1. What characteristics does the “perfectly competitive market” have? A) Many co
ID: 1107083 • Letter: 1
Question
1. What characteristics does the “perfectly competitive market” have?
A) Many competitors, different products, and no one firm has market price control
B) Many competitors, similar products and no one firms has market price control.
C) Many competitors, similar products and free market entry and exit for firms
D) Both B and C are correct.
2. Which industry below more closely represents the perfectly competitive market?
A) The online travel industry – Yahoo Travel, Expedia, Priceline.com.
B) Microsoft Corporation.
C) The airline industry – Southwest, United, Delta and JetBlue.
D) The auto industry – General Motors, Ford, Chrysler and Toyota.
3. If the demand curve for an individual firm is perfectly elastic, then we can say:
A) The firm has no market pricing power.
B) It is in a state of perfect competition.
C) It can produce as little or as much as it wants and it sells products at the same price.
D) All of the statements above are true.
4. Pure Competition is commonplace in the real world?
A) This statement is false – it is mainly a theoretical concept.
B) This statement is true it is all around us.
C) There are some firms on the Internet that come close to pure competition
D) Both A and C are the most correct responses.
5. We already know that the Total Revenue can be calculated by taking Price x Quantity. But
how do we calculate Marginal Revenue?
A) Change in Total Revenue / Change in Quantity.
B) Use the same calculation as TR: Price x Quantity = Marginal Revenue
C) Marginal Revenue is the additional revenue you get from selling one more product.
D) Both A and C are correct.
6. If you run into a situation where Marginal Revenue = Average Revenue = Market Price,
then what can you conclude?
A) Then you have Perfect Competition
B) The demand curve must be totally elastic
C) Both A and B are correct statements
D) Both A and B are incorrect statements.
7. How do you calculate Average Revenue?
A) Total Revenue / Quantity.
B) Change in Total Revenue / Change in Quantity.
C) Both A and B are correct.
D) Both A and C are incorrect.
8. Economic Profit is:
A) Total revenues minus total expenses
B) Total revenue minus explicit and implicit costs.
C) Total Revenue minus all marginal costs.
D) Both A and C are true.
9. If we drew a graph that plotted both the Total Revenue and Total Cost curves, then we
could say:
A) You reach a breakeven point that includes a ‘normal profit’ when they intersect with each other.
B) Total Revenue minus Total Cost always equals Total Product.
C) Both A and B are correct.
D) Neither A and B are correct.
10. What can we say about the Marginal Revenue = Marginal Cost relationship:
A) This is the point where the firm maximizes its profits.
B) This is the breakeven point for a firm.
C) The firm should shut down if it reaches this point.
D) The firm is inefficient at this point.
11. All types of industry structures – competitive markets, monopolies, oligopolies,
monopolistic competition and cartels all strive to reach the point where MR=MC:
A) This statement is true.
B) This statement is false.
C) We do not have enough information to conclude if this is true or false.
D) MR=MC has no practical applications and is just a theory.
12. Let’s assume that a firm is going through hard economic times. The market price
generates enough revenues to cover all of the average variable costs, but not enough to cover
the total costs. Therefore, what should this firm do next?
A) Stop all production and shut down immediately since we are losing money.
B) Continue to produce as long as we can still cover average variable costs.
C) Continue to produce but also think of ways to minimize costs and increase revenues.
D) Both B and C are correct.
13. Let’s assume that a firm is going through very hard economic times. Unfortunately, the
market price doesn’t even generate enough revenue to cover the average variable costs.
Therefore, what should this firm do?
A) Stop all production and shut down immediately
B) After shutting down – call an emergency management meeting and implement a plan to quickly minimize costs, generate new revenues and profits. The plan must produce fast results because employees, investors and maybe even the customers will not support a firm that can’t even cover basic costs.
C) Immediately declare a Chapter 11 business bankruptcy because there is no hope
D) Statements A and B are the best choices.
14. When Economic Profits = 0, then this means that:
A) The firms in the industry are earning normal profits.
B) There is no motivation to leave the industry or for new firms to enter the industry.
C) Your crazy if you don’t get into an industry like this as soon as you can.
D) Both A and B are true.
15. Should non-profit firms need to be concerned with the MC=MR profit maximization
formula?
A) Non-profit firms do not need to calculate this formula and it will not provide any useful information for them.
B) This formula can be useful in helping the non-profit to at least breakeven.
C) The MC=MR formula can only be used by for-profit firms.
D) All of the statements above are false.
16. At the point where Marginal Cost just intersects the Average Total Cost, and assuming the
price of the product or service is also at this level, then you are:
A) Earning a huge economic profit.
B) You are breaking even with no economic profit whatsoever.
C) Enjoying economies of scale.
D) Still dealing with diseconomies of scale.
17. Let’s assume that the federal government has just given everyone a temporary income tax
cut and that they have quickly mailed out the rebate checks. If the demand curve for an a
product increases and if the sales spike upward in an industry that had zero economic profits
for several years, then what can we conclude?
A) That the temporary spike in sales won’t do much good in the long-run because as more firms enter the industry to seize the new profits, then this will eventually bring the economic profits for the industry back to zero.
B) In the short-run times will be good, but in the long-run everyone this will create a situation of negative economic profits.
C) This event will permanently convert the industry into one of positive economic profits.
D) Both A and B are correct.
18. Most firms belong to an increasing cost industry. This means that:
A) The long-run supply curve is upward sloping.
B) As the industry expands, more firms will enter the industry and will compete for the inputs that are necessary for production.
C) New firms entering into the industry will bid up input resource prices (e.g. labor) and will therefore increase the per-unit costs.
D) All statements A, B and C are true.
19. At the lowest point of the Long-Run Total Cost curve, we can say that:
A) Management has made the best choices and has minimized long-run ATC cost.
B) That Productive Efficiency has been reached when the firm can produce in the least costly way and that they are using the least amount of inputs.
C) That Allocative Efficiency is reached when firms use the best combination of inputs so that they can produce the best mix of products and services desired most by society.
D) All of the statements above are basically true.
20. When a generic drug becomes available, then price of the drug will fall. Therefore,
consumer surplus will rise and what will society experience?
A) An Efficiency Gain
B) Another round of positive economic profits
C) Another round of marginal revenue units to society
D) All of the above statements are false.
Explanation / Answer
Ans;
1) Option D
Both B and C are correct.
The characteristics of perfect competition includes all firms sell an identical product, firms are price takers, firms will have small market share, buyers have complete information about the product and there is a freedom of entry and exit in the industry.
2) Option A
Perfect competition is a market structure in which, all firms sell an identical product, firms are price takers, firms will have small market share, buyers have complete information about the product and there is a freedom of entry and exit in the industry. In this case online travel industry satisfies the criteria of perfect competition.
3) Option D
All of the statements above are true.
4) Option C
There are some firms on the Internet that come close to pure competition
5) Option D
Both A and C are correct.
6) Option C
Both A and B are correct statements
7) Option A
Total Revenue / Quantity
8) Option B
Total revenue minus explicit and implicit costs
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.