Question

1. All of the following are characteristics of perfectly competitive markets, except:

A: No barriers to entry or exit (fully mobile)

B: Large number of buyers & sellers

C: A homogeneous product (not differentiated)

D: Individual firms have the power to control price.

2. The individual firm's demand curve (as compared to the market demand curve) in a perfectly competitive market is:

A: Perfectly inelastic (vertical)

B: Downward sloping, but inside of the market demand curve.

C: Perfectly elastic (horizontal at the market price)

D: Identical to the market demand curve.

3. The maximization of profit occurs where:

A: Total costs reaches a minimum.

B: The price is as high as the demand will allow.

C: Total revenues reaches a maximum.

D: The difference between total revenues (TR) and total costs (TC) is the greatest.

4: A firm's shutdown point is:

A: The minimum on the marginal cost curve (MC).

B: The minimum on the average variable cost (AVC) curve.

C: The minimum on the average total cost curve (ATC).

D: When demand equals zero.

5. Which of the following statements about perfectly competitive markets is correct?

A. In the long run, perfectly competitive firms earn zero economic profit.

B. In the long run, perfectly competitive firms can earn profits, losses or break-even.

C. In the short run, firms will never choose to shut down.

D. In the short run, perfectly competitive firms will never earn a profit.

Answer 1