Market Power & Profit Maximization

If a firm experiences economies of scale over a range of output, it will have:

• rising long-run average total cost curve

• constant long-run average total cost curve

• falling average total cost curve

• rising, then constant, then falling long-run average total cost curve

Which of the following statements is true?

• Average revenue is equal to price.

• Average revenue is total output divided by units of labour.

• Marginal revenue is total revenue divided by units of output.

• Marginal revenue is the change in output divided by the change in total revenue.

Normal profit arises when

• P = AC

• P < AC

• P > AC

• P = MC

In economic analysis, the rule of profit maximisation is

• price = marginal cost

• price = marginal revenue

• marginal cost = marginal revenue

• marginal revenue = average cost

Which of the following statements is true of perfect competition?

• There are many sellers who are interdependent.

• Firms sell homogeneous products to achieve market power.

• There are no barriers to entry and so new firms may not enter freely.

• There are many sellers with perfect information about the market.

Which of the following is likely to result from freedom of entry and exit of a firm in a market?

• The firm earns abnormal profit in the long run.

• The firm earns normal profit in the long run.

• The firm makes profits in the short run.

• The firm makes losses in the short run.

Which of the following comes closest to describing a perfectly competitive market?

• corn production

• car production

• clothes production

• all of the above

The model of perfect competition is useful because

• it is a realistic description of many markets in the real world

• it illustrates how markets can achieve an efficient allocation of resources

• it shows how governments can influence economic activity

• all of the above

A firm in perfect competition has no control over

• the price of its product

• the quantity it produces

• the quantity of inputs it uses

• all of the above

In the long run, the firm is likely to shut down when

• total revenue = total cost

• total revenue > total cost

• total revenue < total cost

• price < total cost