Econ Test 2 Ch. 7

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?
A. substantial barriers to entry
B. differentiated products
C. few sellers
D. significant market power by firms
E. none of the above

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.