Which of the following are the characteristics of a competitive market quizlet?

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Terms in this set (21)

Why does a firm in a competitive industry charge the market price?
a.
If a firm charges less than the market price, it loses potential revenue.
b.
If a firm charges more than the market price, it loses all its customers to other firms.
c.
The firm can sell as many units of output as it wants to at the market price.
d.
All of the above are correct.

d

1. Which of the following characteristics of competitive markets is necessary for firms to be price takers?
(i)
There are many sellers.
(ii)
Firms can freely enter or exit the market.
(iii)
Goods offered for sale are largely the same.
a.
(i) and (ii) only
b.
(i) and (iii) only
c.
(ii) only
d.
(i), (ii), and (iii)

b

Which of the following firms is the closest to being a perfectly competitive firm?
a.
a hot dog vendor in New York
b.
Microsoft Corporation
c.
Ford Motor Company
d.
the campus bookstore

a

Which of the following statements regarding a competitive market is not correct?
a.
There are many buyers and many sellers in the market.
b.
Firms can freely enter or exit the market.
c.
Price equals average revenue.
d.
Price exceeds marginal revenue.

d

Quantity Total Revenue
0 $0
1 $15
2 $30
3 $45
4 $60

For a firm operating in a competitive market, the price is
a.
$45.
b.
$30.
c.
$15.
d.
$0.

c

Suppose a firm in a competitive market earned $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold?
a.
$5 and 50 units
b.
$5 and 100 units
c.
$10 and 50 units
d.
$10 and 100 units

d

At the profit-maximizing level of output,
a.
marginal revenue equals average total cost.
b.
marginal revenue equals average variable cost.
c.
marginal revenue equals marginal cost.
d.
average revenue equals average total cost.

c

Which of the following statements best expresses a firm's profit-maximizing decision rule?
a.
If marginal revenue is greater than marginal cost, the firm should increase its output.
b.
If marginal revenue is less than marginal cost, the firm should decrease its output.
c.
If marginal revenue equals marginal cost, the firm should continue producing its current level of output.
d.
All of the above are correct.

d

In the short run, a firm operating in a competitive industry will shut down if price is
a.
less than average total cost.
b.
less than average variable cost.
c.
greater than average variable cost but less than average total cost.
d.
greater than marginal cost.

b

In the long run, a firm will enter a competitive industry if
a.
total revenue exceeds total cost.
b.
the price exceeds average total cost.
c.
the firm can earn economic profits.
d.
All of the above are correct.

d

The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average
a.
fixed cost.
b.
variable cost.
c.
total cost.
d.
revenue.

c

In a competitive market with identical firms,
a.
an increase in demand in the short run will result in a new price above the minimum of average total cost, allowing firms to earn a positive economic profit in both the short run and the long run.
b.
firms cannot earn positive economic profit in either the short run or long run.
c.
firms can earn positive economic profit in the long run if the long-run market supply curve is upward sloping.
d.
free entry and exit into the market requires that firms earn zero economic profit in the long run even though they may be able to earn positive economic profit in the short run.

d

In a long-run equilibrium, the marginal firm has
a.
price equal to average total cost.
b.
total revenue equal to total cost.
c.
economic profit equal to zero.
d.
All of the above are correct.

d

One difference between a perfectly competitive firm and a monopoly is that a perfectly competitive firm produces where
a.
marginal cost equals price, while a monopolist produces where price exceeds marginal cost.
b.
marginal cost equals price, while a monopolist produces where marginal cost exceeds price.
c.
price exceeds marginal cost, while a monopolist produces where marginal cost equals price.
d.
marginal cost exceeds price, while a monopolist produces where marginal cost equals price.

a

Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly is often
a.
not in the best interest of society.
b.
one that fails to maximize total economic well-being.
c.
inefficient.
d.
All of the above are correct.

d

A monopoly
a.
can set the price it charges for its output and earn unlimited profits.
b.
takes the market price as given and earns small but positive profits.
c.
can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits.
d.
can set the price it charges for its output but faces a horizontal demand curve so it can earn unlimited profits.

c

The market demand curve for a monopolist is typically
a.
unit price elastic.
b.
downward sloping.
c.
horizontal.
d.
vertical.

b

The profit-maximization problem for a monopolist differs from that of a competitive firm in which of the following ways?
a.
A competitive firm maximizes profit at the point where marginal revenue equals marginal cost; a monopolist maximizes profit at the point where marginal revenue exceeds marginal cost.
b.
A competitive firm maximizes profit at the point where average revenue equals marginal cost; a monopolist maximizes profit at the point where average revenue exceeds marginal cost.
c.
For a competitive firm, marginal revenue at the profit-maximizing level of output is equal to marginal revenue at all other levels of output; for a monopolist, marginal revenue at the profit-maximizing level of output is smaller than it is for larger levels of output.
d.
For a profit-maximizing competitive firm, thinking at the margin is much more important than it is for a profit-maximizing monopolist.

b

The deadweight loss associated with a monopoly occurs because the monopolist
a.
maximizes profits.
b.
produces an output level less than the socially optimal level.
c.
produces an output level greater than the socially optimal level.
d.
equates marginal revenue with marginal cost.

b

Price discrimination is the business practice of
a.
bundling related products to increase total sales.
b.
selling the same good at different prices to different customers.
c.
pricing above marginal cost.
d.
hiring marketing experts to increase consumers' brand loyalty.

b

Antitrust laws allow the government to
a.
prevent mergers.
b.
break up companies.
c.
promote competition.
d.
All of the above are correct.

d

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