Chapter 9 Perfect Competition

The demand curve faced by a perfectly competitive firm is horizontal at the price determined in the market.

• True

• False

A perfectly competitive firm should shut down production in the short run if price is less than average fixed cost at the loss-minimizing level of output.

• True

• False

A decreasing-cost industry has a long-run supply curve that is upward sloping,

• True

• False

One of the assumptions upon which the theory of perfect competition is built is that each firm produces and sells heterogeneous product.

• True

• False

Profit helps to indicate where resources are best allocated.

• True

• False

Does a real-world market have to meet all the assumptions of the theory of perfect competition before it is considered a perfectly competitive market?

• No, probably no real-world market meets all the assumptions of the theory of perfect competition. All that is necessary is that a real-world market behave as if it satisfies all the assumptions.

• Yes, if a real-world market does not meet the assumptions, then it cannot be considered a perfectly competitive market.

• Yes, unless it is a new market such as the computer market. New markets

• No, but it does have to meet the assumption of producing and selling a homogeneous product. It does not have to fully meet the other assumptions.

Perfectly competitive industries are

• difficult to enter because there are already so many producers in the industry.

• not particularly appealing or attractive to enter because there tend to be so many buyers that it is difficult to deal with them.

• relatively easy to enter but not so easy to exit from

• not particularly appealing or attractive to enter because there tend to be so many buyers that it is difficult to deal with them & difficult to enter because there are already so many producers in the industry.

• none of the answers are correct

A "price taker" is a firm that

• does not have the ability to control the price of the product it sells.

• does have the ability, although limited, to control the price of the product it sells.

• can raise the price of the product (above the market price) and still sell some units of its product.

• sells a differentiated product

• none of the above

The demand curve facing a perfectly competitive firm

• is downward sloping.

• is upward sloping.

• is perfectly horizontal.

• is perfectly vertical.

• may be downward or upward sloping, depending upon the type of product offered for sale

The price at which a perfectly competitive firm sells its product is determined by

• the individual seller based on his costs of production and his profit margin.

• all sellers and buyers of the product

• the buyers of the product, because there are so many sellers that they cannot agree on a price.

• the government, because there are so many buyers and sellers of the product that together they cannot agree on the price.