ECON 102 Quiz 7

1. Which of the following is an assumption that underlies the perfectly competitive model? A. There are barriers to entry B. All firms sell differentiated products C. All firms are price setters D. There are many firms *** In a perfectly competitive model, there are many firms that sell homogeneous products. Firms are price takers and there are no barriers to entry. 2. Which of the following statements is correct? A. A perfectly competitive firm faces a perfectly elastic demand curve and a perfectly competitive industry has a downward sloping demand curve. *** B. A perfectly competitive firm faces a downward sloping demand curve and a perfectly competitive industry faces a perfectly elastic demand curve. C. A perfectly competitive firm and a perfectly competitive industry both have downward sloping demand curves. D. A perfectly competitive firm and a perfectly competitive industry both have perfectly elastic demand curves. A perfectly competitive industry has the industry demand curve, which is downward sloping. However, because perfectly competitive firms are price takers, they face perfectly elastic demand curves. 3. In the above figure, assume that S0 represents the industry supply curve and D0 represents the demand curve in a perfectly competitive market. What can be said about the firm's marginal revenue curve? A. The firm's marginal revenue curve will be downward sloping starting at $1.25. B. The firm's marginal revenue curve will be the same as the D0 curve in the graph. C. The firm's marginal revenue curve will always be equal to its marginal cost curve. D. The firm's marginal revenue curve will be horizontal at $1.25. *** Because a perfectly competitive firm takes price as given and can expand output without lowering the price, the marginal revenue curve is horizontal at the market price ($1.25). 4. A perfectly competitive firm will maximize profit by choosing quantity such th