True / False
1. Perfect competition is an ideal market structure.
a.
True
b.
False
True
Moderate
DISC: Perfect competition
United States – BPROG: Analytic
Perfect competition
Perfect Competition Defined
2. Perfectly competitive markets have absolutely no drawbacks.
a.
True
b.
False
False
Moderate
DISC: Perfect competition
United States – BPROG: Analytic
Perfect competition
Perfect Competition Defined
3. Perfect competition forms one extreme of the market structure spectrum.
a.
True
b.
False
True
Easy
DISC: Perfect competition
United States – BPROG: Analytic
Perfect competition
Perfect Competition Defined
4. Perfect competition is characterized by numerous firms.
a.
True
b.
False
True
DISC: Perfect competition
United States – BPROG: Analytic
5. It is relatively easy for a firm to enter a perfectly competitive market.
a.
True
b.
False
True
Moderate
6. Perfectly competitive markets feature relatively high barriers to entry.
a.
True
b.
False
False
Easy
7. Under the theory of perfect competition, firms and buyers know the availability and prices associated with all products
in the market.
a.
True
b.
False
True
Moderate
8. Under perfect competition, firms are relatively ignorant of the actions of their competitors.
a.
True
b.
False
False
Easy
9. In perfect competition there are differences in the products sold by various firms.
a.
True
b.
False
False
Moderate
10. In the long run, a perfectly competitive industry tends to develop differentiated products.
a.
True
b.
False
False
Difficult
11. Perfectly competitive firms are known for being “price makers.”
a.
True
b.
False
False
Easy
12. The market for toothpaste is a good example of perfect competition.
a.
True
b.
False
False
Easy
13. Perfectly competitive markets are not the best at producing the goods that are desired by consumers.
a.
True
b.
False
False
Easy
14. Perfectly competitive markets are not the most efficient type.
a.
True
b.
False
False
Easy
15. A perfectly competitive firm is a “price taker” because it cannot sell its product for more than the market price.
a.
True
b.
False
True
Easy
16. A perfectly competitive firm is a “price maker.”
a.
True
b.
False
False
Moderate
17. A perfectly competitive firm may, under some circumstances, be able to affect the market price.
a.
True
b.
False
False
Easy
18. A perfectly competitive firm has a horizontal demand curve because it can sell as much as it wants at the market price.
a.
True
b.
False
True
Easy
19. The demand curve of a perfectly competitive firm is vertical.
a.
True
b.
False
False
Easy
20. In perfect competition, a firm’s marginal revenue equals the price of the product.
a.
True
b.
False
True
Difficult
21. A perfectly competitive firm will not operate where MC = MR but at MC = AC.
a.
True
b.
False
False
Moderate
22. A firm operating at MC = MR must be making a profit.
a.
True
b.
False
False
Easy
23. A perfectly competitive firm can maximize profits by producing the quantity at which MR exceeds MC by the greatest
amount.
a.
True
b.
False
False
24. In the short run, a perfectly competitive firm can make a profit, a loss, or shut down.
a.
True
b.
False
True
Moderate
25. In the short run, a perfectly competitive firm can make a profit, a loss, or go out of business.
a.
True
b.
False
False
Moderate
26. Once a firm’s marginal revenue curve is known, the output level can be determined.
a.
True
b.
False
False
Moderate
27. The short-run equilibrium output of a competitive firm is found by equating marginal cost with price.
a.
True
b.
False
True
Moderate
28. Total profit of a competitive firm can be found by multiplying profit per unit times units sold.
a.
True
b.
False
True
Easy
29. If a firm sells its output at a price greater than AC, it will earn economic profit.
a.
True
b.
False
True
Easy
30. If a firm sells its output at a price greater than AVC, it will earn economic profit.
a.
True
b.
False
False
Moderate
31. In the short run, a firm may have accounting losses and remain in operation.
a.
True
b.
False
True
Moderate
DISC: Perfect competition
United States – BPROG: Analytic
Perfect competition
The Perfectly Competitive Firm
32. In the short-run if TR < TC, a perfectly competitive firm will always shut down.
a.
True
b.
False
False
Moderate
DISC: Perfect competition
United States – BPROG: Analytic
Perfect competition
The Perfectly Competitive Firm
33. As long as TVC < TR, a firm will have a positive level of output in the short run.
a.
True
b.
False
True
Easy
DISC: Perfect competition
United States – BPROG: Analytic
Perfect competition
The Perfectly Competitive Firm
34. Using only marginal revenue and marginal cost, we can determine whether a firm is incurring a profit or a loss.
a.
True
b.
False
False
Moderate
DISC: Perfect competition
United States – BPROG: Analytic
Perfect competition
The Perfectly Competitive Firm
35. In the short-run, the lowest price that a perfectly competitive firm will accept without closing its doors is found by
examining the average variable cost curve.
a.
True
b.
False
True
Moderate
36. It pays the firm to produce only if total variable costs exceed total revenue.
a.
True
b.
False
False
Difficult
37. In the short run, if price is below AC, maximizing profits really means minimizing total losses.
a.
True
b.
False
True
Difficult
38. The short-run supply curve for a perfectly competitive firm is that portion of the MC curve above the AVC curve.
a.
True
b.
False
True
Easy
39. The short-run supply curve for the perfectly competitive firm is that part of the marginal cost curve that lies above the
average fixed cost curve.
a.
True
b.
False
False
Moderate
40. A perfectly competitive firm’s short-run supply is infinite at the market price.
a.
True
b.
False
False
Easy
41. In the short-run, only a limited number of new firms may enter a perfectly competitive market.
a.
True
b.
False
False
Moderate
42. The short-run market demand schedule in perfect competition is positively sloped.
a.
True
b.
False
False
43. The market demand schedule in perfect competition is horizontal.
a.
True
b.
False
False
Easy
44. The entry of new firms into a perfectly competitive market shifts the demand curve outward.
a.
True
b.
False
False
Moderate
45. Zero economic profit means that the firm’s owners receive no compensation for their investment.
a.
True
b.
False
False
Moderate
46. The opportunity cost of a given investment is the potential earnings forfeited by tying up money in the investment.
a.
True
b.
False
True
Easy
47. Economic profit equals gross earnings minus the firm’s direct costs.
a.
True
b.
False
False
Moderate
48. Zero profit in the economic sense means that firms are earning a normal rate of return.
a.
True
b.
False
True
Moderate
49. A firm that is earning zero economic profit should go out of business.
a.
True
b.
False
False
Moderate
50. In a long-run equilibrium in a perfectly competitive market, the average firm earns positive economic profits.
a.
True
b.
False
False
Easy
51. In a long-run equilibrium in a perfectly competitive market, firms are selling at a price equal to marginal cost.
a.
True
b.
False
True
Easy
52. In a long-run equilibrium in a perfectly competitive market, firms are selling at a price equal to average cost.
a.
True
b.
False
True
Easy
53. In the long run, a perfectly competitive firm maximizes profit so P = MC = AC.
a.
True
b.
False
True
Easy
54. In the long run, a perfectly competitive firm earns no accounting profits.
a.
True
b.
False
False
Easy
55. In long-run equilibrium, a firm in perfect competition has no economic profit.
a.
True
b.
False
True
Moderate
56. An industry supply curve is the horizontal summation of the supply curves of all of the individual firms.
a.
True
b.
False
True
Easy
57. In the long run, any firm may enter or leave a perfectly competitive market.
a.
True
b.
False
True
Easy
58. The number of firms in a perfectly competitive industry is not fixed in the long run.
a.
True
b.
False
True
Moderate
59. For a perfectly competitive firm, the long-run supply curve is the long-run average cost curve.
a.
True
b.
False
True
Moderate
60. In long-run equilibrium in perfect competition, every firm is producing at minimum average cost.
a.
True
b.
False
True
Easy
61. Firms in a perfectly competitive market produce at minimum average cost in the short run and the long run.
a.
True
b.
False
False
Moderate
62. Subsidizing firms that pollute will reduce pollution in the long run.
a.
True
b.
False
False
Easy
DISC: Perfect competition
United States – BPROG: Analytic
Perfect competition
Perfect Competition and Economic Efficiency
63. Perfect competition requires that three conditions be satisfied.
a.
True
b.
False
False
Easy
DISC: Perfect competition
United States – BPROG: Analytic
Perfect competition
Perfect Competition Defined
64. A firm that is operating at a loss may continue to operate for a while because of costs that it will still have to pay even
if production ceases.
a.
True
b.
False
True
Moderate
DISC: Perfect competition
United States – BPROG: Analytic
Perfect competition
The Perfectly Competitive Firm
Multiple Choice
65. A market
a.
may be an organized exchange.
b.
refers to a set of sellers and buyers whose actions affect a commodity’s price.
c.
is that area in which buyers and sellers compete to affect a product price.
d.
All of the above are correct.
Moderate
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Perfect Competition Defined
66. To determine whether a market is perfectly competitive, economists examine the
a.
number of firms in the market.
b.
similarities among the products of the different firms in the market.
c.
ease of entry and exit by firms in the market.
d.
All of the above are correct.
Easy
DISC: Perfect competition
United States – BPROG: Analytic
Perfect competition
Perfect Competition Defined
67. The strength of the competition faced by a company can profoundly affect its
a.
pricing.
b.
output decisions.
c.
input decisions.
d.
All of the above are correct.
Moderate
DISC: Perfect competition
United States – BPROG: Analytic
Perfect competition
Perfect Competition Defined
68. Which of the following is not a characteristic of perfect competition?
a.
Firms and consumers all have perfect information about the good and market.
b.
Sellers can enter the market easily.
c.
All goods sold are identical.
d.
All consumers have identical individual demand curves.
Easy
DISC: Perfect competition
United States – BPROG: Analytic
Perfect competition
Perfect Competition Defined
69. A perfectly competitive firm is a price
a.
giver.
b.
taker.
c.
maker.
d.
leader.
Easy
DISC: Perfect competition
United States – BPROG: Analytic
Perfect competition
Perfect Competition Defined
70. Which of the following is a characteristic of a perfectly competitive market?
a.
a few large firms
b.
firms producing specialized products in order to attract consumers
c.
each individual firm having some control over the market price
d.
a large number of small firms
Easy
DISC: Perfect competition
United States – BPROG: Analytic
Perfect competition
Perfect Competition Defined
71. One of the following is not a characteristic of perfect competition. Which is it?
a.
Firms advertise to increase their market share.
b.
Profits are low in the long run.
c.
Consumers pay little attention to brand names.
d.
Firms pay no attention to their competitors’ output levels.
a
Moderate
DISC: Perfect competition
United States – BPROG: Analytic
Perfect competition
Perfect Competition Defined
72. Which requirement for perfect competition rules out trade associations or other collusive arrangements in which firms
work together to influence price?
a.
Freedom of entry and exit.
b.
Homogeneity of product.
c.
Perfect information.
d.
Numerous small firms and customers.
Moderate
DISC: Perfect competition
United States – BPROG: Analytic
Perfect competition
Perfect Competition Defined
73. Firms in perfect competition are often described as price
a.
takers.
b.
makers.
c.
setters.
d.
leaders.
a
Easy
DISC: Perfect competition
United States – BPROG: Analytic
Perfect competition
Perfect Competition Defined
74. Which of the following most resembles a perfectly competitive market?
a.
the stock market
b.
the publishing industry
c.
the steel industry
d.
the new car market
a
Moderate
DISC: Perfect competition
United States – BPROG: Analytic
Perfect competition
Perfect Competition Defined
75. Perfect competition is the term used to describe
a.
an industry in which all businessmen are honest and accommodating.