L19.pdf Exercise Questions: Firms in Competitive Markets PDF

Exercise Questions: Firms in Competitive Markets Shuo Xu November 25, 2024 1. In a perfectly competitive market: (a) Firms can freely set prices above the market price. (b) The goods are standardized and identical across...

Exercise Questions: Firms in Competitive Markets Shuo Xu November 25, 2024 1. In a perfectly competitive market: (a) Firms can freely set prices above the market price. (b) The goods are standardized and identical across sellers. (c) There are significant barriers to entry and exit. (d) Sellers can influence the market price by adjusting their output. 2. The profit-maximizing rule for a firm in a perfectly competitive market is: (a) Produce where P = AV C. (b) Produce where M C = AR. (c) Produce where M R = M C. (d) Shut down if P > AT C. 3. If a firm produces zero output in the short run, its total cost will be: (a) Zero. (b) Equal to its fixed costs. (c) Equal to its variable costs. (d) The sum of its fixed and variable costs. 4. A firm will shut down in the short run if: (a) Total revenue exceeds total cost. (b) Price is below average variable cost. (c) Marginal revenue equals marginal cost. (d) Price is above average total cost. 5. In the long run, firms in a perfectly competitive market earn zero economic profit because: (a) Firms are not profit-maximizing. (b) The price of the good falls below average variable cost. (c) Firms freely enter and exit the market, driving profits to zero. (d) Marginal revenue equals marginal cost at every level of output. 1  6. A firm’s short-run supply curve corresponds to: (a) Its marginal cost curve above the minimum average variable cost. (b) Its marginal cost curve above the minimum average total cost. (c) Its total cost curve above the shutdown point. (d) Its average variable cost curve above marginal cost. 7. If market demand increases in a perfectly competitive market in the short run: (a) Price increases, and firms earn positive economic profits. (b) Price increases, and firms earn zero economic profits. (c) Price decreases, and firms exit the market. (d) Price remains unchanged as firms are price takers. 8. Allocative efficiency in a perfectly competitive market occurs when: (a) Firms produce where price equals marginal cost. (b) Firms minimize their average total cost. (c) Economic profit is maximized. (d) The market supply curve is vertical. 9. Profit Maximization: A firm in a perfectly competitive market faces the following cost schedule: Quantity (Q) Total Cost (TC) Price (P) 0 50 20 1 70 20 2 90 20 3 120 20 4 160 20 (a) Calculate the Marginal Cost (MC) for each unit of output. (b) Determine the profit-maximizing level of output. (c) Calculate the firm’s profit at this output level. 10. Shutdown Decision: A firm produces 10 units at a market price of $15. The firm’s average variable cost is $12, and fixed cost is $40. (a) Calculate the firm’s total revenue, total cost, and profit. (b) Should the firm shut down in the short run? Explain. 2