Perfect Competition PQ

Which of the following is not a characteristic of a perfectly competitive market? small number of sellers no barriers to entry identical products actions of each firm have no impact on the market

small number of sellers

Which of the following most resembles a perfectly competitive industry? the U.S. steel industry the credit card industry retail clothing stock trading

stock trading

(T/F) Marginal revenue is equal to the change in output divided by the change in total revenue.

False

(T/F) Perfectly competitive firms are "price makers."

False

(T/F) If a perfectly competitive firm generates total revenues of $12,000 with total variable costs of $9,000 and total fixed costs of $4,000, the firm should shut down in the short run.

False As long as a firm is generating enough revenue to cover variable costs, the firm should continue operating in the short run. If the firm shuts down, it will have to continue to pay fixed costs such as rent in the short run. However, if the firm continues to operate, its revenues will cover all variable costs with some revenue left over to pay part of the fixed costs. Continuing to operate is the better option of the two.

Which of the following is a characteristic of a perfectly competitive market? small number of sellers no barriers to entry differentiated products actions of each firm have a substantial impact on the market

No barriers to entry

(T/F) For a perfectly competitive firm, marginal revenue is always equal to demand.

True

(T/F) For a perfectly competitive firm, the firm's demand curve equals the market's equilibrium price.

True

(T/F) The demand curve for a perfectly competitive firm is perfectly elastic.

True

(T/F) If a perfectly competitive firm generates revenues totaling $5,000 with variable costs totaling $5,300 and fixed costs totaling $500, the firm should shut down in the short run.

True, If the firm is generating enough revenue to cover variable costs, the firm should continue operating in the short run. However, if the firm cannot even cover its variable costs, it would be better off shutting down operations immediately. Consider the two options: If the firm continues to operate, it will have to find another way to pay all of the $500 in fixed costs as well as the $300 in variable costs not covered by revenues ($5,000-$5,300). If the firm shuts down immediately, it will only have to find another way to pay the $500 in fixed costs. Neither option is very good but shutting down is the better option of the two.

If the average firm in a perfectly competitive industry is currently generating an economic loss, which of the following would be expected to occur? - new firms will enter the market increasing price and profits - new firms will enter the market decreasing price and profits - existing firms will exit the market increasing price and profits - existing firms will exit the market decreasing price and profits - none of the above

existing firms will exit the market increasing price and profits

Which of the following industries most resembles perfect competition? farming auto production pharmaceuticals oil refining

farming

If the average firm in a perfectly competitive industry is currently generating an economic profit, which of the following would be expected to occur? - new firms will enter the market increasing price and profits - new firms will enter the market decreasing price and profits - existing firms will exit the market increasing price and profits - existing firms will exit the market decreasing price and profits - none of the above

new firms will enter the market decreasing price and profits

Which of the following industries most resembles perfect competition? book publishing online auction sales wireless service diamond mining

online auction sales