Profit Maximization and Competitive Supply

A market with a large number of sellers

• can only be a perfectly competitive market.

• might be an oligopoly or a perfectly competitive market.

• might be a monopolistically competitive or a perfectly competitive market.

• might be a perfectly competitive, monopolistically competitive, oligopoly, or monopoly market.

• can only be a monopolistically competitive market.

A perfectly competitive firm

• A) sells a product that has perfect substitutes.

• B) has a perfectly inelastic demand.

• C) has a perfectly elastic supply.

• D) Answers A and B are correct.

• E) Answers A and C are correct.

In part, perfect competition arises if

i. each firm's minimum efficient scale is large relative to demand.

ii. each firm produces a good or service identical to those produced by its many competitors.

iii. there are significant barriers to entry.

• i only

• ii only

• i and ii

• iii only

• i and ii

During the winter, theme parks in Orlando close earlier than in the summer. The reason the theme parks close early during the winter is because during that season the marginal revenue from staying open later is ________ the marginal cost.

• greater than

• less than

• equal to

• zero compared to

A perfectly competitive firm is earning an economic profit when total fixed costs increase. Assuming the firm does not shut down, in the short run the firm will

• charge a higher price.

• produce more output so the extra revenue will cover the increased costs.

• produce less output to decrease total costs.

• continue producing the same quantity as before but will make less economic profit.

• continue producing the same quantity as before and continue making the same economic profit as before.

The above figure shows a perfectly competitive firm. If the market price is $15, the firm

• is incurring an economic loss.

• is making an economic profit.

• is making zero economic profit.

• will immediately shut down.

• might shut down but more information is needed about the AVC.

The above figure shows a perfectly competitive firm. If the market price is more than $20 per unit, the firm

• will definitely shut down to minimize its losses.

• will stay open to produce and will make zero economic profit.

• will stay open to produce and will incur an economic loss.

• will stay open to produce and will make an economic profit.

• might shut down but more information is needed about the fixed cost.

The figure above shows a perfectly competitive firm. If the market price is $20 per unit, then the firm produces ________ units and makes an economic profit that is ________.

• more than 30; more than $100

• 30; more than $100

• 20; less than $400

• 0; zero

• 30; zero

When all firms in a perfectly competitive market are earning ________, we can state that the market is in a ________ equilibrium.

• A) a normal profit; long-run

• B) an economic profit; long-run

• C) a normal profit; short-run

• D) an economic profit; short-run

• E) A and D are correct.

What is the goal of a firm?

• to make profits

• to maximize profits

• to maximize revenue

• none of the above