Perfect competition is best described as a market with

many firms producing essentially the same product

few firms producing essentially the same product

many firms producing very different products

few firms producing very different products

Which is not a requirement for a market to have perfect competition?

Diverse buyers and sellers participate in a market

Sellers offer the same products

Sellers can freely enter and exit the market

Consumers and producers are informed about products

Assume that a profit-maximizing, perfectly competitive firm has economic losses in the short run. If the firm continues to produce and sell its goods, then which of the following must be true?

The firm is covering all of its variable costs but not all of its fixed costs of production.

The firm is covering all of its fixed and variable costs of production.

The firm is covering all of its fixed costs but not all of its variable costs of production.

The firm must have raised the price of its goods in order to minimize its losses.

For a perfectly competitive firm producing the profit-maximizing quantity, the average total cost is $10 and the average variable cost is $8. If the market price for its product is $10, which of the following is true for the firm?

It is earning zero economic profit and will remain in business.

It is sustaining a loss and should shut down.

It will temporarily shut down until price rises.

The firm is earning positive economic profit.

In the short run, a profit-maximizing firm, faced with U-shaped average cost curves, is producing a level of output at which the average total cost of production is minimized. At this level of output, which of the following is true for the firm?

Marginal cost equals average total cost.

Marginal cost equals average variable cost.

Marginal cost equals average fixed cost.

Profit per unit equals marginal cost.

In the short run, if a firm produces the level of output at which marginal revenue is equal to marginal cost but price is less than average total cost, the firm will:

continue to operate if price is greater than its average variable cost

expand output to lower its average fixed cost

increase out put to increase revenue

All of the following are essential characteristics of a perfectly competitive industry EXCEPT:

There are barriers to entry into and exit from the industry.

All products produced by the firms in the industry are homogeneous.

All firms in the industry are price takers.

Price is equal to marginal revenue for every firm in the industry.

The reason that firms in perfect competition earn zero economic profit in the long run is that:

There are no barriers to entry or exit

There are a large number of sellers

Each firm has control over market price

Which of the following is true of a perfectly competitive firm in long-run equilibrium?

It produces its output at minimum average total cost

It earns positive economic profits

Its price exceeds marginal cost

Its price exceeds marginal revenue

A perfectly competitive market in equilibrium is allocatively efficient and it maximizes:

the sum of total consumer surplus and total producer surplus

According to the graph, which of the following MUST be true in the long run?

If the price is above P3, new firms will enter the industry

The equilibrium price will be P2, since that is where marginal cost equals minimum average variable cost

If the price is above P2, new firms will enter the industry

The equilibrium price will be above P3, since firms must make an economic profit to stay in business

Productive efficiency occurs when a firm produces output at a level at which:

average total cost is at a minimum

price exceeds average total cost

marginal revenue exceeds average revenue

Based on the graph of a perfectly competitive firm, which of the following statements is TRUE ?

New firms are likely to enter the market in the long run

Price is equal to average total cost

The market is in long run equilibrium

Perfect competition means

supernormal profit are competed away

every firm will make a loss in the long run

profit are perfectly competitive

abnormal profit will continue until the industry reaches closure

Productive efficiency is about

ensuring the cost of production are as low as they can be

using the most up-to-date technological method

making as much profit as possible

The price charged by a perfectly competitive firm is

higher the more the firm produces.

lower the more the firm produces.

different than the price charged by competing firms.

If the corn industry is perfectly competitive and the market price for corn is $3 per bushel. How many bushels will Farmer Kardashian sell at $3.50 per bushel?

more than she would at a price of $3 per bushel

some, but fewer than she would at $3 per bushel

just as many as she would at $3 per bushel

more info is needed about the prices of other farmers

The Rock is making candles in a perfectly competitive market. When he produces 500 candles, his total cost is $250. If he produces one more candle, his total cost rises to $260. In order to maximize profit, he should produce the additional candle

only if the market price exceeds $260 for a candle.

only if the market price exceeds $250 for a candle.

if the market price for a candle is $12.

if the market price for a candle exceeds $0.50.

At price $5, the firm is operating in

long run equilibrium at break even.

short run equilibrium with an economic loss.

long run equilibrium with an economic loss.

short run equilibrium with an economic profit.

short run equilibrium at break even.

In the long run we would expect firms to _____ the market and the market price to ______.

profit from the market; remain the same.

Ap Micro: Perfect Competition

AP Micro: Perfect Competition

Authored by Jason Lee

Social Studies

11th - 12th Grade

Used 384+ times

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MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Price takers are individuals in a market who:

select a price from a wide range of alternatives.

select the lowest price available in a competitive market.

select the average of prices available in a competitive market.

have no ability to affect the price of a good in a market.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

The market for breakfast cereal contains hundreds of similar products, such as Froot Loops, corn flakes, and Rice Krispies, that are considered to be different products by different buyers. This situation violates the perfect competition assumption of:

many buyers and sellers.

a standardized product.

complete information.

ease of entry and exit.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

The demand curve for a perfectly competitive firm is:

perfectly inelastic.

perfectly elastic.

downward sloping.

relatively but not perfectly elastic.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

In the short run, a perfectly competitive firm produces output and breaks even if:

the firm produces the quantity at which P < ATC.

the firm produces the quantity at which P = ATC.

the firm produces the quantity at which P > ATC.

the firm produces the quantity at which P = (TR/Q + TC/Q) × Q.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Zoe's Bakery determines that P < ATC and P > AVC. Zoe should:

continue to operate even though she is taking an economic loss.

continue to operate, as she is making an economic profit.

shut down immediately, as she is taking an economic loss.

raise the price until she has maximized her profits.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Which of the following is true?

If price falls below average variable cost, the firm will shut down in the short run.

Total revenue and marginal revenue are the same in perfect competition.

Economic profit per unit is found by subtracting MC from price.

Economic profit is always positive in the long run.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Shut Down

Stay open and take a loss

Making a normal profit

Making a positive profit

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