Econ Quiz #5

Joe's Garage operates in a perfectly competitive market. At the point where the marginal cost equals marginal revenue, ATC= $20, AVC= $15, and the price per unit is $10. In this situation,

Joe's Garage should shut down immediately

For perfectly competitive firms, what is relationship among market price, average revenue, and marginal revenue?

P= AR = MR

Which of the following statements is correct regarding a firm's decision-making?

The decision to shut down is a short-run decision, whereas the decision to exit is a long-run decision

Which of the following is not characteristic of perfect competition? a. many buyers and sellers b. ability to control price c. standardized (identical) products d. free entry and exit of firms

b. ability to control the price

When firms are said to be price takers, it implies that if a firm raises its price,

buyers will go elsewhere

The textile industry is composed of a large number of small firms. In recent years, these firms have suffered economic losses and many sellers have left the industry. Economic theory suggests that these conditions will

cause the market supply to decline and the price of textiles to rise

Which of the following firms is most likely to be a perfectly competitive firm? a. one of the three largest Us automakers b. one of the cellphone service carriers c. a public school operated by the government d. a soybean farmer

d. a soybean farmer

The demand curve in a purely competitive industry is ____________ while the demand curve to a single firm in that industry is _____________.

downsloping, perfectly elastic

Which of the following represents the firm's long-run condition for exiting a market?

exit if P < ATC

Firms that shut down in the short run are unable to avoid their

fixed costs

The entry of new firms into a competitive market will

increase market supply and decrease market price

At Paula's Pizza, the marginal revenue of the last pizza produced is $12. The marginal cost of the last pizza produced is $10. In order to increase profits, Paula should:

increase output

If a firm in a competitive market increases its output by 20 percent, the price of its output is likely to...

remain unchanged

When market conditions in a competitive industry are such that firms cannot cover their total production costs, then...

some firms will exit the market, causing prices to rise until the remaining firms can cover their total production costs

The short-run supply curve for a purely competitive firm is:

the segment of the MC curve lying above the AVC curve

In the long run, each firm in a competitive industry earns

zero economic profits