question
Which of the following is not an assumption of the theory of perfect competition?
answer
Each firm produces and sells a differentiated product.
question
In long-run equilibrium, the perfectly competitive firm earns __________ economic profits.
answer
zero
question
Which of the following is a characteristic of perfect competition?
answer
buyers and sellers having all relevant information
question
A firm operating in a perfectly competitive market finds itself producing a level of output for which marginal revenue is less than marginal cost. In order to maximize profits (or minimize losses), the firm should
answer
NOT raise its price
question
At the quantity of output for which total revenue equals total cost,
answer
NOT profit is maximized
question
In the theory of perfect competition, the assumptions of many buyers and sellers, the production of a homogeneous product, and the possession of all relevant information by buyers and sellers imply that the perfectly competitive firm
answer
NOT a and c
question
If, for the last unit of a good produced by a perfectly competitive firm, MR > MC, then in producing that unit the firm
answer
NOT added an equal amount to both total revenue and total costs.
question
A perfectly competitive market is initially in long-run competitive equilibrium. Then, market demand increases. This causes existing firms in the market to __________ and __________. As a result of the latter, the market supply curve shifts __________.
answer
produce more output; new firms to enter the market; rightward
question
If the firm is producing a quantity of output for which MC > MR, then the firm should increase production to increase its profits.
answer
False
question
In perfect competition, the firm's marginal revenue curve is
answer
NOT a and c
question
If the perfectly competitive firm is producing an output level at which price equals marginal cost, it is
answer
NOT earning normal profit
question
If a seller is a price taker it means that the seller sells his product at the price
answer
NOT he chooses
question
Equilibrium price is $8 in a perfectly competitive market. For a perfectly competitive firm, MR = MC at 150 units of output. At 150 units, ATC is $11, and AVC is $10. The best policy for this firm is to __________ in the short run. Also, total fixed cost equals __________ and total variable cost equals __________ for this firm.
answer
shut down; $150; $1,500
question
Equilibrium price is $22 in a perfectly competitive market. For a perfectly competitive firm, MR = MC at 200 units of output. At 200 units, ATC is $23, and AVC is $18. The best policy for this firm is to __________ in the short run. Also, this firm earns __________ of __________ if it produces and sells 200 units.
answer
continue to produce, losses, $200
question
In the short run, the best policy for a perfectly competitive firm is to
answer
produce and sell its product as long as price is greater than average variable cost.
question
When a perfectly competitive firm incurs losses, it follows that price
answer
NOT is less than marginal revenue.
question
In the theory of perfect competition, the assumption of easy entry into and exit from the market implies
answer
NOT zero economic profits in both the short run and the long run.
question
A firm that is a price taker will not sell any of its product for less than the equilibrium price because
answer
it can sell all it can produce at the equilibrium price.
question
A perfectly competitive firm that wants to maximize profits or minimize losses will produce in the short run as long as
answer
NOT price is above marginal revenue.
question
The market demand curve in a perfectly competitive market is
answer
downward sloping.
question
In order for a firm to earn economic profits, price must exceed average total cost.
answer
True
question
A perfectly competitive market is initially in long-run competitive equilibrium. Then, market demand falls. This causes the marginal revenue curves for existing firms to shift __________ and for these firms to produce __________ output. Some of the existing firms will end up __________.
answer
downward, less, exiting the market
question
In the theory of perfect competition,
answer
b and d
(b)the single firm faces a horizontal demand curve.
d)the market demand curve is downward sloping.)
(b)the single firm faces a horizontal demand curve.
d)the market demand curve is downward sloping.)
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