greater than the total revenue due to staying open

Total costs of staying open are less than the total revenue due to staying open

Variable costs of staying open are greater than the total revenue due to staying open

Variable costs of staying open are less than the total revenue due to staying open

28. 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

An increase in the price of the good and an increase in the number of firms in the market

An increase in the price of the good but no increase in the number of firms in the market

An increase in the number of firms in the market but no increase in the price of the good

No impact on either the price of the good or the number of firms in the market

29. Which of the following markets would most closely satisfy the requirements for a competitive market?

Gold bullion

Electricity

Cable television

Soda

All of the above represent competitive markets

30. 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

Perfectly elastic

Downward sloping

Upward sloping

Perfectly inelastic

31. In long-run equilibrium in a competitive market, firms are operating at

The minimum of their average-total-cost curves

The intersection of marginal cost and marginal revenue

Their efficient scale

Zero economic profit

All of the above