3.3 Perfect Competition

Multiple Choice

Which of the following best describes the concept of economies of scale as illustrated in the cost curves?

• A decrease in average total cost as output increases

• An increase in average total cost as output increases

• Constant average total cost regardless of output

• A decrease in total cost as output decreases

Multiple Choice

At what quantity of tomatoes does the firm's marginal cost equal marginal revenue, according to the profit-maximizing rule?

• 3 bushels

• 4 bushels

• 5 bushels

• 6 bushels

Multiple Select

Which of the following are characteristics of perfect competition?

• Many buyers and sellers

• High barriers to entry

• Standardized products

• Perfect information

Multiple Choice

In a perfectly competitive market, the firm is a ___, meaning it cannot set its own price.

• price-taker
• price-maker

• price-faker

• price-shaker

Multiple Choice

Based on the cost table, what is the net gain of producing 5 bushels of tomatoes?

• $2

• $12

• $18

• $0

Open Ended

Using the profit-maximizing rule MR=MC and the data provided, calculate the total profit when producing 5 units at $18 each, with a total cost of $72.

Multiple Choice

When firms make abnormal profit in the short run, what happens to supply and price in the long run in a perfectly competitive market?

• Supply shifts left, price increases

• Supply shifts right, price decreases

• Demand shifts right, price increases

• Demand shifts left, price decreases

Multiple Choice

Which of the following statements are true about the short-run individual supply curve?

• It is the firm's marginal cost curve above the minimum average variable cost.

• It is the firm's average total cost curve above the minimum average variable cost.

• It is the firm's marginal cost curve below the minimum average variable cost.

• It is the firm's average variable cost curve above the minimum average total cost.

Open Ended

Given a market price of $20, what is the firm's total revenue, total cost, and profit or loss using the provided graph?

Open Ended

Explain how entry of new producers affects market price and profit in the long-run equilibrium for a perfectly competitive market.

Multiple Select

Which of the following statements are true about the long-run market equilibrium as shown in the diagrams?

• Market price equals break-even price

• Existing producers make zero economic profit

• There is incentive for entry and exit

• Industry output is at its highest

Multiple Choice

According to Figure 60.3, what happens to price and profit when demand increases in the short run for existing firms?

• Both price and profit rise

• Price rises but profit falls

• Both price and profit fall

• Price falls but profit rises

Multiple Choice

What was the main effect of the rapid expansion of the California wine industry between 1994 and 2002?

• The price of grapes fell

• The price of grapes rose

• Wine consumption decreased

• Grape production fell by 20%

Multiple Choice

In the long run, a perfectly competitive firm will earn ___ profit.

• normal
• positive

• negative

• excess

Multiple Choice

Which of the following events is most likely to induce firms to exit an industry?

• A technological advance lowers the fixed cost of production of every firm in the industry.

• The wages paid to workers in the industry go up for an extended period of time.

• A permanent change in consumer tastes increases demand for the good.

• The price of a key input rises due to a long-term shortage of that input.

Open Ended

After learning about short-run and long-run average total cost curves, what questions do you still have or what would you like to know more about regarding perfect competition?

Open Ended

How do short-run and long-run average total cost curves differ, and what decisions can a firm make in the long run to minimize costs?