1. All of the following are characteristics of a perfectly competitive market except:
A) a large number of sellers.
B) perfectly elastic demand.
C) a homogeneous product.
D) barriers to entry.

2. Perfectly competitive firms are said to be "small." Which of the following best describes this smallness?
A) The individual firm must have fewer than 10 employees.
B) The individual firm faces a downward-sloping demand curve.
C) The individual firm has assets of less than $2 million.
D) The individual firm is unable to affect market price through its output decisions.

3. Consumers don't care which supplier they buy from in a perfectly competitive market because:
A) the outputs of the firms in a perfectly competitive market are all the same.
B) the consumers have no choice regarding who they buy from.
C) price is always low enough that the choice of supplier doesn't matter.
D) all of the above.

4. The manager of a perfectly competitive firm has to decide:
A) the quantity of output the firm should produce.
B) the price the firm should charge for its output.
C) the quantity of output the firm should produce and the price it should charge.
D) neither the quantity of output the firm should produce nor the price it should charge because the market makes both of these decisions.

5. The demand curve faced by the individual perfectly competitive firm is:
A) downward sloping.
B) upward sloping.
C) horizontal.
D) vertical.

6. The demand curve faced by the individual perfectly competitive firm is:
A) perfectly elastic.
B) perfectly inelastic.
C) unit elastic.
D) elastic or inelastic depending on price.

7. Marginal revenue is equal to:
A) the change in price divided by the change in output.
B) the change in quantity divided by the change in price.
C) the change in P x Q due to a one unit change in output.
D) price, but only if the firm is a price searcher.

8. In the case of the perfectly competitive firm:
A) marginal revenue equals the market price.
B) marginal revenue is greater than the market price.
C) marginal revenue is less than the market price.
D) marginal revenue is equal to, less than, or greater than market price depending on the level of output.

9. When a firm is producing at the profit maximizing level of out put and P > ATC, the firm is:
A) breaking even.
B) incurring an economic loss.
C) earning an economic profit.
D) earning a profit or incurring a loss depending on the level of total fixed costs.

10. A firm encounters its "shutdown point" when:
A) average total cost equals price at the profit-maximizing level of output.
B) average variable cost equals price at the profit-maximizing level of output.
C) average fixed cost equals price at the profit-maximizing level of output.
D) marginal cost equals price at the profit-maximizing level of output.

11. When price is greater than average variable cost but less than average total cost at the profit-maximizing level of output, a firm should:
A) continue to produce the level of output at which marginal revenue equals marginal cost.
B) increase output to minimize its losses.
C) reduce output to the level at which price equals average variable cost to minimize its losses.
D) shutdown to minimize its losses.

12. Widgets R Us, which is a price-taking firm, is currently producing 250 units of output. The market price is $3 per unit, the marginal cost of the 250th unit is $2.75, average total cost is $3.50 per unit, and average variable cost is $2.50 per unit. What advice should you give Widgets R Us?
A) Increase output to reduce losses.
B) Continue to produce 250 units in the short run.
C) Shut down to minimize losses.
D) Decrease output to 200 units.

13. By shutting down when price is less than average variable cost at the profit-maximizing level of output, a perfectly competitive firm will limit its losses to its:
A) total variable costs.
B) total costs.
C) total fixed costs.
D) marginal costs.

14. Assume that goods X and Y are substitutes and are produced in perfectly competitive markets. All else constant, in the short run, a decrease in the supply of good X would cause:
A) an increase in the demand for good Y.
B) a decrease in the demand for good Y.
C) an increase in the supply of good Y.
D) a decrease in supply of good Y.

15. Assume that goods X and Y are substitutes and are produced in perfectly competitive markets. If there is a decrease in the supply of good X, which of the following will happen in the market for good Y in the long run?
A) Firms will exit, causing market price to rise.
B) Firms will enter, causing market price to fall.
C) Price will be higher at the new long-run equilibrium as a result of entry into the market.
D) The firms that were already in the industry will continue to earn positive economic profit.