Ch. 6 Quiz

The most important challenge facing a firm in a perfectly competitive market is deciding:

how much to produce.

A rational seller will sell another unit of output:

if the cost of making another unit is less than the revenue gained from selling another unit.

One implication of the shape of the demand curve facing a perfectly competitive firm is that:

if the firm increases its price above the market price, it will earn zero revenue.

A firm's profit equals:

(P − ATC) × Q [(price minus average total cost) times the quantity sold].

Which of the following is a defining characteristic of all perfectly competitive markets?

All firms sell the same standardized product.

Which of the following statements is true for both Microsoft and a locally owned restaurant?

Both seek to maximize profits.

Which of the following is NOT a characteristic of a perfectly competitive market?

Each firm in the market sells a somewhat different variant of the good.

Suppose a firm produces the level of output at which the marginal cost of the last unit produced equals the price of the good. Which of the following statements is always true?

The firm should shutdown if its total revenue is less than its variable cost.

Which of the following is the most likely to be a variable factor of production at a university?

The number of librarians

The long run is best defined as:

a period of time sufficiently long that all factors of production are variable.

The primary objective of most private firms is to:

maximize profit.

Fred runs a fishing lodge and has a very profitable business during the summer. In the fall, the number of guests at the lodge starts to decline. Fred should keep the lodge open:

only during those months in which his total revenue exceeds his variable cost.

If the market for butter is perfectly competitive, then the demand curve facing a firm that produces butter will be:

perfectly elastic.

Total revenue minus both explicit and implicit costs defines a firm's:

profit.

Last year, Casey grew fresh vegetables, which she sold at her local farmers market, but this year, Casey did not plant any vegetables and went to work at a bank instead. If Casey's decision to change careers did not affect the price of vegetables at the farmers market, then this suggests that:

the market for vegetables is perfectly competitive.