Name: __________________________ Date: _____________ 1. A perfectly competitive firm is a: A) price-taker. B) price-searcher. C) cost-maximizer. D) quantity-taker. 2.

The market for breakfast cereal contains hundreds of similar products, such as Fruit Loops, Corn Flakes, and Rice Krispies, that are considered to be different products by different buyers. This situation violates the perfect competition assumption of: A) many buyers and sellers. B) a standardized product. C) complete information. D) ease of entry and exit. 3. An assumption of the model of perfect competition is: A) discrimination. B) difficult entry and exit. C) many buyers and sellers. D) limited information. Use the following to answer question 4: Figure: Profit Maximizing

4. (Figure: Profit Maximizing) The figure shows cost curves for a firm operating in a perfectly competitive market. The MC curve is represented in the figure by ________. A) none of the curves B) Curve O C) Curve M D) Curve N

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5. In perfect competition: A) price and marginal cost are the same. B) price and marginal revenue are the same. C) price and total revenue are the same. D) total revenue and total variable cost are the same. 6. The best example of a sunk cost is: A) The college department head offers you a scholarship. B) A pharmaceutical firm cuts spending on research & development. C) Wild cat drillers rupture an oil well. D) You bake a lasagna for Valentine's Day but it burns, and then your loved one cancels due to work. 7. In the model of perfect competition: A) the consumer is at the mercy of powerful firms that can set prices wherever they prefer. B) individual firms can influence the price, but only slightly. C) no individual or firm has enough power to have any impact on price. D) the price is determined by how many years are left in the product's patent. 8. Perfect competition is characterized by: A) rivalry in advertising. B) fierce quality competition. C) the inability of any one firm to influence price. D) widely recognized brands. 9. When a perfectly competitive industry is in long-run equilibrium, its firms are: A) earning more than zero economic profits. B) combining their variable and fixed resources inefficiently. C) not in short-run equilibrium. D) allocating all their resources efficiently. 10. The lowest point on the perfectly competitive firm's short-run supply curve corresponds to the minimum point on the ________ curve. A) ATC B) AVC C) AFC D) MC 11. If price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will: A) continue to produce at a loss. B) produce at a profit. C) shut down production. D) reduce its fixed costs. 12. For a perfectly competitive firm in the short run: A) if the firm produces a quantity at which P > ATC, then the firm is profitable. B) if the firm produces a quantity at which P < ATC, then the firm breaks even. C) if the firm produces a quantity at which P = ATC, then the firm incurs a loss. D) if the firm produces a quantity at which P < ATC, then the firm is profitable.

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13. A perfectly competitive firm will earn a profit and will continue producing the profit-maximizing quantity of output in the short run if price is: A) greater than average fixed cost. B) less than marginal cost. C) more than average variable cost, but less than average total cost. D) greater than average total cost. 14. Many furniture stores run Going out of Business sales but never go out of business. In order for the shut-down decision to be the appropriate one, the price of furniture must be ________ than the ________ average variable cost. A) higher; maximum B) lower; minimum C) higher; minimum D) lower; maximum 15. If all firms in an industry are price-takers, then: A) each firm can take the price that it wants to charge and sell at this price, provided it is not too different from the prices other firms are charging. B) each firm takes the market price as given for its current output level, recognizing that the price will change if it alters its output significantly. C) an individual firm cannot alter the market price even if it doubles its output. D) selling price is determined by the market and each firm must follow that price. 16. In the short run, if P = ATC, a perfectly competitive firm: A) incurs a loss. B) earns profits. C) breaks even. D) shuts down. Use the following to answer question 17: Figure: Marginal Revenue, Costs, and Profits

17. (Figure: Marginal Revenue, Costs, and Profits) In the figure, if market price increases to $20, marginal revenue ________ and profit-maximizing output ________. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases

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Use the following to answer question 18: Figure: Cost Curve and Profits

18. (Figure: Cost Curves and Profits) The market for corn is perfectly competitive, and an individual corn farmer faces the cost curves shown in the figure. If the price of a bushel of corn in the market is $10, then the farmer will produce ________ of corn and experience an economic ________ equal to ________. A) 0 bushels; loss; average fixed costs B) 0 bushels; loss; total variable costs C) 3 bushels; loss; total fixed costs D) 3 bushels, loss; $22 per bushel Use the following to answer question 19: Figure: Revenues, Costs, and Profits

19. (Figure: Revenues, Costs, and Profits) In the figure, if the market price is $14, the profit-maximizing quantity of output is: A) 2. B) 3. C) 4. D) 5.

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Use the following to answer question 20: Figure: A Perfectly Competitive Firm in the Short Run

20. (Figure: A Perfectly Competitive Firm in the Short Run) The lowest price that will yield zero economic profit is indicated by the point: A) G. B) F. C) E. D) N. 21. Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in longrun equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the short run, we expect that the typical firm is likely to begin: A) earning an economic profit. B) incurring an economic loss. C) experiencing no change in its economic profit. D) experiencing neither an economic profit nor an economic loss. 22. Suppose Sarah's pottery studio is currently charging the market price that is just higher than her minimum average total cost. This means that Sarah: A) is breaking even. B) should shut down immediately. C) is earning a small economic profit. D) is incurring a small economic loss.

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Use the following to answer questions 23-24: Figure: A Perfectly Competitive Firm in the Short Run

23. (Figure: A Perfectly Competitive Firm in the Short Run) If market price is G, the firm's total cost of producing its most profitable level of output is: A) BS. B) DK. C) 0FKD. D) 0ESB. 24. (Figure: A Perfectly Competitive Firm in the Short Run) If market price is G, the firm's total revenue from the sale of its most profitable level of output is: A) 0GLD. B) 0GHB. C) BH. D) DL. 25. In the short run, if AVC < P < ATC, a perfectly competitive firm: A) produces output and earns an economic profit. B) produces output and incurs an economic loss. C) does not produce output and earns an economic profit. D) does not produce output and earns zero economic profit. 26. In a perfectly competitive market, which of the following statements is true? A) In the long run, price will change to reflect whatever change we observe in average production cost. B) The existence of profits leads firms to exit the industry, while losses lead firms to enter the industry. C) In the long run, economic profits are positive. D) Perfect competition generates prices greater than marginal costs. 27. Zoe's Bakery operates in a perfectly competitive industry. Suppose that when the market price is $5, the profitmaximizing output level of pastries is 150 units, with average total cost of $4, and average variable cost of $3. From this we know Zoe's marginal cost is ________, and her short-run profits are ________. A) $5; $150 B) $5; $300 C) $1; $150 D) $1; $300
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28. A perfectly competitive firm operating in the short run producing 100 units of output has ATC = $6 and AFC = $2. The market price is $3 and is equal to MC. In order to maximize profits (or minimize losses), this firm should: A) increase output. B) reduce output, but continue to produce a positive amount of output. C) shut down. D) do nothing; the firm is already maximizing profits. 29. A competitive firm operating in the short run is producing at the output level at which ATC is at a minimum. If ATC = $8 and MR = $9, in order to maximize profits (or minimize losses), this firm should: A) increase output. B) reduce output. C) shut down. D) do nothing; the firm is already maximizing profits. Use the following to answer question 30: Table: Total Cost for a Perfectly Competitive Firm

30. (Table: Total Cost for a Perfectly Competitive Firm) The firm will produce at a profit in the short run if the price is: A) $2.00. B) $2.50. C) $3.50. D) $5.00. 31. Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in longrun equilibrium, and that the price of each candy cane is $0.10. Now suppose that the price of sugar rises, increasing the marginal and average total costs of producing candy canes by $0.05. Based on the information given, we can conclude that in the short run a typical producer of candy canes will be making: A) an economic profit. B) zero economic profit. C) negative economic profits. D) The answer is impossible to determine based on the information given.

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Use the following to answer question 32: Figure: A Perfectly Competitive Firm in the Short Run

32. (Figure: A Perfectly Competitive Firm in the Short Run) The firm's total cost of producing its most profitable level of output is: A) BS. B) DK. C) 0FKD. D) 0ESB. Use the following to answer question 33: Table: Soybean Cost

33. (Table: Soybean Cost) The costs of production of a perfectly competitive soybean farmer are given in the table. What is the break-even price for this firm? A) $13 B) $13.50 C) $14 D) $14.50

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34. A perfectly competitive industry is currently in a state of long-run equilibrium. Which of the following must be true? A) P = MR = MC > ATC B) P = MR = MC = AVC C) P = MR = MC = ATC D) P > MR = MC = AVC Use the following to answer question 35: Figure: Perfectly Competitive Firm

35. (Figure: Perfectly Competitive Firm) The figure shows a perfectly competitive firm that faces demand curve d, has the cost curves shown, and maximizes profit. If the firm faces a market price of $3.00, its total profit per day is: A) zero. B) $250. C) $275. D) $300. 36. Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in longrun equilibrium, and that the price of each candy cane is $0.10. Now suppose that the price of sugar rises, increasing the marginal and average total cost of producing candy canes by $0.05; there are no other changes in production costs. Based on the information given, we can conclude that once all the adjustments to long-run equilibrium are achieved, the price of candy canes will equal: A) $0.05. B) $0.10. C) $0.15. D) The question is impossible to answer without knowing exactly how many firms entered and/or left the industry.

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Answer Key
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. A B C C B D C C D B B A D B C C A C C C A C C A B A A C A D C C B C D C

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