Econ 11 Recit, Homework #6 (Gideon P.

Carnaje)
Perfect Competition

1 In a perfectly competitive market a firm has

a) a little influence over market price.
b) influence over market price occasionally.
c) no influence over market price.
d) influence over market price when the harvest is bad.

2 In perfect competition a firm has a demand curve that is

a) negatively sloped.
b) perfectly elastic.
c) positively sloped.
d) perfectly inelastic.

3 When a perfectly competitive firm sells more goods

a) total revenue is constant.
b) total revenue falls.
c) marginal revenue is constant.
d) marginal revenue falls.

4 When a perfectly competitive firm sells fewer goods

a) total revenue is constant.
b) total revenue rises.
c) average revenue is constant.
d) average revenue falls.

5 If the average variable cost of producing a firm’s output is greater than the price at which that
output can be sold
a) the firm should shut down.
b) the firm should increase production.
c) the firm should reduce production a little.
d) the firm should cut the selling price.

6 At a level of output where marginal revenue equals average revenue

a) the firm is making maximum losses.
b) the firm is making maximum profits.
c) the firm is producing maximum output.
d) None of the above is necessarily true.

7 When a profit-maximizing firm can decide how much output to produce

a) it should produce as much output as possible.
b) it should produce output at the level where marginal cost equals marginal revenue.
c) it should produce output at the level where average cost equals average revenue.
d) it should produce output at the level where total revenue is greatest.

8 In a perfectly competitive market

a) each firm is a quantity-adjuster and a price-taker.
b) each firm is a quality-adjuster and a price-taker.
c) each firm is a quality-adjuster and a price-maker.
d) each firm is a quantity-adjuster and a price-maker.

9 The perfectly competitive profit-maximizing firm chooses a level of output at which

 a) price and total cost are equal.
b) price and marginal revenue are equal.
c) price and marginal cost are equal.
d) price and average cost are equal.

10 The perfectly competitive firm’s supply curve is

a) its marginal cost curve.
b) its marginal cost curve for the range of output over which marginal cost is equal to short-run
average cost.
c) its average variable cost curve.
d) its marginal cost curve for the range of output over which marginal cost is above average
variable cost.

11 The industry supply curve is given by

a) the horizontal sum of the marginal cost curves of all firms in the industry above average
variable cost.
b) the vertical sum of the short-run average cost curves of all firms in the industry above average
variable cost.
c) the horizontal sum of the short-run average cost curves of all firms in the industry above
average variable cost.
d) the vertical sum of the marginal cost curves of all firms in the industry above average variable
cost.

12 In short-run equilibrium the firm in perfect competition

a) cannot make losses.
b) always makes pure profits.
c) must replace its capital as it wears out.
d) may just be covering its total costs.

13 Competitive equilibrium is allocatively efficient because

a) consumers’ surplus is greater than producers’ surplus.
b) producers’ surplus is greater than consumers’ surplus.
c) it maximizes the sum of consumers’ and producers’ surplus.
d) potential surplus is still available.

14 The long-run equilibrium of a competitive industry occurs when

a) firms are earning zero profits.
b) new firms are joining the industry.
c) some firms are leaving the industry.
d) firms are earning pure profits.

15 In long-run equilibrium
a) extra-marginal firms persist.
b) all firms are marginal firms.
c) a few firms are marginal firms.
d) consumers do not benefit from lower costs.

16 A firm in short-run equilibrium cannot be in long-run equilibrium

a) if its long-run average cost curve lies below the market price at higher levels of output.
b) if its short-run average cost curve lies below the market price at higher levels of output.
c) if its long-run average cost curve lies above the market price at lower levels of output.
a) if its short-run average cost curve lies above the market price at lower levels of output.

17 If input costs fall

a) market price rises as firms join the industry in the long run.
 b) marginal firms make losses.
c) market price falls as firms join the industry in the long run.
d) market price rises as firms leave the industry in the long run.

18 When the market demand curve shifts to the left

a) long-run equilibrium continues.
b) firms face a lower market price.
c) firms face a higher market price.
d) extra-marginal firms make a greater pure profit.

19 As new firms join a perfectly competitive industry

a) market price rises.
b) consumer demand falls.
c) consumer demand rises.
d) market price falls.

20 In the long run, perfectly competitive industries

a) may have unexploited economies of scale.
b) may suffer diseconomies of scale.
c) have no unexploited economies of scale.
d) are dominated by large firms.

21 The perfect competition model

a) provides the benchmark for the optimal allocation of resources.
b) is applicable to most retail markets for goods and services.
c) is more applicable in less developed economies.
d) is applicable when goods have well-established brand names.

22 In the perfect competition model buyers are assumed

a) to be price makers.
b) to have perfect knowledge of prices.
c) to have only small sums of money.
d) to prefer advertised goods.

23 For the perfectly competitive firm

a) price equals average variable cost.
b) price influences the amount a firm may sell.
c) price is determined by the firm’s profit-maximizing behaviour.
d) price equals marginal revenue.

24 The profit-maximizing firm produces at a level of output where

a) total revenue equals total cost.
b) the difference between total revenue and total cost is greatest.
c) average revenue equals total cost.
d) the difference between marginal revenue and total cost is greatest.

25 A price which leads firms to leave the industry eventually

a) is below average revenue.
b) is below marginal revenue.
c) is below average total cost.
d) is below marginal cost.