True/False
Indicate whether the
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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In a competitive market, both buyers and sellers are price takers.
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7.
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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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8.
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In the long run, perfectly competitive firms earn small but positive economic
profits.
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9.
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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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10.
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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
choice that best completes the statement or answers the question.
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11.
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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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12.
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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. | economics
textbooks. |
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13.
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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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14.
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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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15.
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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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16.
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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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17.
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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. | c. | upward sloping. | b. | perfectly elastic. | d. | downward
sloping. |
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18.
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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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