True/False
Indicate whether the
sentence or statement is true or false.
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1.
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The only requirement for a market to be perfectly
competitive is for the market to have many buyers and sellers.
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2.
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For a competitive firm, marginal revenue equals the
price of the good it sells.
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3.
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If a competitive firm sells three times the amount
of output, its total revenue also increases by a factor of three.
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4.
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A firm maximizes profit when it produces output up
to the point where marginal cost equals marginal revenue.
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5.
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If marginal cost exceeds marginal revenue at a
firm's current level of output, the firm can increase profit if it increases its level of
output.
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6.
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A competitive firm's short-run supply curve is
the portion of its marginal cost curve that lies above its average total cost curve.
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7.
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A competitive firm's long-run supply curve is
the portion of its marginal cost curve that lies above its average variable cost curve.
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8.
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In the short run, if the price a firm receives for
a good is above its average variable costs but below its average total costs of production, the firm
will temporarily shut down.
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9.
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In a competitive market, both buyers and sellers
are price takers.
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10.
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In the long run, if the price firms receive for
their output is below their average total costs of production, some firms will exit the
market.
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11.
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In the short run, the market supply curve for a
good is the sum of the quantities supplied by each firm at each price.
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12.
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The short-run market supply curve is more elastic
than the long-run market supply curve.
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13.
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In the long run, perfectly competitive firms earn
small but positive economic profits.
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14.
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In the long run, if firms are identical and there
is free entry and exit in the market, all firms in the market operate at their efficient
scale.
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15.
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If the price of a good rises above the minimum
average total cost of production, positive economic profits will cause new firms to enter the market,
which drives the price back down to the minimum average total cost of production.
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Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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16.
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Which of the following is not a characteristic of a
competitive market?
a. | All of these answers are characteristics of a
competitive market. | b. | There are many
buyers and sellers in the market. | c. | The goods offered
for sale are largely the same. | d. | Firms generate
small but positive economic profits in the long run. | e. | Firms can freely enter or exit the
market. |
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17.
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Which of the following markets would most closely
satisfy the requirements for a competitive market?
a. | electricity | b. | cable television | c. | cola | d. | milk | e. | All of these
answers represent competitive markets. |
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18.
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If a competitive firm doubles its output, its total
revenue
a. | doubles. | b. | more than doubles. | c. | less than
doubles. | d. | cannot be determined because the price of the good may
rise or fall. |
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19.
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For a competitive firm, marginal revenue
is
a. | total revenue divided by the quantity
sold. | b. | equal to the quantity of the good
sold. | c. | average revenue divided by the quantity
sold. | d. | equal to the price of the good
sold. |
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20.
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The competitive firm maximizes profit when it
produces output up to the point where
a. | price equals average variable
cost. | b. | marginal revenue equals average
revenue. | c. | marginal cost equals total
revenue. | d. | marginal cost equals marginal
revenue. |
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21.
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If a competitive firm is producing a level of
output where marginal revenue exceeds marginal cost, the firm could increase profits if
it
a. | decreased production. | b. | maintained production at the current level. | c. | temporarily shut down. | d. | increased
production. |
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22.
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In the short run, the competitive firm's
supply curve is the
portion of the marginal-cost curve that lies above the average variable cost
curve.
a. | upward-sloping portion of the average total cost
curve. | b. | upward-sloping portion of the average variable cost
curve. | c. | portion of the marginal cost curve that lies above the
average total cost curve. | d. | entire marginal
cost curve. | e. | portion of the
marginal-cost curve that lies above the average variable cost
curve. |
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23.
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In the long run, the competitive firm's supply
curve is the
a. | entire marginal cost curve. | b. | upward-sloping portion of the average total cost
curve. | c. | portion of the marginal cost curve that lies above the
average total cost curve. | d. | upward-sloping
portion of the average variable cost curve. | e. | portion of the
marginal cost curve that lies above the average variable cost
curve. |
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24.
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A grocery store should close at night if
the
a. | variable costs of staying open are less than the total
revenue due to staying open. | b. | total costs of
staying open are less than the total revenue due to staying open. | c. | variable costs of staying open are greater than the total revenue due to
staying open. | d. | total costs of
staying open are greater than the total revenue due to staying
open. |
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25.
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The long-run market supply curve
a. | is always more elastic than the short-run market supply
curve. | b. | is always perfectly elastic. | c. | has the same elasticity as the short-run market supply
curve. | d. | is always less elastic than the short-run market supply
curve. |
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26.
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In the long-run, some firms will exit the market if
the price of the good offered for sale is less than
a. | marginal revenue. | b. | marginal cost. | c. | average total
cost. | d. | average revenue. |
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27.
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If all firms in a market have identical cost
structures and if inputs used in the production of the good in that market are readily available,
then the long-run market supply curve for that good should be
a. | downward sloping. | b. | perfectly inelastic. | c. | upward
sloping. | d. | perfectly
elastic. |
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28.
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If an input necessary for production is in limited
supply so that an expansion of the industry raises costs for all existing firms in the market, then
the long-run market supply curve for a good could be
a. | perfectly inelastic. | b. | perfectly elastic. | c. | upward
sloping. | d. | downward sloping. |
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29.
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If the long-run market supply curve for a good is
perfectly elastic, an increase in the demand for that good will, in the long run, cause
a. | an increase in the number of firms in the market but no
increase in the price of the good. | b. | an increase the
price of the good and an increase in the number of firms in the market. | c. | an increase the price of the good but no increase in the number of firms in
the market. | d. | no impact on
either the price of the good or the number of firms in the
market. |
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30.
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In long-run equilibrium in a competitive market,
firms are operating at
a. | the minimum of their average-total-cost
curves. | b. | all of these answers are
correct. | c. | their efficient scale. | d. | zero economic profit. | e. | the intersection
of marginal cost and marginal revenue. |
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