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Dr. Westerhold
Final exam Review packet continued!
1. All of the following are characteristics of a perfectly competitive market, except one. Which is the
exception?
a. a large number of sellers
b. a standardized or identical product
c. no barriers to entry
d. sellers can easily enter the market
e. a few large firms dominating the industry
2. Firms in a perfectly competitive market cannot influence
a. the quantity of the good that they produce
b. how much labor to use in production
c. how much capital to employ in production
d. the level of advertising that they use
e. the price of the product they sell
3. Which of the following is true about perfect competition?
a. Each firm faces a downward-sloping demand curve.
b. Each firm must face a horizontal demand curve.
c. Firms are price-makers.
d. Marginal cost equals average cost.
e. Firms can increase sales by lowering their price.
4. Which of the following goods would be most likely to be produced a perfectly competitive firm (one
characterized by perfect competition)
a. cereal
b. Pepsi
c. Margarine
d. Wheat
e. automobiles
5. Joe's Garage operates in a perfectly competitive market. At the point where marginal cost equals
marginal revenue, ATC = $20, AVC = $15, and the price per unit is $10. In this situation,
a. Joe's Garage will break even
b. Joe's Garage will shut down immediately
c. the market price will fall in the long run
d. Joe's supply curve will shift to the left
e. Joe's Garage will suffer a loss in the short run, but stay in business
6. Figure 8-1 shows the marginal cost and average total cost curves for a perfectly competitive firm. If
the market price is $10, then
a. the firm earns $10 profit on each unit sold
b. the firm earns $8 profit on each unit sold
c. marginal revenue equals $10
d. the firm is losing money in the short run
e. marginal cost always equals marginal revenue
7. In short-run equilibrium, the perfectly competitive firm of Figure 8-3 will produce
a. zero units of output
b. 200 units of output
c. 275 units of output
d. 475 units of output
e. 575 units of output
8. Figure 8-6 shows the marginal cost and average total cost curves for a perfectly competitive firm. This
firm will
a. earn an economic profit
b. suffer an economic loss in this long-run situation
c. suffer an economic loss in the short run and close
d. break even if it expands to 180 units of output
e. suffer an economic loss and continue producing in the short run
9. In short-run equilibrium, the perfectly competitive firm of Figure 8-8 will earn a total economic profit
of
a. Zero
b. $950
c. $825
d. $1,425
e. $575
10.
A.
B.
C.
D.
E.
The price of a seller's product in perfect competition is determined by
the individual seller.
a few of the sellers.
market demand and market supply.
the individual demander
the government.
11. Draw the short run situation for a perfectly competitive firm in which the firm is producing 500 units
and selling at a price of $60 and earning a total profit of $2000. Be sure to label your graphs and include
MR, MC, P, and ATC.
12. What would happen in the long run? Show the industry adjustment (to breakeven).
Answers:
1. E
2. E
3. B
4. D
5. B
6. C
7. D
8. E
9. B
10. C
11. Short run graph; p=60; q=500; ATC at q=500 must be 56 so $4 profit per unit * 500 units
yields $2000 total profit.
12. In long run, firms will enter the market, increasing supply, expanding the industry and
putting downward pressure on prices, diminishing profits until all firms breakeven.
(demand and supply industry graph as done in class on Friday).