Perfect Competition PP Multiple Choice Identify the choice that best

Perfect Competition PP
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____
1. 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.
e. decreases with the quantity of output sold.
____
2. If a perfectly competitive firm sells 30 units of output at a price of $10 per unit, its marginal revenue is:
a. $10.
b. $30.
c. $0.
d. $300.
e. $3.
____
3. In the perfectly competitive guidebook industry, the market price is $35. A firm is currently producing 10,000
guidebooks; average total cost is $38, marginal cost is $30, and average variable cost is $30. The firm should:
a. raise the price of guidebooks, because the firm is losing money.
b. keep output the same, because the firm is producing at minimum average variable cost.
c. produce more guidebooks, because the next guidebook produced increases profit by $5.
d. shut down, because the firm is losing money.
e. produce fewer guidebooks, because the next guidebook produced decreases profit by $8.
____
4. A perfectly competitive firm operating in the short run producing 100 units of output has ATC = $6 and AFC
= $2. The market price is $3 and is equal to MC. In order to maximize profits (or minimize losses), this firm
should:
a. increase output.
b. reduce output, but continue to produce a positive amount of output.
c. raise the price of the product until the firm is earning break-even profits.
d. do nothing; the firm is already maximizing profits.
e. shut down and produce zero units of output.
Figure 58-1: Marginal Revenue, Costs, and Profits
____
5. (Figure 58-1: Marginal Revenue, Costs, and Profits) In the figure, if market price increases to $20, marginal
revenue ________ and profit-maximizing output ________.
a. increases; increases
b. increases; decreases
c. decreases; increases
d. decreases; decreases
e. remains constant; remains constant
____
6. In the short run, a perfectly competitive firm produces output and earns zero economic profit if:
a. P > ATC.
b. AVC < P < ATC.
c. P < AVC.
d. AVC > P > ATC.
e. P = ATC.
____
7. 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.
e. $110.
____
8. If a perfectly competitive firm is producing a quantity that generates P > MC, then profit:
a. is maximized.
b. can be decreased by increasing the price.
c. can be increased by decreasing the price.
d. can be increased by increasing production.
e. is negative and less than total fixed cost.
____
9. 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.
e. does not produce output and earns zero economic profit.
____ 10. If price is currently between average variable cost and average total cost, then in the short run a perfectly
competitive firm should:
a. shut down.
b. continue to produce to minimize losses.
c. raise price.
d. increase production to increase profit.
e. reduce production to increase profit.
____ 11. The lowest point on the perfectly competitive firm's short-run supply curve corresponds to the minimum point
on the ________ curve.
a. ATC
b. AVC
c. AFC
d. MC
e. MR
___
12. A perfectly competitive firm will earn a profit and will continue producing the profit-maximizing quantity of
output in the short run if price is:
a. greater than marginal cost.
b. less than marginal cost.
c. less than average fixed cost.
d. greater than average total cost.
e. greater than average variable cost.
____ 13. A perfectly competitive firm will incur an economic loss but will continue producing the profit-maximizing
quantity of output in the short run if price is:
a. less than marginal cost.
b. less than average variable cost.
c. greater than average total cost.
d. greater than average variable cost and less than average total cost.
e. greater than average fixed cost.
____ 14. The shut-down price is:
a. the price at which economic profit is zero.
b. the minimum level of AVC.
c. the intersection of the MC and ATC curves.
d. the minimum level of AFC.
e. any price below ATC.
Quantity
per Period
Total Cost
0
$10
1
16
2
20
3
22
4
24
5
25
6
27
7
30
8
34
9
39
10
45
Table 59-2: Total Cost for a
Perfectly Competitive Firm
____ 15. (Table 59-2: Total Cost for a Perfectly Competitive Firm) The firm will stop production and shut down if the
price is:
a. $5.50.
b. $3.50.
c. $4.50.
d. $5.00.
e. $2.50.
____ 16. In the short run, if AVC < P < ATC, a perfectly competitive firm:
a. produces output and earns an economic profit.
b. produces output and incurs an economic loss.
c. does not produce output and earns an economic profit.
d. does not produce output and earns zero economic profit.
e. does not produce output and incurs an economic loss.
____ 17. In the short run, a perfectly competitive firm produces output and incurs an economic loss if:
a. P > ATC.
b. P < AVC.
c. AVC > P > ATC.
d. AVC < P < ATC.
e. P = ATC.
____ 18. In the short run, if P < AVC, a perfectly competitive firm:
a. produces output and earns an economic profit.
b. produces output and incurs an economic loss.
c. does not produce output and earns an economic profit.
d. does not produce output and incurs an economic loss.
e. produces output and earns zero economic profit.
Figure 59-7: Perfectly Competitive Firm II
____ 19. (Figure 59-7: Perfectly Competitive Firm II) If this firm's MR curve is MR2, then this firm will
profit-maximize by producing ________ units of output and its economic profit will be ________.
a. Q1; positive
b. Q2; negative
c. Q3; positive
d. Q4; negative
e. zero; negative
____ 20. Economic profits in a perfectly competitive industry induce ________, and losses induce ________.
a. exit; entry
b. entry; entry
c. entry; exit
d. exit; exit
e. entry; shutdown
____ 21. If firms are experiencing economic losses in the short run, firms will _____ the industry and industry output
will ________ and price will ________ in the long run.
a. exit; fall; rise
b. exit; rise; fall
c. enter; rise; rise
d. enter; fall; rise
e. exit; rise; rise
____ 22. A decrease in production costs for firms in a perfectly competitive market will cause a(n):
a. permanent increase in price.
b. economic profit for firms in the short run.
c. increase in demand.
d. increase in firms' marginal revenue.
e. exit of firms from the market.
Figure 60-1: Perfectly Competitive Firm
____ 23. (Figure 60-1: Perfectly Competitive Firm) The figure shows a perfectly competitive firm that faces demand
curve d, has the cost curves shown, and maximizes profit. In long-run equilibrium, this firm will produce
________ units of output and sell its output at a price of ________.
a. 100; $1.00
b. 250; $1.90
c. 300; $2.00
d. 400; $3.00
e. 300; $3.00
____ 24. If the long-run market supply curve for a perfectly competitive market is horizontal, then this industry is one
that exhibits:
a. constant costs.
b. decreasing costs.
c. increasing costs.
d. the absence of marginal costs.
e. barriers to entry.
____ 25. In a perfectly competitive market, tastes and preferences lead to an increase in the demand for the good.
Holding everything else constant, this will lead to an increase in price that will result in:
a. greater than normal profits for firms, which will attract new firms, which in turn will result
in a reduction in the price.
b. lower than normal profits for firms, which will attract new firms. which in turn will result
in a reduction in the price.
c. greater than normal profits for firms, which will lead some firms to leave the industry and
thus result in an even greater price increase.
d. lower than normal profits, which will lead some firms to leave the industry and thus result
in an even greater price increase.
e. greater than normal profits for firms, which will lead some firms to enter the industry and
thus result in an even greater price increase.
Perfect Competition PP
Answer Section
MULTIPLE CHOICE
1. ANS: C
MSC: Fact-Based
PTS: 1
DIF: M
REF: Module 58/22
2. ANS: A
MSC: Fact-Based
PTS: 1
DIF: E
REF: Module 58/22
3. ANS: C
PTS: 1
MSC: Analytical Thinking
DIF: D
REF: Module 58/22
4. ANS: E
PTS: 1
MSC: Analytical Thinking
DIF: D
REF: Module 58/22
5. ANS: A
PTS: 1
MSC: Critical Thinking
DIF: M
REF: Module 58/22
6. ANS: E
PTS: 1
MSC: Concept-Based
DIF: M
REF: Module 58/22
7. ANS: D
PTS: 1
MSC: Analytical Thinking
DIF: M
REF: Module 58/22
8. ANS: D
PTS: 1
MSC: Concept-Based
DIF: M
REF: Module 58/22
9. ANS: A
PTS: 1
MSC: Concept-Based
DIF: M
REF: Module 58/22
10. ANS: B
PTS: 1
MSC: Critical Thinking
DIF: D
REF: Module 59/23
11. ANS: B
MSC: Fact-Based
PTS: 1
DIF: M
REF: Module 59/23
12. ANS: D
PTS: 1
MSC: Concept-Based
DIF: M
REF: Module 59/23
13. ANS: D
PTS: 1
MSC: Concept-Based
DIF: M
REF: Module 59/23
14. ANS: B
MSC: Fact-Based
PTS: 1
DIF: E
REF: Module 59/23
15. ANS: E
PTS: 1
MSC: Analytical Thinking
DIF: D
REF: Module 59/23
16. ANS: B
DIF: D
REF: Module 59/23
PTS: 1
MSC: Concept-Based
17. ANS: D
PTS: 1
MSC: Concept-Based
DIF: D
REF: Module 59/23
18. ANS: D
PTS: 1
MSC: Concept-Based
DIF: D
REF: Module 59/23
19. ANS: B
PTS: 1
MSC: Analytical Thinking
DIF: M
REF: Module 59/23
20. ANS: C
PTS: 1
MSC: Concept-Based
DIF: M
REF: Module 60/24
21. ANS: A
PTS: 1
MSC: Critical Thinking
DIF: M
REF: Module 60/24
22. ANS: B
PTS: 1
MSC: Critical Thinking
DIF: M
REF: Module 60/24
23. ANS: B
PTS: 1
MSC: Analytical Thinking
DIF: D
REF: Module 60/24
24. ANS: A
PTS: 1
MSC: Critical Thinking
DIF: M
REF: Module 60/24
25. ANS: A
PTS: 1
MSC: Critical Thinking
DIF: M
REF: Module 60/24