Multiple Choice Questions Chapter 11 Perfect Competition PDF

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Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Perfect competition is an industry with 1) _______ A) many firms producing goods that differ somewhat. B) many firms producing identical goods. C) a few firms producing identical goods. D) a few firms producing goods that differ somewhat in quality. 2) In a perfectly competitive industry, there are A) many sellers, but there might be only one or two buyers. B) many buyers and many sellers. C) many buyers, but there might be only one or two sellers. D) one firm that sets the price for the others to follow.

2) _______

3) In perfect competition, the product of a single firm A) is sold under many differing brand names. B) is sold to different customers at different prices. C) has many perfect substitutes produced by other firms. D) has many perfect complements produced by other firms.

3) _______

4) In perfect competition, restrictions on entry into an industry A) apply to labour but not to capital. B) apply to capital but not to labour. C) apply to both capital and labour. D) do not exist.

4) _______

5) In perfect competition, A) all firms in the market sell their product at the same price. B) there are significant restrictions on entry. C) each firm can influence the price of the good. D) there are few buyers.

5) _______

6) The price elasticity of demand for any particular perfectly competitive firm's output is A) infinite. B) equal to zero. C) less than 1. D) 1.

6) _______

7) The demand for wheat from farm A is perfectly elastic because wheat from farm A is A) a normal good. B) a perfect substitute for wheat from farm B. C) a perfect complement for wheat from farm B. D) an inferior good.

7) _______

8) In perfect competition, the elasticity of demand for the product of a single firm is A) infinite because the firm produces a unique product. B) zero because the firm produces a unique product. C) infinite because many other firms produce identical products.

8) _______

D) zero because many other firms produce identical products. 9) In perfect competition, an individual firm A) has a price elasticity of supply equal to one. B) faces a perfectly elastic demand. C) faces unitary elasticity of demand. D) has perfectly elastic supply. 10) If Steve's Apple Orchard, Inc. is a perfectly competitive firm, the demand for Steve's apples has A) elasticity equal to the price of apples. B) infinite elasticity. C) unitary elasticity. D) zero elasticity.

9) _______

10) ______

11) In a perfectly competitive industry, the price elasticity of demand for the 11) ______ market demand is ________ and the price elasticity of demand for an individual firm's demand is ________. A) infinite; less than infinite B) less than infinite; less than infinite C) infinite; infinite D) less than infinite; infinite 12) The market for fish is perfectly competitive. So, the price elasticity of demand for fish from a single fishery A) equals the elasticity of demand for fish overall. B) is greater than the elasticity of demand for fish overall. C) is sometimes greater than and sometimes less than the elasticity of demand for fish overall. D) is less than the elasticity of demand for fish overall.

12) ______

13) In perfect competition, the price of the product is determined where the industry A) elasticity of supply equals the industry elasticity of demand. B) fixed cost is zero. C) average variable cost equals the industry average total cost. D) supply curve and industry demand curve intersect.

13) ______

14) Economists assume that a perfectly competitive firm's objective is to maximize its A) economic profit. B) revenue. C) quantity sold. D) output price.

14) ______

15) Total economic profit is A) marginal revenue minus marginal cost. B) marginal revenue divided by marginal cost. C) total revenue divided by total cost. D) total revenue minus total opportunity cost.

15) ______

16) The economic profit of a perfectly competitive firm A) equals its total revenue. B) is greater than its total revenue.

16) ______

C) is less than its total revenue if its supply curve is inelastic and is greater than its total revenue if its supply curve is elastic. D) is less than its total revenue. 17) In perfect competition, a firm that maximizes its economic profit will sell its good A) below the market price. B) above the market price. C) at the market price. D) below the market price if its supply curve is inelastic and above the market price if its supply curve is elastic.

17) ______

18) The above figure shows a firm's total revenue line. The firm must be in a 18) ______ market with A) perfect competition. B) monopolistic competition. C) oligopoly. D) monopoly. 19) For a perfectly competitive firm, curve A in the above figure is the firm's A) total revenue curve. B) average fixed cost curve. C) average variable cost curve. D) total fixed cost curve.

19) ______

20) The figure above portrays a total revenue curve for a perfectly competitive firm. Curve A is straight because the firm A) wants to maximize its profits. B) faces constant returns to scale. C) is a price taker. D) has perfect information.

20) ______

21) The figure above portrays a total revenue curve for a perfectly competitive firm. The firm's marginal revenue from selling a unit of output A) cannot be determined. B) equals £2.00. C) equals £0.50. D) equals £1.00.

21) ______

22) The figure above portrays a total revenue curve for a perfectly competitive firm. The price of the product in this industry A) equals £2.00. B) equals £0.50. C) cannot be determined. D) equals £1.00.

22) ______

23) In the above figure showing a perfectly competitive firm's total revenue line, the firm's marginal revenue A) does not change as output increases. B) rises as output increases. C) falls as output increases. D) cannot be determined.

23) ______

Quantity sold Price 5 £15 6 £15 7 £15 24) In the above table, if the firm sells 5 units of output, its total revenue is A) £15. B) £90. C) £75. D) £30.

24) ______

25) In the above table, if the quantity sold by the firm rises from 5 to 6, its marginal revenue is A) £15. B) £90. C) £75. D) £30.

25) ______

26) In the above table, if the quantity sold by the firm rises from 6 to 7, its marginal revenue is A) £30. B) £105. C) £15. D) £90.

26) ______

27) In perfect competition, the marginal revenue of an individual firm A) equals the price of the product. B) is positive but less than the price of the product. C) exceeds the price of the product. D) is zero.

27) ______

28) In the case of a perfectly competitive firm, the A) firm's marginal revenue exceeds the price of the product. B) change in the firm's total revenue equals the price of the product multiplied by the change in quantity sold. C) price of the product falls sharply when the quantity the firm sells doubles. D) firm's marginal revenue is less than average revenue.

28) ______

29) For any perfectly competitive firm, marginal revenue is A) always greater than marginal cost. B) always less than marginal cost. C) equal to price. D) all of the above.

29) ______

30) In perfect competition, the firm's marginal revenue curve A) cuts its demand curve from below, going from left to right. B) cuts its demand curve from above, going from left to right. C) is the same as its demand curve.

30) ______

D) always lies below its demand curve.

Quantity (units) 9 10 11

Price (pounds Total revenue per unit) (pounds) 10 90 10 100 10 110

31) Based on the table above, what is the marginal revenue of the tenth unit 31) ______ of output? A) £10. B) £100. C) £9. D) £190.

32) In the above figure, if the milk industry is perfectly competitive, then the firm's marginal revenue curve is represented by A) curve G. B) curve F. C) curve H. D) curve I.

32) ______

33) At a firm's breakeven point, definitely its A) marginal revenue exceeds its marginal cost. B) total revenue equals its total opportunity cost. C) marginal revenue equals its average fixed cost. D) marginal revenue equals its average variable cost.

33) ______

34) When Sidney's Sweaters, Inc. makes exactly zero economic profit, Sidney, the owner, A) will boost output. B) makes an income equal to his best alternative forgone income. C) is incurring an economic loss. D) will shut down in the short run.

34) ______

35) The breakeven point is defined as occurring at an output rate at which A) economic profit is maximized. B) total cost is minimized.

35) ______

C) total revenue equals total opportunity cost. D) marginal revenue equals marginal cost.

Output Total Revenue Total Cost 0 £0 £25 1 £30 £49 2 £60 £69 3 £90 £91 4 £120 £117 5 £150 £147 6 £180 £180 36) In the above table, the price of the product is A) £30. B) £150. C) £147.

36) ______ D) £180.

37) In the above table, the firm A) cannot be in a perfectly competitive industry, because its longrun economic profits are greater than zero. B) must be in a perfectly competitive industry, because its marginal cost curve eventually rises. C) must be in a perfectly competitive industry, because its marginal revenue is constant. D) cannot be in a perfectly competitive industry, because its shortrun economic profits are greater than zero.

37) ______

38) In the above table, the marginal revenue from the fourth unit of output is A) £147. B) £180. C) £150. D) £30.

38) ______

39) In the above table, if the firm produces 2 units of output, it will make an economic A) profit of £9. B) loss of £60. C) loss of £9. D) profit of £60.

39) ______

Output Total Cost (balloons per hour) (pounds per hour) 0 £4.00 1 £7.00 2 £8.00 3 £12.50 4 £17.20 5 £22.00 6 £29.00 40) In the above table, the firm's total fixed cost of production is A) £29.00. B) £3.00. C) £4.00. D) £7.00.

40) ______

41) In the above table, the average fixed cost at 4 units of output is A) £1.00. B) £4.80. C) £4.50. D) £4.70.

41) ______

42) In the above table, the average variable cost at 2 units of output is A) £4.00. B) £4.80. C) £2.00. D) £1.00.

42) ______

43) In the above figure, by increasing its output from Q1 to Q2, the firm

43) ______

A) increases its profit. B) reduces its marginal revenue. C) decreases its profit. D) increases its marginal revenue. 44) In the above figure, by increasing its output from Q 2 to Q 3, the firm

44) ______

A) reduces its marginal revenue. B) decreases its profit. C) increases its marginal revenue. D) increases its profit. 45) The above figure illustrates a firm's total revenue and total cost curves. Which one of the following statements is FALSE? A) At output Q 1 the firm makes zero economic profit.

45) ______

B) At output Q 2 the firm incurs an economic loss. C) At an output above Q 3 the firm incurs an economic loss. D) Economic profit is the vertical distance between the total revenue curve and the total cost curve. 46) The feature of the above figure that indicates that the firm is a perfectly 46) ______ competitive firm is the A) fact that the total cost and total revenue curves are farthest apart at output is Q 2. B) fact that the total cost and total revenue curves cross twice. C) shape of the total cost curve. D) shape of the total revenue curve.

47) Given the total cost and total revenue curves in the above figure, what are the output levels at which the perfect competitor will earn economic profits? A) From 0 to 60,000 tonnes. B) From 0 to 30,000 tonnes. C) Over 80,000 tonnes. D) Between 30,000 and 80,000 tonnes.

47) ______

48) Given the total cost and total revenue curves in the above figure, what are the output levels at which the perfect competitor will incur economic losses? A) From 30,000 to 80,000 tonnes. B) Below 80,000 tonnes. C) Below 30,000 bushels and over 80,000 tonnes. D) At 30,000 bushels and at 80,000 tonnes.

48) ______

49) Given the total cost and total revenue curves in the figure above, what is 49) ______ the profitmaximizing output level? A) 30,000 tonnes. B) 80,000 tonnes. C) 60,000 tonnes. D) All output levels occur between 30,000 and 80,000 tonnes are profitmaximizing output levels.

50) In the above figure, the firm is making an economic loss at A) points b and d. B) point c. C) points a, b, and d. D) point a. 51) In the above figure, the firm is breaking even at points A) c and d. B) a and d. C) b and d.

50) ______

51) ______ D) a and c.

52) In the above figure, when the firm produces output corresponding to point c, the firm's marginal cost A) exceeds its marginal revenue. B) equals its average revenue. C) is less than its marginal revenue. D) equals its marginal revenue.

52) ______

53) For a perfectly competitive firm, in a diagram with quantity on the horizontal axis and both total revenue and total cost on the vertical axis, the firm's ________ is a straight line ________. A) total revenue curve; through the origin B) total cost curve; through the origin C) total cost curve; with zero slope D) total revenue curve; with zero slope

53) ______

54) A perfectly competitive firm maximizes its profit by producing the output at which its marginal cost equals its A) marginal revenue. B) average variable cost. C) average total cost. D) average fixed cost.

54) ______

55) For a firm in perfect competition, a diagram shows quantity on the horizontal axis and both the firm's marginal cost (MC) and its marginal revenue (MR) on the vertical axis. The firm's profitmaximizing quantity occurs at the point where the A) MC curve intersects the MR curve from above, going from left to right. B) slope of the MC curve is zero. C) MC curve intersects the MR curve from below, going from left to

55) ______

right. D) MC and MR curves are parallel. 56) A firm will expand the amount of output it produces as long as its A) marginal cost exceeds its marginal revenue. B) average total revenue exceeds its average total cost. C) marginal revenue exceeds its marginal cost. D) average total revenue exceeds its average variable cost.

56) ______

57) A perfectly competitive firm is producing at the point where its marginal cost equals its marginal revenue. If the firm boosts its output, its total revenue will ________ and its profit will ________. A) rise; fall B) fall; fall C) fall; rise D) rise; rise

57) ______

58) A perfectly competitive firm is producing at the point where its marginal cost equals its marginal revenue. If the firm boosts its output, its total revenue will A) rise and its total variable cost will rise even more. B) rise and its total variable cost will rise, but not by as much. C) fall and its total variable cost will fall, but not by as much. D) fall but its total variable cost will rise.

58) ______

59) A perfectly competitive firm's marginal revenue exceeds its marginal cost at its current output. To increase its profit, the firm will A) raise its price. B) increase its output. C) lower its price. D) decrease its output.

59) ______

60) A perfectly competitive firm's marginal cost exceeds its marginal revenue at its current output. To increase its profit, the firm will A) lower its price. B) increase its output. C) decrease its output. D) raise its price.

60) ______

61) A perfectly competitive firm is producing more than the profit maximizing amount of its product. You can conclude that its A) total cost exceeds its total revenue. B) marginal cost exceeds the price of the product. C) marginal revenue is less than the price of the product. D) average total cost exceeds the price of the product.

61) ______

62) In the above figure, the line represented by the "2" is the A) total cost. B) average fixed cost. C) average variable cost. D) average total cost.

62) ______

63) In the above figure, the line represented by the "1" is the A) marginal revenue. B) average fixed cost. C) total cost. D) average total cost.

63) ______

64) In the above figure, the line represented by the "4" is the A) average total cost. B) marginal revenue. C) marginal cost. D) average fixed cost.

64) ______

65) In the above figure, the firm will produce A) 15 units B) 5 units. C) 0 units.

65) ______ D) 20 units.

66) In the above figure, the marginal cost of the last unit produced by the

profit

maximizi 66) ng firm is A) £6.

___ ___ B) £10.

C) £7.

D) £5.

67) In the above figure, the firm's total economic profit is equal to A) £150. B) £60. C) £200. D) MR  MC.

67) ______

68) The costs incurred even when no output is produced are called A) marginal costs. B) variable costs. C) external costs. D) fixed costs.

68) ______

69) A firm's shutdown point is the quantity and price at which the firm's total revenue just equals its A) total cost. B) marginal cost. C) total fixed cost. D) total variable cost.

69) ______

70) It definitely pays a perfectly competitive firm to shut down if the price of its product is A) less than its minimum total cost. B) greater than its maximum variable cost. C) less than its minimum average variable cost. D) greater than its minimum average variable cost.

70) ______

71) The owners definitely will shut down a perfectly competitive firm if the price of its good falls below its minimum A) wage rate. B) average total cost. C) average variable cost. D) average marginal cost.

71) ______

72) A firm that shuts down and produces no output incurs a loss equal to its A) marginal costs. B) total fixed costs. C) total variable costs. D) marginal revenue.

72) ______

73) In the short run a perfectly competitive firm will A) shut down if P  AVC. B) shut down if P  AFC. C) never shut down. D) shut down if P  ATC.

73) ______

74) In the short run, a perfectly competitive firm will shut down if A) it incurs any economic loss. B) total revenue is less than total variable cost. C) total revenue is less than total fixed cost. D) price equals average cost.

74) ______

75) In the short run, a firm will A) produce and earn an economic profit if its total revenue is equal to its total cost. B) produce and break even if its total revenue covered its total fixed cost but not its total variable cost. C) produce and incur a loss if its total revenue covered its total variable cost but not its total cost. D) not produce if its total revenue does not cover its total cost.

75) ______

76) By producing less, a firm can reduce A) its fixed costs but not its variable costs. B) its variable costs but not its fixed costs. C) its fixed costs and its variable costs. D) neither its variable costs nor its fixed costs.

76) ______

77) The shutdown point occurs at the level of output for which the ________ 77) ______ is at its minimum. A) average variable cost B) total cost C) average fixed cost D) marginal cost 78) A competiti...