PRACTICE FOR PERFECT COMPETITION Fatma Nur Karaman MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) What is the difference between perfect competition and monopolistic competition? 1) A) In monopolistic competition, firms produce identical goods, while in perfect competition, firms produce slightly different goods. B) Perfect competition has a large number of small firms while monopolistic competition does not. C) Perfect competition has no barriers to entry, while monopolistic competition does. D) Perfect competition has barriers to entry while monopolistic competition does not. E) In perfect competition, firms produce identical goods, while in monopolistic competition, firms produce slightly different goods. 2) One requirement for an industry to be perfectly competitive is that 2) A) there are no restrictions on entry into or exit from the market. B) the many firms sell slightly different products. C) there are many firms selling different products. D) sellers and buyers have imperfect information about prices. E) there are multiple restrictions on entry into or exit from the market. 3) A monopoly occurs when 3) A) one firm sells a good that has no close substitutes and a barrier blocks entry for other firms. B) there are many firms producing the same product. C) a few firms control the market. D) each of many firms produces a product that is slightly different from that of the other firms. E) one firm is larger than the many other firms that make an identical product. 4) The U.S. oil industry has only a few firms in it, so an economists is likely to describe the industry as 4) A) an oligopoly. B) a monopoly. C) perfectly competitive. D) monopolistically competitive. E) Both answers C and D can be correct. 5) The four market types are 5) A) perfect competition, imperfect competition, monopoly, and duopoly. B) oligopoly, monopsony, monopoly, and imperfect competition. C) oligopoly, oligopolistic competition, monopoly, and perfect competition. D) perfect competition, imperfect competition, monopoly, and oligopoly. E) perfect competition, monopoly, monopolistic competition, and oligopoly. 1
6) The above figure illustrates a perfectly competitive firm. Curve A represents the 6) A) ATC curve. B) MR curve. C) MC curve. D) AVC curve. E) AFC curve. 7) The above figure illustrates a perfectly competitive firm. Curve B represents the 7) A) MC curve. B) AFC curve. C) ATC curve. D) MR curve. E) AVC curve. 8) The above figure illustrates a perfectly competitive firm. Curve C represents the 8) A) market demand curve. B) AFC curve. C) MR curve. D) MC curve. E) ATC curve. 9) In the long run, a perfectly competitive firm will 9) A) produce but incur an economic loss. B) be able to make an economic profit. C) make zero economic profit. D) not produce and will incur an economic loss equal to its total fixed cost. E) not produce but not incur an economic loss. 2
10) The above figure illustrates a perfectly competitive firm. If the market price is $40 a unit, to maximize its profit (or minimize its loss) the firm should A) produce 30 units. B) produce more than 30 units and less than 40 units.. C) produce 40 units. D) produce more than 10 and less than 30 units. E) shut down. 11) The above figure illustrates a perfectly competitive firm. If the market price is $10 a unit, to maximize its profit (or minimize its loss) the firm should A) shut down. B) produce 40 units. C) produce more than 30 units and less than 40 units. D) produce between 10 and less than 30 units. E) produce 30 units. 10) 11) 12) If a firm shuts down, it 12) A) makes zero economic profit. B) incurs an economic loss equal to its total variable cost. C) makes a normal profit. D) incurs an economic loss equal to its total fixed cost. E) might make an economic profit, zero economic profit, or incur an economic loss. 13) A perfectly competitive firm will shut down when the price is just below the minimum point on the 13) A) average total cost curve. B) marginal cost curve. C) average variable cost curve. D) marginal revenue curve. E) average fixed cost curve. 3
14) If there are 1,000 identical rice farmers who are each willing to supply 200 bushels of rice at $2 per bushel, what price and quantity combination is a point on the market supply curve for rice? A) $2,000 and 1,000 bushels B) $2 and 200 bushels C) $2 and 1,000 farmers D) $2 and 200,000 bushels E) $2,000 and 200,000 bushels 14) 15) If a perfectly competitive firm finds that the price exceeds its ATC, then the firm 15) A) is making an economic profit. B) will raise its price to increase its economic profit. C) is making zero economic profit. D) will lower its price to increase its economic profit. E) is incurring an economic loss. 16) If the market price is $50 per unit for a good produced in a perfectly competitive market and the firm's average total cost is $52, then the firm A) incurs a total economic loss of $52. B) incurs an economic loss of $2 per unit. C) makes an economic profit of $2 per unit. D) makes zero economic profit. E) More information is needed to determine the firm's economic profit or loss per unit. 17) A perfectly competitive firm is producing 50 units of output and selling at the market price of $23. The firm's average total cost is $20. What is the firm's economic profit? A) $1,150 B) $150 C) $50 D) $23 E) $1,000 16) 17) 18) When new firms enter the perfectly competitive Miami bagel market, the market 18) A) demand curve shifts rightward. B) demand curve shifts leftward. C) supply curve does not change. D) supply curve shifts leftward. E) supply curve shifts rightward. 19) When new firms enter a perfectly competitive market, the market supply curve shifts and the price. A) rightward; falls B) rightward; rises C) leftward; rises D) rightward; does not change E) leftward; falls 19) 20) To eliminate losses in a perfectly competitive market, firms exit the industry. This exit results in 20) A) an increase in market demand. B) a decrease in both the market supply and the market demand. C) a decrease in market supply. D) a decrease in market demand. E) an increase in market supply. 4
The figure above shows some of a firm's cost curves and its marginal revenue curve. 21) Based on the figure above, what is the price of a can? 21) A) $5.10 per can B) $0 C) $8.00 per can D) None of the above prices is correct. E) More information is needed to determine the price of a can. 22) The firm in the figure above has a total cost equal to. 22) A) $5.10 10 B) ($5.10 - $8.00) 10 C) ($8.00 - $5.10) 10 D) $8.00 10 E) None of the above answers are correct because more information is needed. 23) The firm in the figure above has a total revenue equal to. 23) A) $8.00 10 B) $5.10 10 C) ($5.10 - $8.00) 10 D) ($8.00 - $5.10) 10 E) None of the above answers are correct because more information is needed. 24) The firm in the figure above is that is equal to. 24) A) incurring an economic loss; ($8.00 - $5.10) 10 B) making an economic profit; $8.00 10 C) making an economic profit; ($8.00 - $5.10) 10 D) making an economic profit; $5.10 10 E) incurring an economic loss; $5.10 10 5