Econ Exam 3 (Firms in perfect competition)

If a perfectly competitive gardening shop sells 30 evergreen bushes at $10 per bush, its marginal revenue is

A) 10 dollars B) more than 10 dollars C) less than 10 dollars D) 300 dollars Answer: A

The lowest point on a perfectly competitive firms short run supply curve corresponds to the minimum point on the ______ curve

A) ATC B) AVC C) AFC D) MC Answer: B

In the short run, a perfectly competitive firm produces output and earns ZERO economic profit if

A) P < ATC B) P = ATC C) P <MC D) P > ATC Answer: B

The perfectly competitive model assumes all of the following EXCEPT

A) a great number of buyers B) easy entry to and exit from the market C) a standardized product D) that firms attempt to maximize their total revenue Answer: D

The competitive model assumes all of the following EXCEPT

A) a large number of buyers B) easy entry to and exit from the market C) standardized product D) patents and copyrights that serve as barriers to entry into the industry Answer: D

Which of the following statements are NOT characteristics of perfect competition?

A) all firms produce the same standardized product B) there are many producers and each has only a small market share C) there are many producers, one firm has a 25% market share, and all of the remaining firms have a market less than 2% each D) there are no obstacles to entry into or exit from the industry Answer: C

Zoe's bakery determines that P < ATC and P > AVC. In the short run, Zoe should:

A) continue to operate even though she is taking an economic loss B) continue to operate as she is making an economic profit C) shut down immediately as she is taking an economic loss D) raise the price until she has maximized her profits Answer: A

The short run supply curve for a perfectly competitive firm is its

A) demand curve above its marginal revenue curve B) marginal revenue curve to the right of its marginal cost curve C) marginal cost curve above its average variable cost curve D) average total cost curve below its marginal cost curve Answer: C

Which of the following is TRUE?

A) if price falls below average variable cost, the firm will shut down in the long run B) total revenue and marginal revenue are the same in perfect competition C) economic profit per unit is found by subtracting MC from price D) economic profit is always positive in the long run Answer: A

Marginal revenue:

A) is the slope of the average revenue curve B) equals the market price in perfect competition C) is the change in quantity divided by the change in total revenue D) is the price divided by the change in quantity Answer: B

In perfect competition, the assumption of easy entry and exit implies that in the _____ run all firms in the industry will earn _____ economic profits

A) long, zero B) short, positive C) short, zero D) long, positive Answer: A

Consider a perfectly competitive firm in the short run. Assume that it is sustaining economic losses but continues to produce at the profit maximizing output. Which statement is FALSE?

A) marginal cost is less than average total cost B) marginal cost is equal to marginal revenue C) price is equal to marginal cost D) marginal cost is less than average variable cost Answer: D

A perfectly competitive firm will maximize profits when the

A) marginal revenue equals marginal cost B) marginal revenue is lower than average variable cost C) price is lower than marginal cost D) price is higher than marginal cost Answer: A

The demand curve for a perfectly competitive firm is

A) perfectly inelastic B) perfectly elastic C) downward sloping D) relatively but not perfectly elastic Answer: B

In a perfectly competitive industry, the market demand curve is usually

A) perfectly inelastic B) perfectly elastic C) downward sloping D) relatively elastic Answer: C

People in the eastern part of Beirut are prevented by border guars form traveling to the western part of Beirut to shop for or sell food. This situation violates the prefect competition assumption of

A) price setting behavior B) a small number of buyers and sellers C) differentiated goods D) ease of entry and exit Answer: D

If the price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will

A) produce at a loss B) produce at a profit C) shut down production D) produce more than the profit maximizing quantity Answer: B

Which of the following is TRUE

A) profit per unit is price minus MC B) total economic profit is per unit profit times quantity C) if price is less than ATC the firm will break even in the short run D) if price is less than marginal cost the perfectly competitive firm should raise the price and increase output Answer: B

Marginal revenue is a firm's:

A) ratio profit to quantity B) ratio of average revenue to quantity C) price per unit times the number of units sold D) increase in total revenue when it sells an additional unit of output Answer: D

The break even price for a perfectly competitive firm is equal to

A) the minimum value of average variable cost B) the marginal revenue provided that marginal revenue is equal to marginal cost C) the average fixed cost at the given output level D) the minimum value of average total cost Answer: D

During the summer, Alex runs a mowing service and lawn mowing is a perfectly competitive industry. In the short run, Alex will shut down if

A) the total revenues can't cover fixed costs B) the total revenues can't cover variable costs C) the total revenues can't cover total costs D) the price exceeds the average total cost Answer: B

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

Products are differentiated

What is a sunk cost

a cost that has already been incurred and cannot be recovered (paying rent, cannot be refunded)

In the model of perfect competition

no individual or firm has enough power to affect price

A perfectly competitive firm is a

price taker

If a Florida strawberry wholesaler operates in a perfectly competitive market, that wholesaler will have a ____ share of the market and consumers will consider their strawberries to be ___ therefore _____ advertising will take place in this market

small, standardized, little or no