AP Micro Perfect Competition Quiz

Demand and supply in perfect competition: What happens to the equilibrium price and quantity in perfect competition when there is an increase in consumer income?

• Lower equilibrium price and quantity

• Higher equilibrium price and quantity

• No change in equilibrium price and quantity

• Decrease in equilibrium price and quantity

Demand and supply in perfect competition: Explain the concept of producer surplus in perfect competition.

• In perfect competition, producer surplus is the extra amount of money paid by the producer to the consumers.

• The producer surplus in perfect competition is the difference between the cost of production and the selling price of the good.

• The producer surplus in perfect competition is the difference between the price at which a producer is willing to supply a good and the actual price received in the market.

• Producer surplus in perfect competition is the amount of profit made by the consumers.

Profit maximization in perfect competition: What is the profit-maximizing level of output for a firm in perfect competition?

• Where average cost equals average revenue

• Where marginal cost equals marginal revenue

• Where total cost equals total revenue

• Where fixed cost equals variable cost

Profit maximization in perfect competition: How does a firm in perfect competition determine its level of output to maximize profit?

• By producing at the quantity where total cost equals total revenue.

• By producing at the quantity where marginal cost equals marginal revenue.

• By producing at the quantity where average cost equals average revenue.

• By producing at the quantity where fixed cost equals variable cost.

Shut down point in perfect competition: Define the shut down point for a firm in perfect competition.

• When the price is higher than the minimum average variable cost

• When the price is equal to the minimum average total cost

• When the price falls below the minimum average variable cost

• When the price is lower than the minimum average total cost

Shut down point in perfect competition: What factors determine whether a firm should shut down or continue operating in the short run in perfect competition?

• Average costs, government regulations, and long-term planning

• Total costs, demand curve, and breaking even

• Variable costs, market price, and minimizing losses

• Fixed costs, market price, and maximizing profits

Long-run equilibrium in perfect competition: Describe the long-run equilibrium condition for a firm in perfect competition.

• Marginal cost is equal to average total cost, and price is equal to marginal revenue.

• Marginal cost is greater than marginal revenue, and price is less than average total cost.

• Marginal cost equals marginal revenue, and price equals average total cost.

• Marginal cost is less than marginal revenue, and price is greater than average total cost.

Long-run equilibrium in perfect competition: What adjustments occur in the long run to achieve equilibrium in perfect competition?

• Firms can collude to fix prices and restrict output

• Firms can enter or exit the market, leading to adjustments in the number of firms and the level of output, until economic profits are driven to zero.

• The government sets a price ceiling to control the level of output

• Firms can engage in monopolistic competition to achieve equilibrium

Price determination in perfect competition: How is the price determined in perfect competition in the short run?

• By the intersection of market demand and supply curves

• By government regulation

• By the cost of production

• By the bargaining power of the buyers

Price determination in perfect competition: Explain the role of market forces in determining the price in perfect competition.

• Monopoly power

• Government intervention

• Random chance

• Supply and demand forces