AP Micro Section 11 - Perfectly Competition

Assume a perfectly competitive firm is currently producing 100 units of output. Its marginal cost is $6 and rising at that output quantity. Its average variable cost is $7 and its average fixed cost is $3. If the product’s price is $6, which of the following will the firm do in the short run to maximize its profit?

• Shut down

• Produce, but less than 100 units of output

• Produce more than 100 units of output

• Continue to produce at exactly 100 units of output

• Increase its price above $6

A profit-maximizing, perfectly competitive firm is currently in long-run equilibrium. It is earning $15,000 of total revenue from a sale of 1,000 units. Its total fixed cost of production is $2,500. Which of the following can correctly be inferred from the information provided?

• Its marginal cost is $12.50, and its average total cost is $12.50.

• Its marginal cost is $12.50, and its average variable cost is $12.50.

• Its marginal cost is $15.00, and its average total cost is $12.50.

• Its marginal cost is $15.00, and its average variable cost is $12.50.

• Its marginal cost is $15.00, and its average fixed cost is $12.50.

At a firm's current rate of output, the marginal cost is $65, the average variable cost is $35, the average fixed cost is $30, and the product price is $65. Which of the following statements is true for the firm?

• Economic profits are zero because marginal revenue equals marginal cost.

• Economic profits are negative because total revenue is less than total cost.

• Economic profits are positive because total revenue is greater than total cost.

• Economic profits are negative because price is greater than average variable cost.

• Economic profits are zero because price equals average total cost.

In the absence of barriers to entry, a typical firm is currently in long-run equilibrium. Assume there is an increase in the market demand for the good that the firm is producing. Which of the following will happen in the long run?

• New firms will enter the market.

• The market supply will decrease, but the quantity supplied will increase.

• The firm will earn positive economic profit.

• The firm’s price will be greater than its average revenue.

• The firm will continue to produce the same quantity of output.

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

• It earns positive economic profit.

• It is allocatively efficient.

• It experiences economic losses.

• It is productively inefficient.

• It maximizes revenues.

If there are many firms in an industry and each firm’s product is indistinguishable from the products of all other firms, the individual firm’s demand curve will be

• upward sloping and different for each firm

• downward sloping and different for each firm

• downward sloping and identical for every firm

• horizontal and different for each firm

• horizontal and identical for every firm

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

• The firm is covering all of its implicit costs but not all of its explicit costs.

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

A perfectly competitive firm is producing 10 units of output and sells the product for $5 per unit. At this level of output the average total cost is $4, the average variable cost is $3 and the marginal cost is $7. What should this firm do to maximize short-run profits?

• Increase output until price equals average total cost.

• Increase output until price equals marginal cost.

• Leave output unchanged because price is greater than average total cost.

• Decrease output until price is equal to marginal cost.

• Decrease output until price is equal to average total cost.

Which of the following is a characteristic of firms in a perfectly competitive industry?

• Engaging in collusive behavior

• Facing significant barriers to entry

• Setting the market price

• Producing identical products

• Earning positive long-run economic profit

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

• firms are small

• there are a large number of sellers

• firms cannot advertise

• there are no barriers to entry or exit

• the commodities produced are relatively inexpensive