Unit 3 Perfect Competition (Practice Quiz)

Question 1

A competitive firm’s short-run supply curve is part of which of the following curves?

Answer 1

Marginal Cost

Question 2

A firm finds that producing 30,000 vases costs $180,000 while producing 40,000 vases costs $200,000. This might be explained by __________.

Answer 2

economies of scale

Question 3

A market is competitive if ____________.

Answer 3

each buyer is small compared to the market and each seller is small compared to the market

Question 4

A profit-maximizing firm in a competitive market is currently producing 200 units of output. It has average revenue of $9 and average total cost of $7. It follows that the firm’s ___________.

Answer 4

average total cost curve intersects the marginal cost curve at an output level of less than 200 units

average variable cost curve intersects the marginal cost curve at an output level of less than 200 units

profit of $400

Question 5

Because the goods offered for sale in a competitive market are largely the same, ___________.

Answer 5

sellers will have little reason to charge less than the going market price

Question 6

Changes in the output of a perfectly competitive firm, without any change in the price of the product, will change the firm’s ______________.

Answer 6

total revenue

Question 7

For a firm in a perfectly competitive market, the price of the good is always ___________.

Answer 7

equal to marginal revenue

Question 8

Free entry means that ______________.

Answer 8

no legal barriers prevent a firm from entering an industry

Question 9

How is revenue for a firm calculated?

Answer 9

By multiplying quantities by product price.

Question 10

If a competitive firm is (i) selling 1,000 units of its product at a price of $9 per unit and (ii) earning a positive profit, then ______________.

Answer 10

its total cost is less than $9,000

Question 11

If a firm in a perfectly competitive market triples the number of units of output sold, then total revenue will __________.

Answer 11

exactly triple

Question 11

If ABC Company sells its product in a competitive market, then __________.

Answer 11

ABC Company’s total revenue must be proportional to its quantity of output

Question 12

If Company A produces 5,000 harmonicas per year at an average variable cost of $4 and an average fixed cost of $2 per harmonica, then the company’s total cost is _________.

Answer 12

$30,000

Question 13

If total product of labor is rising at an increasing rate, ____________.

Answer 13

marginal product of labor is rising

Question 14

In a competitive market, no single producer can influence the market price because ____________.

Answer 14

many other sellers are offering a product that is essentially identical

Question 15

In a competitive market, the actions of any single buyer or seller will ___________.

Answer 15

have a negligible impact on the market price

Question 16

In calculating accounting profit, accountants typically do not include _____________.

Answer 16

opportunity costs that do not involve an outflow of money

Question 17

In the long-run _____________.

Answer 17

all inputs are variable

Question 18

One of the defining characteristics of a perfectly competitive market is _________.

Answer 18

a standardized product

Question 19

Productive efficiency is achieved at a particular output level if _________.

Answer 19

average total cost is as low as possible

Question 20

Profit-maximizing firms enter a competitive market when, for existing firms in that market, ____________.

Answer 20

price exceeds average total cost

Question 21

Short-run decisions are ___________.

Answer 21

constrained because some inputs are fixed while others are variable

Question 22

Suppose a firm in a competitive market received $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold?

Answer 22

$10 and 100

Question 23

The Wheeler Wheat Farm sells wheat to a grain broker in Seattle, Washington. Since the market for wheat is generally considered to be competitive, the Wheeler Wheat Farm maximizes its profit by choosing _____________.

Answer 23

the quantity at which market price is equal to the farm’s marginal cost of production

Question 24

Total profit for a firm is calculated as ____________.

Answer 24

(price minus average cost) times (quantity of output)

Question 25

When a perfectly competitive firm decides to shut down, it is most likely that _________.

Answer 25

price is below the firm’s average variable cost

Question 26

When firms have an incentive to exit a competitive market, their exit will ____________.

Answer 26

raise profits for firms that remain in the market

Question 26

When fixed costs are ignored because they are irrelevant to a business’s production decision, they are called __________.

Answer 26

sunk costs

Question 27

When new firms have an incentive to enter a competitive market, their entry will ___________.

Answer 27

drive down profits of existing firms in the market

Question 28

When price is below average variable cost, a firm in a competitive market will ___________.

Answer 28

shut down and incur fixed costs

Question 29

When price is greater than marginal cost for a firm in a competitive market, ____________.

Answer 29

there are opportunities to increase profit by increasing production

Question 30

Whenever a perfectly competitive firm chooses to change its level of output, holding the price of the product constant, its marginal revenue ___________.

Answer 30

does not change