ECON 203:Chapter 8 – Perfect Competition

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Ch08 Perfect Competition

Multiple Choice Questions

1. The term _________________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product.

A. price setter

B. business entity

C. price taker

D. trend setter

Answer: C  Reference:

Explanation:

2. ______________________ refers to the additional revenue gained from selling one more unit.

A. Marginal revenue

B. Total revenue

C. Economic profit

D. Accounting profit

Answer: A  Reference:

Explanation:

3. If a firm’s revenues do not cover its average variable costs, then that firm has reached its _________________ .

A. price taking point

B. shutdown point

C. marginal point

D. opportunity margin

Answer: B  Reference:

Explanation:

4. In economics, the term “shutdown point” refers to the point where the

A. marginal cost curve crosses the total revenue curve.

B. average variable cost curve crosses the total revenue curve.

C. average variable cost curve crosses the marginal cost curve.

D. marginal cost curve crosses the average variable cost curve.

Answer: D  Reference:

Explanation:

5. A manufacturer would likely make an ___________ in a market following the long-run process of beginning and expanding production in response to ________________ .

A. accounting profit; a strategy to grow profits

B. accounting profit; an incentive for profit

C. entry; a sustained pattern of profits

D. entry; an incentive to add to profits

Answer: C  Reference:

Explanation:

6. When a business adopts a strategy of reducing and/or discontinuing production in response to a sustained pattern of losses, it is

A. considering opportunity costs.

B. preparing to exit operations.

C. preparing to reach its shutdown point.

D. considering capital investments.

Answer: B  Reference:

Explanation:

7. An _________________  is calculated by subtracting the firm’s costs from its total revenues, _______________________________ .

A. accounting profit; excluding opportunity cost

B. accounting profit; including opportunity cost

C. economic profit; excluding opportunity cost

D. opportunity cost; including economic profit

Answer: A  Reference:

Explanation:

8. Economic profit can be derived from calculating total revenues minus all of the firm’s costs,

A. excluding its opportunity costs.

B. including its opportunity costs.

C. including its marginal revenue.

D. excluding its marginal revenue.

Answer: B  Reference:

Explanation:

11. A perfectly competitive industry is a

A. realistic extreme.

B. hypothetical assumption.

C. hypothetical extreme.

D. realistic assumption.

Answer: C  Reference:

Explanation:

12. The fact that a consumer is not required to buy the goods that a given firm produces, as well as the fact that the consumer might want the goods a firm produces, but may choose to buy from other firms instead

A. will reduce the revenue a firm receives and it should shut down.

B. means the firm has reached it shutdown point and should exit.

C. is part of the process to a sustained pattern of profits.

D. are two stark realities any business firm must recognize.

Answer: D  Reference:

Explanation:

13. It is said that in a perfectly competitive market, raising the price of a firm’s product from the prevailing market price of $179.00 to $199.00, ____________________.

A. will likely cause the firm to reach its shutdown point immediately

B. will cause the firm to recover some of its opportunity costs

C. could likely result in a notable loss of sales to competitors

D. is a sure sign the firm is raising the given price in the market

Answer: C  Reference:

Explanation:

14. If a perfectly competitive firm is a price taker, then

A. pressure from competing firms will force acceptance of the prevailing market price.

B. it must be a relatively small player compared to its competitors in the overall market.

C. it can increase or decrease its output without affecting overall quantity supplied in the market.

D. quality differences will be very perceptible and will play a major role in purchasers’ decisions.

Answer: A  Reference:

Explanation:

15. If the quality differences of similar products are mostly imperceptible to the average consumer’s eyes, which of the following will most likely play a major role in influencing the decisions of purchasers?

A. price of competing products

B. size of competing products

C. purchaser’s opportunity cost

D. geographic origin of products

Answer: A  Reference:

Explanation:

16. In the _________, the perfectly competitive firm will seek out ________________________ .

A. long run; the quantity of output where profits are highest

B. short run; profits by ignoring the concept of total cost analysis

C. short run;  the quantity of output where profits are highest

D. long run; methods to reduce production and shut down

Answer: C  Reference:

Explanation:

17. Idaho farmers can sell as large a quantity of their potato crop as they wish,

A. if they set their own price in the short run, but in the long run, the market sets the price.

B. provided each is willing to accept the prevailing market price.

C. if they set their own price in the long run, but in the short run, the market sets the price.

D. provided quality is perceptible and determines the market price.

Answer: B Reference: