Question

I can seem to figure out these homework problems:

1. Which of the following is a feature of a perfectly competitive market?

Large number of influential buyers and sellers

Perfect information

Firms set the prices

Differentiated products

2. Which of the following is NOT a feature of a perfectly competitive market?

Homogenous products

Unrestricted entry and exit

Perfect information

Large number of relatively small buyers

None of the other options. They are all features of a perfectly competitive market.

3. Which of the following quantities represents the marginal revenue curve for a firm in a perfectly competitive market?

Variable cost

Price

Fixed cost

None of the other options are correct.

Marginal cost

4. Which of the conditions must hold true to produce at profit maximizing quantity in a perfectly competitive market?

MR = MC

TR = AVC

MC = AVC

MR = ATC

5. Select all that apply. If a profit maximizing perfectly competitive firm in the short run is making positive output, we can be certain that:

MR = MC

P > AVC

MC = ATC

6. A firm in a perfectly competitive industry reports a profit of $10,000 in the previous financial year.

True or false? We can say for certain that the industry is not perfectly competitive as profits must be zero in such an industry.

True

False

7. Which of the following conditions must hold true for long run equilibrium?

Demand must equal supply.

There should not be access to free entry and exit from the market.

Marginal cost must equal AVC.

Firms must make positive economic profits.

8. Arrange the following changes in the correct order of occurrence when demand for a product increases in a perfectly competitive industry currently in long run equilibrium.

1. Existing firms earn positive profits.
2. Demand curve shifts to the right.
3. Supply curve shifts to the right.
4. New firms decide to enter the market.

2, 1, 3, 4

2, 1, 4, 3

2, 3, 1, 4

1, 2, 4, 3

9. Negative economic profits faced by individual firms will cause which of the following changes in a perfectly competitive industry in the long run?

Prices will fall in the long run.

None of the other options are correct.

Firms will exit the market.

ATC for each individual firm will rise.

Demand for the product will increase.

10. Which of the following answers best represents the market supply curve in a perfectly competitive industry?

The product of marginal cost curves of all firms in the industry

The sum of marginal cost curves at or above AVC of all firms in the industry

The marginal cost curve of an individual firm

The price of the product

Answer 1

1)

Perfect information

Buyers and sellers have complete information about the market. Hence, single buyer or seller can not influence market price.

2)

Homogenous products

Unrestricted entry and exit

Perfect information

Large number of relatively small buyers

None of the other options. They are all features of a perfectly competitive market.

All of these correct.

3)

Price

Price is fixed, hence it is equal to the Marginal revenue in perfectly competitive market.

4. Which of the conditions must hold true to produce at profit maximizing quantity in a perfectly competitive market?

MR = MC

P = MR

Hence

MR = MC

5. Select all that apply. If a profit maximizing perfectly competitive firm in the short run is making positive output, we can be certain that:

P > AVC

Price is greater than the AVC.