Question 1

Which of the following is NOT a characteristic of a perfectly competitive market?

Accepted Answer

All firms in a perfectly competitive market sell the same standardized product.

Question 2

Which of the following is NOT true of a perfectly competitive firm?

Accepted Answer

Firms (in any market)maximize profit, not revenue.

Question 3

A profit-maximizing perfectly competitive firm must decide:

Accepted Answer

A perfectly competitive firm is a price taker, so it only chooses how much to produce.

Question 4

In which of the following markets do firms sell the same standardized product?

Accepted Answer

2% milk is essentially the same regardless of the brand. The other products typically have many different variations.

Question 5

Which of the following would be considered a factor of production in the provision of bus service?

Accepted Answer

A factor of production is an input used in the production of a good or service. Bus drivers are used to produce bus service.

Question 6

One implication of the shape of the demand curve facing a perfectly competitive firm is that:

Accepted Answer

A perfectly competitive firm cannot raise its price without losing all of its customers to the many rival firms that produce the same product.

Question 7

An imperfectly competitive firm is one that:

Accepted Answer

An imperfectly competitive firm can increase its price and still retain some customers.

Question 8

A price-taker faces a demand curve that is:

Accepted Answer

A perfectly competitive firm faces a horizontal demand curve at the market price because it need not lower its price to sell more output, and it would sell no output if it raised its price above the market price.

Question 9

A firm's profit equals:

Accepted Answer

Average profit per unit is P − ATC. To get total profit, you multiply that by the quantity sold, Q.

Question 10

Last year, Casey grew fresh vegetables, which she sold at her local farmers market, but this year, Casey did not plant any vegetables and went to work at a bank instead. Which of the following best explains Casey's career change?

Accepted Answer

The opportunity cost of gardening is the benefit of working at the bank. Casey will work at the bank if the benefit of working at the bank is greater than her opportunity cost of working at the bank.

Question 11

Jenny sells lemonade in front of her house in the summer. Several other kids in Jenny's neighborhood also run lemonade stands in the summer. The lemonade market in Jenny's neighborhood is more likely to be perfectly competitive if:

Accepted Answer

One characteristic of a perfectly competitive market is that the firms sell the same standardized product.

Question 12

Which of the following is a defining characteristic of all perfectly competitive markets?

Accepted Answer

In perfectly competitive markets, all firms sell the same standardized product. Although each firm in perfectly competitive market faces a perfectly elastic demand curve, the market demand curve does not have to be perfectly elastic.

Question 13

The short run is best defined as:

Accepted Answer

The short run is a period of time sufficiently short that at least some of a firm's factors of production are fixed.

Question 14

Jenny sells lemonade in front of her house in the summer. Several other kids in Jenny's neighborhood also run lemonade stands in the summer. If the lemonade market is perfectly competitive, and Jenny is charging the equilibrium price, then Jenny can increase her revenue if she:

Accepted Answer

If the market for lemonade is perfectly competitive, then no one will buy Jenny's lemonade if she increases the price. Thus, if she wants to increase her revenue, she has to keep the price of her lemonade the same and increase output.

Question 15

Total revenue minus both explicit and implicit costs defines a firm's:

Accepted Answer

Profit is defined as total revenue from the sale of a firm's product minus all costs (both implicit and explicit)incurred producing it.

Question 16

Which of the following statements is true for both Microsoft and a locally owned restaurant?

Accepted Answer

All firms seek to maximize profits. Only perfectly competitive firms face perfectly elastic demand and are unable to influence price. Microsoft is an example of an imperfectly competitive firm.

Question 17

The most important challenge facing a firm in a perfectly competitive market is deciding:

Accepted Answer

Since firms in perfectly competitive markets have no control over the market price, their most important challenge is deciding how much to produce at a given price.

Question 18

Jenny sells lemonade in front of her house in the summer. Several other kids in Jenny's neighborhood also run lemonade stands in the summer. Suppose that the first week of summer, Jenny charged 25 cents for an 8-ounce cup of lemonade, her next-door neighbor Sam charged 50 cents for an 8-ounce cup of lemonade, and Alex across the street charged 15 cents for an 8-ounce cup of lemonade. Assuming the market for lemonade is perfectly competitive, what is most likely to happen?

Accepted Answer

If the market is perfectly competitive, they will all eventually charge the equilibrium price.

Question 19

If the market for butter is perfectly competitive, then the demand curve facing a firm that produces butter will be:

Accepted Answer

In a perfectly competitive market, an individual firm can sell as much as it wishes at the market price, implying that the demand curve is perfectly elastic.

Question 20

Last year, Casey grew fresh vegetables, which she sold at her local farmers market, but this year, Casey did not plant any vegetables and went to work at a bank instead. If Casey's decision to change careers did not affect the price of vegetables at the farmers market, then this suggests that:

Accepted Answer

A single firm cannot influence price in a perfectly competitive market.

Quiz 6: Perfectly Competitive Supply