1.

At present output levels, a firm in a perfectly competitive industry is in the following

position: output = 1000 units, market price = $3, total cost = $6000, fixed cost = $2000,
marginal cost = $3. To achieve optimum output, the firm should:
A. reduce output but keep producing.
B. increase its selling price.
C. leave output unchanged.
D. reduce output to zero.
E. increase output but keep its price constant.
2. Which of the following is not usually a characteristic of a perfectly competitive industry?
A. no individual firm has any significant amount of market power.
B. the market demand curve is perfectly elastic.
C. any individual firm can increase its production and sales without affecting the price
of the good.
D. existing firms cannot bar the entry of new firms.
E. all of the above are characteristics of perfectly competitive industries.
3. A competitive firm's demand curve is determined by:
A. firm demand and firm supply.
B. the price set by the individual firm.
C. market demand and market supply.
D. the level of the firm's short-run average total cost.
E. the MC curve above average variable cost.
4. At present output levels, a perfectly competitive firm is in the following position: output =
4000 units, market price = $1, fixed costs = $2000, total variable costs = $1000, marginal cost
= $1.10. This firm is:
A. making a positive economic profit.
B. making a zero economic profit.
C. losing money, although it could make a profit by decreasing its output.
D. producing the output where AVC = MC.
E. not maximizing its profit but could do so by increasing its output.
5. In the long-run for a competitive industry:
A. all factors of production are variable so that firms are free to enter or leave the
market.
B. technology may change in response to profit opportunities.
C. all inputs are fixed for the industry as a whole.
D. firms can earn more than normal accounting profits if demand is high.
E. profits serve as a signal for entry which does not happen for other market structures
(such as monopolies, oligopolies, or monopolistically competitive firms).

6. When typical firms in a perfectly competitive industry are making economic profits, then
all of the following will take place except:
A. new firms will enter the industry.
B. the industry supply curve will shift to the right.
C. the firm demand curves will shift down.
D. the typical firm in the industry will begin to experience a reduction in profits.
E. all of the above will occur.
7. If an industry is characterized by perfect competition as well as increasing costs then:
A. the long-run industry supply curve is perfectly elastic.
B. each firm must experience decreasing returns to scale at low levels of production.
C. some of the resources used in production have supply curves that are upward
sloping.
D. some firms are likely to become natural monopolies.
E. economies of scale are significant for all firms.
8. In the long-run, competition in competitive markets:
A. yields economic inefficiency with the absence of government intervention.
B. results in output being produced at maximum opportunity cost.
C. forces all surviving firms to adopt the most efficient technology.
D. guarantees each firm economic profits.
E. may result in economic losses.

11. At present output levels, a perfectly competitive firm is in the following position: output =
4000 units, market price = $1.10, fixed costs = $2000, total variable costs = $1000, marginal
cost = $1.00. This firm is:
A. not maximizing its profit but could do so by decreasing its output.
B. making a zero economic profit.
C. losing money, although it could make a profit by increasing its output.
D. Producing the output where ATC = MC.
E. not maximizing its profit but could do so by increasing its output.
12. In the long-run, competition in competitive markets:
A. yields economic inefficiency in the absence of external costs.
B. results in output being produced at maximum opportunity cost.
C. forces all surviving firms to adopt the most efficient technology.
D. guarantees each firm long-run economic profits.
E. may result in economic losses.
13. That portion of a perfectly competitive firm's marginal cost curve lying above its AVC
curve has all of the following characteristics except:
A. it is upward sloping.
B. it intersects the firm's ATC curve at minimum ATC.

C. its intersection with the firm's MR curve determines the firm's profit maximizing
output level.
D. it is the firm's supply curve.
E. all of the above are true.
14. When in long-run equilibrium, perfectly competitive firms:
A. must employ the most efficient (least costly) production technology or be driven
out of the business by competition.
B. are paid a price that equals the maximum value of the long-run average cost curve.
C. collectively produce more output than society desires.
D. reap economic profits if the firm is exceptionally efficient.
E. cover all variable costs and make a profit just sufficient to cover previous losses.
15. The short-run shutdown point for the perfectly competitive firm occurs:
A. where total revenue is just sufficient to cover total cost.
B. when the demand curve facing the firm is tangent to its average variable cost
curve.
C. where total revenue is just sufficient to cover all explicit cost but not any implicit
or imputed costs.
D. when the firm is able to cover all of its fixed costs and part of its variable costs.
E. at the same quantity level as the long-run shutdown point.
16. The long-run equilibrium outcomes in monopolistic competition and perfect competition
are similar because in both market structures:

firms will only earn a normal profit.

firms realise all economies of scale.
the efficient output level will be produced in the long run.
firms will be producing at minimum average cost.

1 Which of the following is not a valid option for a perfectly competitive firm?
A. Increasing its output.

B. Decreasing its output.

C. Increasing its price.

D. Increasing its resources.

2 In the long run, a perfectly competitive firm will achieve all but which of the following:
A. Economic profit

B. Allocative Efficiency

C. Productive Efficiency

D. Normal profit

3 If the price a firm receives for its product is equal to the marginal cost of producing that
product, the firm is:
A. Always earning an economic profit

B. Always productively efficient.

C. Always allocatively efficient.

D. Always experiencing an economic loss.

4 A firm that is producing at the lowest possible average cost is always:

A. Earning an economic profit.

B. Productively efficient.

C. Dominating the other firms in the market.

D. Not producing enough output.

5 A perfectly competitive firm should always:

A. Earn an economic profit.

B. Increase its price if it is experiencing an economic loss.

C. Produce the quantity where its marginal cost equals its marginal revenue.

D. Produce at the productively efficient level of output

6 The supply curve for a perfect competitor is its:

A. Marginal Revenue curve

B. Average total cost curve

C. Marginal cost curve

D. Marginal cost curve above its average variable cost curve

7 If a perfect competitor is producing at a level where its average cost is $8, and its marginal
cost is $9, and it is receiving a price of $10 for its product, the firm
A. is maximizing economic profit.

B. experiencing economic loss.

C. should increase its output to maximize profit.

D. is allocatively efficient

8 If a profit maximizing perfectly competitive firm is selling 1000 units at a price of $10 and
its average total cost is $8 the firm is experiencing:
A. A total profit of $2

B. A total profit of $2000

C. A price greater than its marginal cost

D. An economic loss

9 Which of the following is most likely to happen if a typical firm in a perfectly competitive
market is experiencing an average revenue that is greater than its average cost?
A. Price will increase.

B. Other firms will enter the market

C. Other firms will leave the market

D. Demand will decrease

10 If the typical firm in a perfectly competitive market is experiencing an economic loss,

which of the following will happen?
A. Firms will enter the market and the price will decrease.

B. Firms will enter the market and the price will increase.

C. Firms will exit the market and the price will decrease.

D. Firms will exit the market and the price will increase.

11 A perfectly competitive firm that is in long-run equilibrium will

A. Earn an economic profit, be allocatively efficient, and be productively efficient.

B. Not earn an economic profit, but be allocatively efficient and productively efficient.

C. Not earn an economic profit, not be allocatively efficient, but be productively

efficient.
D. Not earn an economic profit, not be productively efficient, but be allocatively
efficient.

12 A firm in a perfectly competitive industry has

A. a perfectly elastic supply curve.

B. a perfectly elastic demand curve.

C. a negatively sloped demand curve.

D. a positively sloped demand curve.

14 A perfectly competive firm that is receiving a price of $5 and has a marginal cost of $6
should always
A. drop out of the industry

B. decrease its output

C. increase its price

D. increase its output

15 Assume that a perfectly competive firm that produces widgets is in long-run equilibrium.
Then suddenly the market demand for widgets increases. The firm will
A. Experience an economic loss.

B. Experience an economic profit and produce more in the short run.

C. Experience an economic profit and produce less in the short run

D. Experience no economic profit in the short run

1)Refer to Figure 9-1. If the price a perfectly competitive firm is facing in the market is P2,
then the
profit-maximizing firm in the short run should produce output
A) B. B) C. C) D.

D) E. E) F.

2) Suppose a perfectly competitive firm is producing where its average revenue is less than
its lowest average variable cost. The firm should
A) shut down.
B) increase the market price.
C) reduce its output.
D) expand its output.
E) not change its output.
3) In long-run equilibrium a perfectly competitive industry
A) losses are tolerable because of the high fixed cost.
B) in order to stay in the industry each firm is making an economic profit.
C) each firm is producing at the minimum point on its LRAC curve.
D) individual firms will have no incentive for technological improvement.

E) must exhibit economies of scale.

4) When a perfectly competitive firm is at its profit-maximizing level of output, we can say
that it
A) is producing where MC = AC.
B) is producing where price exceeds marginal cost.
C) is doing as well as it can and is making a profit.
D) may be making a profit or incurring a loss.
E) is producing where P = AVC.
5) The demand curve facing a perfectly competitive firm depends on
A) the marginal cost of the firm.
B) market supply alone.
C) market demand and the market supply curve.
D) market demand and the firms supply curve.
E) market demand alone

6)In Figure 9-2, if the current market price is $6, the profit-maximizing output of this firm is
A) 100 units.
B) 200 units.
C) 300 units.
D) 400 units.
E) 500 units
7) Comparing the short-run and long-run profit-maximizing positions of a perfectly
competitive
firm, which statement is true?

A) The firm may have unexploited economies of scale in both the short run and the long run.
B) Price will equal marginal cost in the short run, but not necessarily in the long run.
C) Price should equal average cost in the long run, but not necessarily in the short run.
D) The firm will produce at minimum average cost in both the short and long run.
E) Economic profit may exist in the short run and in the long run.

8) If a perfectly competitive firm in the short run is producing where P = ATC = MC, we can
say thatthis firm is
A) earning economic profits.
B) at its profit-maximizing output level.
C) obliged to shut down.
D) on the downward-sloping portion of the demand curve.
E) incurring losses.

9) All of the following pertain to a perfectly competitive market except which one?
A) All firms have realized the possible economies of scale.
B) Consumers can shop for the lowest available price.
C) There is freedom of entry and exit of firms in the industry.
D) Consumers prefer certain brands over others.
E) All firms in the industry are price takers.

Assume the following total cost schedule for a perfectly competitive firm.
Output TVC
TFC
0
0
100
1
40
100
2
70
100
3
120
100
4
180
100
5
250
100
6
330
100
TABLE 9-1
10) The break-even price for the firm depicted in Table 9-1 is
A) $40.
B) $70.
C) $145.
D) $220.
E) $430.

11) When price is constant the competitive firms marginal-revenue curve

A) is a positively sloped straight line, starting from the origin.
B) moves upward to the right and then declines when MC = MR.
C) is the same as the firms TR curve.
D) is a straight line that coincides with the market demand curve.
E) is the same as the firms demand curve.