Question

QUESTION 1

1. Which of the following is not a condition for perfect competition?

   	a.	Firms are protected by barriers to entry.
   	b.	Firms sell a standardized product.
   	c.	Firms take prices as given.
   	d.	Firms have perfect information.

1 points   

QUESTION 2

1. The profit maximizing output level for a perfectly competitive firm is always where

   	a.	MC = ATC.
   	b.	P = AVC.
   	c.	P = MC.
   	d.	MC = AVC.

1 points   

QUESTION 3

1. If a firm's demand curve falls below its AVC curve, then the firm should

   	a.	set price = marginal cost.
   	b.	operate in the short run but not the long run.
   	c.	shut down now.
   	d.	shutdown in the long-run.

1 points   

QUESTION 4

1. The demand curve facing a perfectly competitive firm is

   	a.	downward sloping.
   	b.	perfectly inelastic.
   	c.	unit elastic
   	d.	perfectly elastic.

1 points   

QUESTION 5

1. Say a competitive firm is producing at point where ATC = $10, AVC = $2. If the firm charges $5 for its output, then in the short-run this firm should

   	a.	continue to operate.
   	b.	shutdown production.
   	c.	exit the industry.
   	d.	try to reduce its fixed costs.

1 points   

QUESTION 6

1. If the demand curve falls below the ATC curve but lies above AVC, then the firm should

   	a.	should shut down.
   	b.	set price = marginal cost.
   	c.	operate in the short run but not the long run.
   	d.	operate in the short run and the long run.

1 points   

QUESTION 7

1. In general, economists assume that firms

   	a.	maximize accounting profit.
   	b.	maximize revenue.
   	c.	maximize sales.
   	d.	maximize economic profit.

1 points   

QUESTION 8

1. A perfectly competitive firm faces a price of $10 and its cost functions are given as: MC=AVC=2Q, ATC=2Q+4/Q. The firm will produce quantity of:

   	a.	0 (shutdown)
   	b.	Cannot be determined
   	c.	2
   	d.	5

1 points   

QUESTION 9

1. The output where MC = ATC is called the

   	a.	shutdown point.
   	b.	revenue maximizing point.
   	c.	break-even point.
   	d.	profit maximizing point.

1 points   

QUESTION 10

1. In a competitive industry, the industry's short-run supply curve is

   	a.	determined by the average total cost curve.
   	b.	determined by the average variable cost curve.
   	c.	the horizontal sum of the marginal cost curves.
   	d.	the vertical sum of the marginal cost curves.

Answer 1

1. Perfect competition is a market characterized by no barriers for the firms to enter. Any firm can enter the market anytime.

Thus, Option A is the correct answer.

2. A firm in the perfect competition is in equilibrium at a point where MC = MR. Since, in the case of perfect competition the prices are fixed and taken by the firms, P = AR = MR

Thus, the firm maximizes the output at a level where P = MC

Option C is the correct answer.

3. A firm in the perfect competition should shut down at a point where it is not able to cover even it's variable costs. Now, given that the firm's demand curve is below its AVC curve which implies that the firm is not able to cover its entire variable cost.

Thus, in this case, the firm should shut down.

Option C is the correct answer.

4. The demand curve facing a perfectly competitive firm is perfectly elastic and horizontal.

Option D is the correct answer.