Which market structure is characterized by many sellers, easy entry, and homogeneous products? |
a perfect competition |
Which of the following is a characteristic of perfect competition? |
none of the above |
Which of the following is a characteristic of perfect competition? |
-zero barriers to entry -homogeneous products -many sellers -many buyers |
Which of the following most closely resembles a perfectly competitive market? |
the wheat market |
Which one of the following is NOT a characteristic of a perfectly competitive market? |
Firms advertise in order to distinguish their products and increase market share. |
Firms in perfectly competitive markets: |
are price takers |
A firm that is a price taker: |
will lose all sales if it prices its product in excess of the market equilibrium price. |
The demand curve facing a perfectly competitive firm is: |
perfectly elastic |
If the market demand curve in a perfectly competitive industry shifts left, the demand curve for each existing firm will: |
shift down |
Marginal revenue for a perfectly competitive firm equals: |
average revenue at all levels of output. |
A perfectly competitive firm seeking to maximize its profits would want to maximize the difference between: |
its total revenue and its total cost |
True or False: The objective of the firm is to maximize profits, by producing the amount that maximizes the difference between its total revenues and total cost. |
true |
True or False: The objective of the firm is to maximize profits, by producing the amount that equates marginal revenue and marginal cost. |
True |
Assume that the equilibrium price in a perfectly competitive industry is $4.25. If a firm in this industry produced and sold 10 units with an average total cost of $5.00, what would be the result would be: |
a loss of $7.50 |
When price exceeds average variable cost for a firm, it is possible that: |
-it is earning an economic profit. -it is breaking even. -it is suffering an economic loss. |
A profit-maximizing, price-taking firm should cease production whenever: |
the price is less than minimum average variable cost. |
When the marginal cost of a price-taking firm is less than the market price of its product, the firm should: |
expand output (provided that price is not less than average variable cost). |
"I’m losing money, but since my fixed costs are so high, I simply cannot afford to shut down." If the firm were attempting to maximize profit, this decision may be: |
correct if the firm is covering all of its variable costs and expects the price of its product to rise in the near future. |
A profit maximizing perfectly competitive firm would never operate at an output level where |
it would not cover all of its variable costs. |
In the short run, if a firm’s price is greater than its AVC but less than its ATC, the firm should: |
continue operating even though it is generating an economic loss. |
When economic profits are positive in a perfectly competitive industry, |
we would expect the market supply curve to shift to the right as a result. |
A perfectly competitive firm cannot make economic profits in the long run because: |
there are no barriers to entry into the industry. |
During a period when new entrants are being attracted to an industry, we would expect that: |
-economic profits are positive. -economic profits are falling. |
In short run equilibrium in a perfectly competitive industry whose firms are earning economic profits, a firm: |
Has no incentive to leave the industry |
The shape of the long-run industry supply curve in a perfectly competitive industry is largely determined by: |
the price of inputs as the industry expands. |
Econ Test 2 Ch. 7
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