Chapter 23: Perfect Competition

The products sold by the firms in the market are homogeneous. Which of the following is NOT a characteristic of a perfectly competitive market? The products sold by the firms in the market are homogeneous. There are many buyers and sellers in the market. It is difficult for a firm to enter or leave the market. Each firm is a price taker. Answer: C

Perfect competition is characterized by many buyers and sellers. a small number of firms. differentiated products of firms in the industry. high barriers to entry. Answer: A

Under the perfectly competitive market structure, the demand curve of an individual firm is perfectly inelastic. downward sloping. relatively inelastic. perfectly elastic. Answer: D

For a firm in a perfectly competitive industry, the demand curve for its own product is horizontal. vertical. upward sloping. downward sloping. Answer: A

For a firm in a perfectly competitive market, average revenue equals average cost. the change in total revenue. the market price. price divided by quantity. Answer: C

The price per unit times the total quantity sold is average revenue. marginal revenue. total revenue. price revenue. Answer: C

Which is always true at a firm's profit-maximizing rate of production? Total Revenue = Total Costs The total revenue curve lies below the total cost curve. Marginal Revenue > Marginal Cost Marginal Revenue = Marginal Cost Answer: D

In a perfectly competitive industry, the firm's marginal revenue curve is downward sloping. upward sloping. vertical. horizontal. Answer: D

Refer to the table below Refer to the table below. If the price is $5, the perfectly competitive firm should produce 104 units. 105 units. 106 units. 107 units. Answer: A

Economic profits are positive and equal to ABCG. Refer to the figure below. If the market price is equal to A, which statement can be made about economic profits? Economic profits are positive and equal to ABCG. Economic profits are positive and equal to ABEF. Economic profits are negative and equal to GCEF. Economic profits are negative and equal to ABQ*0. Answer: A

When a firm earns zero economic profits, it cannot continue to produce. it has not covered its opportunity costs. it has a positive accounting profit. it has average revenue that is less than average cost. Answer: C

In the figure below, if price is equal to P4, the firm will earn positive economic profits. incur an economic loss. earn zero economic profits. shut down. Answer: A

an increase in total fixed costs a decrease in input prices Which of the following could generate economic profits for perfectly competitive firms in the short run, if they initially earn zero economic profits? a fall in demand a unit tax on output an increase in total fixed costs a decrease in input prices Answer: D

The short-run industry supply curve is found by taking the inverse of the industry demand curve. horizontally summing the average total cost curve of all firms in the industry. adding up the quantities supplied at each price by each firm in the industry. adding up the quantities supplied at each price by each of the firms in the industry that are making a profit. Answer: C

lower both price and its rate of output. shut down. A firm is currently producing at the rate of output at which total revenues just cover its total variable costs. If demand falls, the firm should lower both price and its rate of output. shut down. increase its rate of output to make up for the lower price. not change its rate of output because it is still covering its variable costs. Answer: B

A perfectly competitive industry's market price is found by finding the point on the market demand curve where the largest number of units will be purchased. locating the intersection of the market demand and market supply curves. the horizontal summation of all the industry firms' individual supply curves. identifying the price at which each firm realizes its largest economic profit. Answer: B

are ways of conveying information. do not involve economic profits. Market signals are ways of conveying information. do not involve economic profits. are best ignored by investors. do not involve economic losses. Answer: A

Economic profits and losses are true market signals because they convey information in an asymmetrical fashion. convey information about rewards people should anticipate experiencing by shifting resources from one activity to another. convey information to public officials about where to encourage people to invest and what skills people should develop. cause people to move into careers in both undesirable and desirable industries with equal ease. Answer: B

the firm's industry is not in long-run equilibrium. If a perfectly competitive firm has economic profits greater than zero, then we know that the firm's industry is not in long-run equilibrium. the firm's industry is in long-run equilibrium. the firm is producing at the bottom of the average total cost curve. the firm will reduce output. Answer: A

Economic efficiency means the same as technical efficiency. that all firms within a single competitive industry are producing at the same level of output. that it is impossible to increase the output of any good without lowering the total value of the output of the economy. that high-tech methods of production are the most efficient. Answer: C