WorksheetsPerfect Competition Quiz
Total questions: 57
Worksheet time: 29mins
What is a key assumption of a perfectly competitive market?
Few sellers and many buyers
Homogeneous products
High entry barriers
Sellers can influence prices
In perfect competition, the firm is a:
Price maker
Price taker
Quantity controller
Monopoly
Why are products homogeneous in perfect competition?
To ensure brand loyalty
To make price competition irrelevant
To ensure no firm has market power
To reduce supply in the market
In perfect competition, information is:
Asymmetric
Only available to sellers
Perfectly shared between buyers and sellers
Unreliable
Which of the following does not exist in perfect competition?
Easy entry and exit
Monopoly power
Many sellers
Price-taking behavior
The demand curve for a perfectly competitive firm is:
Downward-sloping
Upward-sloping
Vertical
Horizontal
In perfect competition, marginal revenue (MR) is equal to:
Price (P)
Total revenue (TR
Marginal cost (MC)
Average revenue (AR)
Total revenue (TR) is calculated as:
TR=MR + AR
TR=P × Q
TR=MC x Q
TR = AVC + ATC
The profit-maximizing rule in perfect competition is:
MR=ATC
MR>MC
MR=MC
MR
If P > ATC, the firm is:
Earning normal profit
Incurring a loss
Earning economic profit
Shutting down
In the short run, the firm will shut down if:
P > ATC
P = AVC
P < AVC
P = MC
The supply curve of a firm in the short run is the part of the MCMC curve:
Below the AVC curve
Above the AVC curve
Above the ATC curve
Below the ATC curve
In the long run, firms in perfect competition earn:
Economic profit
Losses
Zero economic profit
Supernormal profit
Long-run equilibrium occurs when:
P > MC > ATC
P = MC = SRATC = LRATC
P < AVC
P = AVC
In long-run equilibrium, there is no incentive for firms to:
Enter or exit the market
Change plant size
Produce more or less
All of the above
An increase in demand in the short run will:
Increase price and profit
Decrease price and profit
Leave price unchanged
Cause firms to exit the market
What happens when new firms enter the market in the long run?
Supply decreases
Price rises
Economic profit becomes zero
Demand shifts left
Long-run equilibrium ensures that firms produce at the:
Highest possible cost
Lowest possible cost
Break-even point
Maximum level of inefficiency
In the long run, if demand decreases, firms will:
Earn economic profits
Exit the industry
Increase output
Reduce prices permanently
In a perfectly competitive market, long-run adjustments occur due to:
Changes in marginal revenue
Entry and exit of firms
Collusion among firms
Government intervention
Long-run equilibrium is characterized by which cost relationship?
P > LRATC
P < SRATC
P=SRATC=LRATC
P > AVC
In long-run equilibrium, firms are producing:
At a loss
Below optimal output
At the minimum point of the LRATC curve
At the maximum point of the LRATC curve
The marginal revenue (MRMR) curve for a perfectly competitive firm:
Slopes downward
Is horizontal and equal to price
Is upward-sloping
Lies below the demand curve
Why does the marginal revenue curve coincide with the demand curve for a competitive firm?
Firms can influence market price
Firms sell at a price higher than marginal cost
Price is constant for every additional unit sold
Marginal revenue decreases as quantity increases
What happens to total revenue when a perfectly competitive firm increases its output?
It increases proportionally
It decreases
It remains constant
It depends on marginal cost
In perfect competition, the slope of the demand curve faced by the firm is:
Negative
Zero
Positive
Undefined
The formula for marginal revenue is:
MR=ΔTR/ΔQ
MR=P×Q
MR=AVC+ATC
MR=ΔQ/ΔTR
A firm maximizes profit when:
Total revenue is maximized
Marginal cost equals marginal revenue
Price is greater than average cost
Marginal cost is zero
If P=MR=MC, the firm is:
Maximizing profit
Minimizing costs
Operating at a loss
Producing less than optimal output
At the profit-maximizing output level, what happens if MR>MCMR > MC?
The firm should reduce output
The firm should increase output
The firm should shut down
The firm is in equilibrium
At the profit-maximizing output level, what happens if MR>MCMR > MC?
The firm should reduce output
The firm should increase output
The firm should shut down
The firm is in equilibrium
If price is below average total cost (ATCATC) but above average variable cost (AVCAVC) in the short run, the firm:
Shuts down immediately
Continues to produce at a loss
Produces at maximum capacity
Earns normal profit
Profit per unit is calculated as:
P−AVCP - AVC
P−ATCP - ATC
P−MCP - MC
P×QP \times Q
If P
Continue producing in the short run
Shut down immediately
Increase output
Lower marginal cost
What is a characteristic of a perfectly competitive market?
Few sellers and many buyers
Homogeneous products
High entry barriers
Sellers have market power
Which of the following is true in a perfectly competitive market?
Firms have the ability to control prices.
Entry into the market is restricted.
Buyers and sellers have complete information.
Products are highly differentiated.
Why is a firm in perfect competition considered a price taker?
It has significant control over prices.
It can sell unlimited output at a price higher than the market price.
The price is determined by the interaction of market demand and supply.
It produces a unique product.
Entry and exit in a perfectly competitive market are:
Difficult due to high start-up costs.
Restricted by government regulations.
Easy due to no significant barriers.
Controlled by monopolistic practices.
In perfect competition, market structure affects:
A firm's ability to differentiate products.
A firm's pricing and output decisions.
The level of advertising a firm uses.
A firm's ability to create patents.
The demand curve for a perfectly competitive firm is:
Downward-sloping.
Vertical.
Upward-sloping.
Horizontal.
For a perfectly competitive firm, price (PP) equals:
Marginal cost (MCMC).
Marginal revenue (MRMR).
Average revenue (ARAR).
All of the above.
Marginal revenue (MR) is calculated as:
MR=P×Q
MR=ΔTR/ΔQ
MR=ATC+AVC
MR=ΔQ/ΔTR
In perfect competition, the demand curve faced by the firm is:
Equal to its marginal revenue curve.
Below the marginal revenue curve.
Above the marginal revenue curve.
The same as the marginal cost curve.
Why can a firm in perfect competition not sell above the market price?
The demand curve is upward-sloping.
Buyers will shift to competitors offering the same product.
The firm has a monopoly.
The marginal cost exceeds the market price.
The profit-maximizing condition for a perfectly competitive firm is:
P=ATCP = ATC.
MR=MCMR = MC.
P>MCP > MC.
TR=TCTR = TC.
If P>ATCP > ATC, the firm:
Shuts down.
Earns economic profit.
Breaks even.
Produces less output.
In the short run, the firm continues to operate as long as:
P≥AVCP
P
P=ATCP = ATC.
TR
If P
Continue operating at a loss.
Shut down immediately.
Increase output.
Reduce fixed costs.
Profit is maximized when:
Total revenue is maximized.
Price equals average variable cost.
Marginal cost equals marginal revenue.
Total cost equals total revenue.
Resource allocative efficiency occurs when:
P=ATCP = ATC.
P=MCP = MC.
MR>MCMR > MC.
TR
Resource allocative efficiency implies:
Firms maximize profit by producing at P=MCP = MC.
Resources are underutilized.
There is significant wastage.
Total revenue is less than total cost.
In perfect competition, allocative efficiency ensures:
Consumer preferences are met.
Firms produce at a loss.
Resources are misallocated.
Market prices are above equilibrium.
When P>ATCP > ATC, the firm earns:
A loss.
Normal profit.
Economic profit.
Zero profit.
If P=ATCP = ATC, the firm is:
Earning zero economic profit.
Operating at a loss.
Maximizing profit.
Minimizing costs.
In the short run, a firm will shut down if:
P > ATC
P < AVC
P = AVC
TR > TC
When P
Shuts down immediately.
Continues to produce to minimize losses.
Increases production.
Earns an economic profit.
A firm produces in the short run as long as:
Total revenue (TRTR) exceeds total variable cost (TVCTVC).
Total cost exceeds total revenue.
Marginal cost is zero.
Average fixed cost exceeds price.
