Cost & Production Review

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.

The demand curve for a perfectly competitive firm is:

• perfectly inelastic.
• perfectly elastic.
• downward sloping.
• relatively but not perfectly elastic.

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.

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.

• Shut Down
• Stay open and take a loss
• Making a normal profit
• Making a positive profit

• Shut Down
• Take loss but stay open
• Normal Profit
• Positive Economic Profit

This perfect competitor will maximize profits at what output level?

• A
• B
• C
• D

At price G, the area of which rectangle represents total revenue for the profit-maximizing perfect competitor?

• 0GKC
• 0FJC
• FGKJ
• EFJH

Perfect competition is best described as a market with

• few firms producing essentially the same product

• many 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