Perfect Competition Review

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.

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

What is the goal of a firm?

• to make profits

• to maximize profits

• to maximize revenue

• none of the above

To find TC from ATC, you simply

• Multiply by the cost

• Divide by the quantity

• Multiply by the quantity

• Divide by the cost

In the short run, the firm will realize an economic loss but will continue to produce if the price is:

• below P2
  
• between P1 and P2 
• between P2 and P3 
• between P3 and P4 

What causes marginal product to increase at an increasing rate in Stage 1? 

• increasing costs
• worker specialization
• underutilization
• fixed resources

According to the graph, increasing marginal returns occur from 

• 0 to Labor₁
• Labor₁ to Labor₂
• 0 to Labor L₂
• After L₂