Question

1)A perfectly competitive firm computes total revenue as A)MC x MR

B)Price x Fixed Costs

c)Price x MC

D)Price x Quantity

2)A perfectly competitive firm should shut down when

a)it cannot cover its total costs

b)it cannot cover its total revenue

c)it cannot cover its marginal revenue

d)it cannot cover its variable costs

3)Perfectly competitive firm Doggies Paradise Inc. sells winter coats for dogs. Dog coats sell for $62 each. The fixed costs of production are $150. The total variable costs are $64 for one unit, $84 for two units, $114 for three units, $184 for four units, and $270 for five units. What is the marginal cost of going from two units of output to three units of output?

4)Which of the following is true about demand in a perfectly competitive environment?

A)Price < MR

B)Price = MC

C)MC < Price

d)MR > MC

5)A firm may enter a perfectly competitive market when...

A)it sees short run economic profits

B)it sees short run economic losses

C)it sees short run economic costs

D)the price is below the shutdown point

6)Perfectly competitive markets...

A)use fixed cost pricing

B)display allocation efficiency

C)display allocation inefficiency

d)avoid marginal cost pricing

7)Which is of the following is NOT an assumption of perfect competition?

A)imperfect information

B)homogeneous product

C)perfect information

d)no barriers to entry

8)In the long run , a perfectly competitive firm can expect...

a)negative economics profits

B)zero economic profits

C)many fixed inputs

D)positive economic profits

9)What rule does a perfectly competitive firm use to determine its profit maximizing level of output?

MC = ATC

MR = TR

MR = AFC

MC = MR

10)Firms is a perfectly competitive market are.

unaffected by price

unaffected by costs

price takers

price setters

Answer 1

1.

D)Price x Quantity

Explanation :

Total revenue is the quantity demanded multiply by price.

2.

d)it cannot cover its variable costs

Explanation :

Firm shutdowns when Price is below average variable cost. Because when firm operates when price is below average variable cost, loss will be equal to fixed cost plus some portion of variable cost. When it shutdown, total loss will be equal to fixed cost.

3.

Marginal cost =change in total cost or variable cost /change in quantity

=(114-84)/(3-2)

=30.

4.

B)Price = MC

Explanation :

Firm maximises it's profit where MR equals MC and in perfect competition price is equals to MR. So firm produce where price =MC.

5.

A)it sees short run economic profits

Explanation :

When there is economic loss, firm will exit the industry. When there is positive economic profit, new firm have incentive to enter the market.

6.

B)display allocation efficiency

Explanation :

Perfectly competitive firm produce where price =MC. So it is allocatively efficient.

7.

A)imperfect information

Explanation :

Perfectly competitive firm produce homogeneous product. And there is perfect information.

8.

B)zero economic profits

Explanation :

Because of free entry and exit in the market, perfectly competitive firm earns zero economic profit in long run.

9.

MC = MR

Explanation :

Firm maximises it's profit where MR equals MC.

10.

price takers

Explanation:

Perfectly competitive firm produce homogeneous product and there is free entry and exit. They are price taker.