Chapter 24 Perfect Competition Exam V2
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or
answers the question.
1) A firm in a perfectly competitive industry is a
A) price taker. B) price searcher.
C) price controller. D) price competitor.
2) Under perfect competition, a firm that set price slightly above the market price would
A) make lower profits than the other firms, but the amount would depend on the elasticity of
demand.
B) be forced to lower price again because the firm would not be able to stay in business with
the reduced revenues.
C) lose all of its customers.
D) earn higher profits as long as the other firms continued to charge the market price.
3) A price taker is someone who
A) takes the highest price possible.
B) cannot influence the price.
C) searches for the best price, and then takes the highest profits possible.
D) buys inputs for firms.
4) Based on the assumptions of the perfectly competitive model, consumers will base their
decisions on which firm to purchase a good from on the basis of
A) quality.B) customer service.
C) reputation. D) price.
5) Which of the following is not a characteristic of perfect competition?
A) There are a large number of buyers and sellers
B) The firms in an industry produce heterogeneous goods
C) Any firm can enter or leave the industry without serious impediments
D) Both buyers and sellers have equally good information
6) In the model of perfect competition one price prevails for any specific good. All of the
following assumptions are needed to get this result except
A) there are a large number of buyers and sellers.
B) the product sold by the firms in the industry must be homogeneous.
C) any firm can enter or leave the industry without serious impediments.
D) both buyers and sellers have equally good information.
7) A perfectly competitive producer faces a demand curve that is
A) downward sloping. B) upward sloping.
C) horizontal. D) vertical.
,8) Which of the following statements is correct?
A) The demand curve of the perfectly competitive industry is horizontal as are the demand
curves facing the individual firms.
B) The market demand curve of perfect competition is horizontal because the individual
consumers are buying a homogeneous product.
C) The market demand curve of the perfectly competitive industry is downward sloping
while the demand curve facing an individual firm is horizontal.
D) The market demand curve of the perfectly competitive industry is downward sloping, so
the demand curves of the individual firms are also downward sloping.
9) The demand curve of a perfectly competitive firm is
A) perfectly elastic.
B) perfectly inelastic.
C) elastic at high prices and inelastic at low prices.
D) identical to the elasticity of demand on the market demand curve.
10) We assume that firms, when they are deciding the best rate of output at which to produce,
A) try to get the highest price possible.
B) want to maximize sales.
C) want to minimize costs.
D) want to maximize profits.
11) For a perfect competitor, price equals
A) marginal revenue only.
B) average revenue only.
C) both average revenue and marginal revenue.
D) neither marginal revenue not average revenue.
12) Under perfect competition, the firm must decide
A) the best price to charge for its product.
B) the best rate of output it should produce.
C) the optimal price-output combination.
D) the optimal level of quality and the packaging that will maximize profits.
13) Marginal revenue equals
A) total revenue divided by output.
B) price times quantity, divided by average revenue.
C) total revenue divided by average revenue.
D) the change in total revenue from selling one more unit.
14) For a perfect competitor, marginal revenue equals
A) the slope of the demand curve. B) average revenue divided by price.
C) price divided by average revenue. D) price.
15) The perfectly competitive firm maximizes profits when
A) it produces and sells the quantity at which the difference between
marginal revenue and marginal cost is the greatest.
, B) it produces and sells the quantity at which marginal revenue and
marginal cost are equal.
C) it produces and sells the quantity at which the difference between
average revenue and average cost is the greatest.
D) it produces and sells the quantity at which the difference between price
and average cost is the greatest.
16) If marginal revenue is less than marginal cost, the firm should
A) raise price. B) raise marginal revenue.
C) increase its rate of output. D) decrease its rate of output.
17) Refer to the table above. If the price is $10, the perfectly competitor
should produce
A) between 103 and 104 units. B) 107 units.
C) 109 units. D) 110 units.
18) Refer to the table above. If price is initially $4 and then increases to
$8, the perfect competitor will
A) double output. B) increase output by 10 units.
C) increase output by 8 units. D) increase output by 4 units.
19) A perfectly competitive firm is maximizing profits in the short run.
This implies that it is
A) making the most profits possible and that profits are positive.
B) making the most profits possible and that profits are either zero or
positive.
C) making the most profits possible, which can be positive, negative, or
zero.
D) making the most profits possible, which is where price equals average
total cost.
20) The difference between price and average total cost is
A) total profits. B) marginal profits.
C) average profit. D) an irrelevant quantity.
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or
answers the question.
1) A firm in a perfectly competitive industry is a
A) price taker. B) price searcher.
C) price controller. D) price competitor.
2) Under perfect competition, a firm that set price slightly above the market price would
A) make lower profits than the other firms, but the amount would depend on the elasticity of
demand.
B) be forced to lower price again because the firm would not be able to stay in business with
the reduced revenues.
C) lose all of its customers.
D) earn higher profits as long as the other firms continued to charge the market price.
3) A price taker is someone who
A) takes the highest price possible.
B) cannot influence the price.
C) searches for the best price, and then takes the highest profits possible.
D) buys inputs for firms.
4) Based on the assumptions of the perfectly competitive model, consumers will base their
decisions on which firm to purchase a good from on the basis of
A) quality.B) customer service.
C) reputation. D) price.
5) Which of the following is not a characteristic of perfect competition?
A) There are a large number of buyers and sellers
B) The firms in an industry produce heterogeneous goods
C) Any firm can enter or leave the industry without serious impediments
D) Both buyers and sellers have equally good information
6) In the model of perfect competition one price prevails for any specific good. All of the
following assumptions are needed to get this result except
A) there are a large number of buyers and sellers.
B) the product sold by the firms in the industry must be homogeneous.
C) any firm can enter or leave the industry without serious impediments.
D) both buyers and sellers have equally good information.
7) A perfectly competitive producer faces a demand curve that is
A) downward sloping. B) upward sloping.
C) horizontal. D) vertical.
,8) Which of the following statements is correct?
A) The demand curve of the perfectly competitive industry is horizontal as are the demand
curves facing the individual firms.
B) The market demand curve of perfect competition is horizontal because the individual
consumers are buying a homogeneous product.
C) The market demand curve of the perfectly competitive industry is downward sloping
while the demand curve facing an individual firm is horizontal.
D) The market demand curve of the perfectly competitive industry is downward sloping, so
the demand curves of the individual firms are also downward sloping.
9) The demand curve of a perfectly competitive firm is
A) perfectly elastic.
B) perfectly inelastic.
C) elastic at high prices and inelastic at low prices.
D) identical to the elasticity of demand on the market demand curve.
10) We assume that firms, when they are deciding the best rate of output at which to produce,
A) try to get the highest price possible.
B) want to maximize sales.
C) want to minimize costs.
D) want to maximize profits.
11) For a perfect competitor, price equals
A) marginal revenue only.
B) average revenue only.
C) both average revenue and marginal revenue.
D) neither marginal revenue not average revenue.
12) Under perfect competition, the firm must decide
A) the best price to charge for its product.
B) the best rate of output it should produce.
C) the optimal price-output combination.
D) the optimal level of quality and the packaging that will maximize profits.
13) Marginal revenue equals
A) total revenue divided by output.
B) price times quantity, divided by average revenue.
C) total revenue divided by average revenue.
D) the change in total revenue from selling one more unit.
14) For a perfect competitor, marginal revenue equals
A) the slope of the demand curve. B) average revenue divided by price.
C) price divided by average revenue. D) price.
15) The perfectly competitive firm maximizes profits when
A) it produces and sells the quantity at which the difference between
marginal revenue and marginal cost is the greatest.
, B) it produces and sells the quantity at which marginal revenue and
marginal cost are equal.
C) it produces and sells the quantity at which the difference between
average revenue and average cost is the greatest.
D) it produces and sells the quantity at which the difference between price
and average cost is the greatest.
16) If marginal revenue is less than marginal cost, the firm should
A) raise price. B) raise marginal revenue.
C) increase its rate of output. D) decrease its rate of output.
17) Refer to the table above. If the price is $10, the perfectly competitor
should produce
A) between 103 and 104 units. B) 107 units.
C) 109 units. D) 110 units.
18) Refer to the table above. If price is initially $4 and then increases to
$8, the perfect competitor will
A) double output. B) increase output by 10 units.
C) increase output by 8 units. D) increase output by 4 units.
19) A perfectly competitive firm is maximizing profits in the short run.
This implies that it is
A) making the most profits possible and that profits are positive.
B) making the most profits possible and that profits are either zero or
positive.
C) making the most profits possible, which can be positive, negative, or
zero.
D) making the most profits possible, which is where price equals average
total cost.
20) The difference between price and average total cost is
A) total profits. B) marginal profits.
C) average profit. D) an irrelevant quantity.
