Perfectly competitive firms are said to be small
Subject: Economics / General Economics
Question
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Question 1
Perfectly competitive firms are said to be "small." Which of the following best describes this smallness?
Answer
The individual firm is unable to affect market price through its output decisions.
The individual firm must have fewer than 10 employees.
The individual firm faces a downward-sloping demand curve.
The individual firm has assets of less than $2 million.
Question 2
The market structure that is most similar to the model of perfect competition is:
Answer
monopolistic competition.
oligopoly.
monopsony
monopoly.
Question 3
The fact that the outputs of the firms in a perfectly competitive market are undifferentiated means that:
Answer
consumers don't care which supplier they buy from.
purchase decisions are based only on price.
the quality of each producer's output is the same.
all of the above.
Question 4
The manager of a perfectly competitive firm has to decide:
Answer
the price the firm should charge for its output.
the quantity of output the firm should produce and the price it should charge.
the quantity of output the firm should produce.
neither the quantity of output the firm should produce nor the price it should charge because the market makes both of these decisions.
Question 5
The demand curve faced by the individual perfectly competitive firm is:
Answer
vertical.
upward sloping.
horizontal.
downward sloping.
Question 6
In order to maximize its profits, a price-taking firm should produce the level of output at which:
Answer
marginal revenue = marginal cost.
average revenue = average cost.
total revenue = total cost.
variable revenue = variable cost.
Question 7
Assume a perfectly competitive firm is producing a level of output at which MR > MC. What should the firm do to maximize its profits?
Answer
The firm should increase price.
The firm should hire less labor.
The firm should increase output.
The firm should do nothing it wants to maximize the difference between MR and MC in order to maximize its profits.
Question 8
A firm will earn zero economic profit when, at the firm's profit-maximizing level of output:
Answer
MR = MC > ATC.
P = AFC.
P = AVC.
P = ATC.
Question 9
When a firm is earning positive economic profit:
Answer
price is greater than average total cost.
price equals average total cost.
price is less than average total cost.
price is greater than or less than average total cost depending on the level of output.
Question 10
When price is less than average variable cost at the profit-maximizing level of output, a firm should:
Answer
continue to produce the level of output at which marginal revenue equals marginal cost if it is operating in the long run.
shutdown, because it cannot even cover all of its variable costs let alone its fixed costs if it stays in business.
shutdown, because it will lose nothing in that case.
continue to produce the level of output at which marginal revenue equals marginal cost if it is operating in the short run.
Question 11
Assume that at the current market price, a perfectly competitive firm's profit-maximizing level of output yields total revenues that are just equal to total costs. Which of the following statements applies to this firm?
The firm should increase its explicit costs to reduce its tax burden.
The firm should continue to operate in the short run to minimize losses, but shut down if things don't improve over the long run.
The firm is earning zero economic profit and should continue to operate.
The firm should shut down right now.
