Free Printable AP Micro: Perfect Competition

1.

Price takers are individuals in a market who:

a)

select a price from a wide range of alternatives.

b)

select the lowest price available in a competitive market.

c)

select the average of prices available in a competitive market.

d)

have no ability to affect the price of a good in a market.

2.

The market for breakfast cereal contains hundreds of similar products, such as Froot Loops, corn flakes, and Rice Krispies, that are considered to be different products by different buyers. This situation violates the perfect competition assumption of:

a)

many buyers and sellers.

b)

a standardized product.

c)

complete information.

d)

ease of entry and exit.

3.

The demand curve for a perfectly competitive firm is:

a)

perfectly inelastic.

b)

perfectly elastic.

c)

downward sloping.

d)

relatively but not perfectly elastic.

4.

In the short run, a perfectly competitive firm produces output and breaks even if:

a)

the firm produces the quantity at which P < ATC.

b)

the firm produces the quantity at which P = ATC.

c)

the firm produces the quantity at which P > ATC.

d)

the firm produces the quantity at which P = (TR/Q + TC/Q) × Q.

5.

Zoe's Bakery determines that P < ATC and P > AVC. Zoe should:

a)

continue to operate even though she is taking an economic loss.

b)

continue to operate, as she is making an economic profit.

c)

shut down immediately, as she is taking an economic loss.

d)

raise the price until she has maximized her profits.

6.

Which of the following is true?

a)

If price falls below average variable cost, the firm will shut down in the short run.

b)

Total revenue and marginal revenue are the same in perfect competition.

c)

Economic profit per unit is found by subtracting MC from price.

d)

Economic profit is always positive in the long run.

7.

a)

Shut Down

b)

Stay open and take a loss

c)

Making a normal profit

d)

Making a positive profit

8.

a)

Shut Down

b)

Take loss but stay open

c)

Normal Profit

d)

Positive Economic Profit

9.

a)

Shut Down

b)

Stay open and take a loss

c)

Normal Profit

d)

Positive Economic Profit

10.

a)

Shut Down

b)

Stay open and take a loss

c)

Positive Economic Profit

d)

Normal Profit

11.

This perfect competitor will maximize profits at what output level?

a)

A

b)

B

c)

C

d)

D

12.

This perfect competitor will shut down below which price/output relationship?

a)

K

b)

M

c)

L

d)

R

13.

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

a)

0GKC

b)

0FJC

c)

FGKJ

d)

EFJH

14.

At what price-output relationship will this perfect competitor operate in the long run?

a)

K

b)

M

c)

L

d)

R

15.

Perfect competition is best described as a market with

a)

few firms producing essentially the same product

b)

many firms producing essentially the same product

c)

many firms producing very different products

d)

few firms producing very different products

16.

Which is not a requirement for a market to have perfect competition?

a)

Diverse buyers and sellers participate in a market

b)

Sellers offer the same products

c)

Sellers can freely enter and exit the market

d)

Consumers and producers are informed about products

17.

A factor that makes it difficult for firms to enter a market is called...

a)

a barrier to entry

b)

an obstacle to entry

c)

a block to entry

d)

an impediment to entry

18.

Perfect competition pushes firms to

a)

maximum sales

b)

take over other firms

c)

maximum possible output

d)

efficiency

19.

Which of the following is NOT a characteristic of a perfectly competitive market?

a)

Free entry and exit

b)

Numerous sellers

c)

Perfect information

d)

No substitutes

20.

In the short run, the firm will realize an economic loss but will continue to produce if the price is:

a)

below P2

b)

between P1 and P2

c)

between P2 and P3

d)

between P3 and P4

21.

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?

a)

The firm is covering all of its fixed and variable costs of production.

b)

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

c)

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

d)

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

22.

Based on the cost and output data in the table shown, a perfectly competitive firm will shut down if price falls below:

a)

$15

b)

$16

c)

$18

d)

$20

23.

For a perfectly competitive firm producing the profit-maximizing quantity, the average total cost is $10 and the average variable cost is $8. If the market price for its product is $10, which of the following is true for the firm?

a)

It is sustaining a loss and should shut down.

b)

It is earning zero economic profit and will remain in business.

c)

It will temporarily shut down until price rises.

d)

The firm is earning positive economic profit.

24.

In the graph pictured, TC is total cost and TR is total revenue. At what quantity is profit maximized?

a)

Q1

b)

Q2

c)

Q3

d)

Q4

25.

In the short run, a profit-maximizing firm, faced with U-shaped average cost curves, is producing a level of output at which the average total cost of production is minimized. At this level of output, which of the following is true for the firm?

a)

Marginal cost equals average total cost.

b)

Marginal cost equals average variable cost.

c)

Marginal cost equals average fixed cost.

d)

Profit per unit equals marginal cost.

26.

In the short run, if a firm produces the level of output at which marginal revenue is equal to marginal cost but price is less than average total cost, the firm will:

a)

always shut down production

b)

expand output to lower its average fixed cost

c)

continue to operate if price is greater than its average variable cost

d)

increase out put to increase revenue

27.

All of the following are essential characteristics of a perfectly competitive industry EXCEPT:

a)

All products produced by the firms in the industry are homogeneous.

b)

All firms in the industry are price takers.

c)

Price is equal to marginal revenue for every firm in the industry.

d)

There are barriers to entry into and exit from the industry.

28.

The image above shows a firm making

a)

Economic Profit

b)

Economic loss

c)

Breaking even

d)

Shutting down

29.

Should the following firm shutdown?

a)

Yes

b)

No

c)

Not enough information present

30.

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

a)

Firms are small

b)

There are a large number of sellers

c)

There are no barriers to entry or exit

d)

Each firm has control over market price

31.

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

a)

It produces its output at minimum average total cost

b)

It earns positive economic profits

c)

Its price exceeds marginal cost

d)

Its price exceeds marginal revenue

32.

A perfectly competitive market in equilibrium is allocatively efficient and it maximizes:

a)

total revenue

b)

total consumer surplus

c)

total producer surplus

d)

the sum of total consumer surplus and total producer surplus

33.

According to the graph, which of the following MUST be true in the long run?

a)

The equilibrium price will be P2, since that is where marginal cost equals minimum average variable cost

b)

If the price is above P3, new firms will enter the industry

c)

If the price is above P2, new firms will enter the industry

d)

The equilibrium price will be above P3, since firms must make an economic profit to stay in business

34.

Productive efficiency occurs when a firm produces output at a level at which:

a)

price exceeds average total cost

b)

average total cost is at a minimum

c)

price equals marginal cost

d)

marginal revenue exceeds average revenue

35.

Based on the graph of a perfectly competitive firm, which of the following statements is TRUE?

a)

Price is equal to average total cost

b)

New firms are likely to enter the market in the long run

c)

Economic profits are zero

d)

The market is in long run equilibrium

36.

Price takers are individuals in a market who:

a)

select a price from a wide range of alternatives.

b)

select the lowest price available in a competitive market.

c)

select the average of prices available in a competitive market.

d)

have no ability to affect the price of a good in a market.

37.

In the short run, a perfectly competitive firm produces output and breaks even if:

a)

the firm produces the quantity at which P < ATC.

b)

the firm produces the quantity at which P = ATC.

c)

the firm produces the quantity at which P > ATC.

d)

the firm produces the quantity at which P = (TR/Q + TC/Q) × Q.

38.

Perfect competition means

a)

every firm will make a loss in the long run

b)

profit are perfectly competitive

c)

abnormal profit will continue until the industry reaches closure

d)

supernormal profit are competed away

39.

Productive efficiency is about

a)

ensuring the cost of production are as low as they can be

b)

using the most up-to-date technological method

c)

making as much profit as possible

d)

All of the above

e)

None of the above

40.

The price charged by a perfectly competitive firm is

a)

higher the more the firm produces.

b)

lower the more the firm produces.

c)

the same as the market price.

d)

indeterminate.

e)

different than the price charged by competing firms.

41.

MR DARP stands for

a)

marginal revenue

b)

demand

c)

average revenue

d)

price

e)

all of the above

42.

If the corn industry is perfectly competitive and the market price for corn is $3 per bushel. How many bushels will Farmer Kardashian sell at $3.50 per bushel?

a)

more than she would at a price of $3 per bushel

b)

some, but fewer than she would at $3 per bushel

c)

just as many as she would at $3 per bushel

d)

none

e)

more info is needed about the prices of other farmers

43.

The Rock is making candles in a perfectly competitive market. When he produces 500 candles, his total cost is $250. If he produces one more candle, his total cost rises to $260. In order to maximize profit, he should produce the additional candle

a)

only if the market price exceeds $250 for a candle.

b)

if the market price for a candle is $12.

c)

only if the market price exceeds $260 for a candle.

d)

if the market price for a candle exceeds $0.50.

e)

if his price exceeds his ATC.

44.

In the long run firms produce at the output level that has the minimum.

a)

average variable cost.

b)

average total cost.

c)

average fixed cost.

d)

marginal cost.

e)

total revenue.

45.

At price $5, the firm is operating in

a)

long run equilibrium at break even.

b)

short run equilibrium with an economic loss.

c)

long run equilibrium with an economic loss.

d)

short run equilibrium with an economic profit.

e)

short run equilibrium at break even.

46.

At a price of $4, this firm will produce _____ items in the ____ run.

a)

8; long

b)

9; short

c)

9; long

d)

11; short

e)

8; short

47.

At a price of $2, below the AVC, this firm will produce ____ items.

a)

8

b)

9

c)

11

d)

0

e)

need more information.

48.

This firm is experiencing

a)

economic loss.

b)

economic profit.

c)

normal profit.

d)

accounting profit.

e)

break-even profit.

49.

This single farmer is experiencing

a)

economic loss.

b)

economic profit.

c)

break-even.

d)

normal profit.

e)

long run equilibrium.

50.

This single farmer is experiencing

a)

economic loss.

b)

economic profit.

c)

break-even.

d)

normal profit.

e)

long run equilibrium.

51.

In the long run we would expect firms to _______ the industry and the market price to _______

a)

leave; rise

b)

leave; fall

c)

enter; rise

d)

enter; fall

e)

enter; remain the same.

52.

In the long run we would expect firms to _____ the market and the market price to ______.

a)

enter; rise

b)

enter; fall

c)

leave; rise

d)

leave; fall

e)

profit from the market; remain the same.

AP Micro: Perfect Competition

Total questions: 52

Worksheet time: 30mins

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