Question 1

Which of the following is NOT a condition for a perfectly competitive market?

Accepted Answer

Barriers to entry exist

Question 2

A perfectly competitive firm will maximize profit at the output level where:

Accepted Answer

$$MC = MR$$

Question 3

If the market price is $$P = 600 - 4Q$$ and the total cost function is $$TC = 5Q^2$ + 10Q + 190$$, what is the marginal cost function?

Accepted Answer

Question 4

In the short run, if a perfectly competitive firm is producing where $$P  AVC$$, what is the firm’s best option?

Accepted Answer

Continue producing to minimize loss

Question 5

What is the condition for allocative efficiency in a perfectly competitive market?

Accepted Answer

$$P = MC$$

Question 6

Which of the following best describes a constant cost industry?

Accepted Answer

ATC does not change as output increases

Question 7

In the long run, a perfectly competitive firm earns:

Accepted Answer

Normal profit

Question 8

If the demand curve for a perfectly competitive firm is $$P = 600 - 4Q$$, what is the marginal revenue curve?

Accepted Answer

$$MR = 600 - 4Q$$

Question 9

Which of the following is true about productive efficiency in perfect competition?

Accepted Answer

Firms produce at the lowest possible average total cost

Question 10

In an increasing cost industry, what happens to the long-run supply curve?

Accepted Answer

It has a positive slope

Question 11

If a firm in perfect competition faces $$MC \u003e MR$$, what should it do?

Accepted Answer

Decrease output

Question 12

Which of the following is a requirement for a firm to reach long-run equilibrium in perfect competition?

Accepted Answer

$$P = MC = MR$$

Question 13

What happens to the price in a constant cost industry after an increase in demand?

Accepted Answer

Price rises then returns to original level

Question 14

Which of the following best describes a decreasing cost industry?

Accepted Answer

ATC falls as output increases

Question 15

If a perfectly competitive firm is at the closing down point, what is true?

Accepted Answer

$$P = AVC$$

Question 16

Which of the following is NOT a reason why perfectly competitive markets are efficient?

Accepted Answer

Monopoly pricing power

Question 17

In the long run, what happens to the output level of a perfectly competitive firm?

Accepted Answer

It produces where $$P = MC = MR$$

Question 18

If the total cost function is $$TC = 5Q^2$ + 10Q + 190$$, what is the average total cost (ATC) function?

Accepted Answer

$$ATC = \frac{5Q^2$ + 10Q + 190}{Q}$$

Question 19

Which of the following best describes the long-run supply curve in a decreasing cost industry?

Accepted Answer

Negative slope

Question 20

If a perfectly competitive firm is earning economic profit in the short run, what is likely to happen in the long run?

Accepted Answer

New firms will enter, driving profits to normal levels

Perfect Competition: Short-Run and Long-Run Analysis

Study Guide - Practice Questions