Microeconomics: Chapter 11 - Perfect Competition

The short-run supply curve of a perfectly competitive firm is based primarily on its

MC curve.

A perfectly competitive firm trying to maximize profits in the short run will expand output a. until marginal cost begins to rise. b. until total revenue equals total cost. c. until marginal cost equals average variable cost. d. as long as marginal revenue is greater than marginal cost.

as long as marginal revenue is greater than marginal cost.

A firm sells a product in a perfectly competitive market. The marginal cost of the product at the current output level of 1,000 units is $2.50. The minimum possible average variable cost is $2. The market price of the product is $2.50. To maximize profits, the firm should a. continue producing 1,000 units. b. decrease production to less than 1,000 units. c. increase production to more than 1,000 units. d. shut down.

continue producing 1,000 units.

A firm sells a product in a perfectly competitive market. The marginal cost of the product at the current output level of 500 units is $1.50. The minimum possible average variable cost is $1. The market price of the product is $1.25. To maximize profits, the firm should a. continue producing 500 units. b. decrease production to less than 500 units. c. increase production to more than 500 units. d. shut down.

decrease production to less than 500 units.

It is a "given" that an individual firm selling in a perfectly competitive market will take the market price because a. the firm's demand curve is downward-sloping. b. there are no good substitutes for the firm's product. c. each producer supplies a negligible fraction of total market. d. product differentiation is reinforced by extensive advertising.

each producer supplies a negligible fraction of total market.

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output level of 800 units is $3.50. The minimum possible average variable cost is $3. The market price of the product is $4. To maximize profits, the firm should a. continue producing 800 units. b. decrease production to less than 800 units. c. increase production to more than 800 units. d. shut down.

increase production to more than 800 units.

A perfectly competitive firm's output is currently such that its marginal revenue is $5 and marginal cost is $4. Assuming profit maximization, the firm should a. cut price and increase output. b. raise price and decrease output. c. leave price unchanged and increase output. d. leave price unchanged and decrease output.

leave price unchanged and increase output.

Clara produces and sells tomatoes in a perfectly competitive market. This implies that Clara's marginal revenue generated from selling an additional unit of tomatoes is always equal to

price.

Which idea is inconsistent with perfect competition? a. price-taking behavior b. product differentiation c. freedom of entry or exit for firms d. a large number of buyers and sellers

product differentiation

The short-run supply curve for a perfectly competitive firm is the a. entire MC curve. b. segment of the MC curve lying below the AVC curve. c. segment of the MC curve lying at and above the AVC curve. d. segment of the AVC curve lying to the right of the MC curve.

segment of the MC curve lying at and above the AVC curve.

T-Shirt Enterprises is operating in a perfectly competitive market. It is producing 3,000 t-shirts and selling them for $10 each. At this level of output, the average total cost is $10.50 and the average variable cost is $10.20. Based on these data, the firm should a. shut down in the short run. b. decrease production to 2,500 t-shirts. c. continue to produce 3,000 t-shirts. d. increase production to 3,500 t-shirts.

shut down in the short run.

If a firm operating in a perfectly competitive industry is confronted with an equilibrium market price of $5, its marginal revenue

will also be $5.