1. When firms have an incentive to exit a competitive market, their exit will

a. drive down market prices.

b. drive down profits of existing firms in the market.

c. decrease the quantity of goods supplied in the market.

d. All of the above are correct.

2. If a perfectly competitive firm currently produces where price is greater than marginal cost it

a. will increase its profits by producing more.

b. will increase its profits by producing less.

c. is making positive economic profits.

d. is making negative economic profits.

3. Does a consumer well being vary along a demand curve?

a. Yes. When price increases, consumers move to a lower indifference curve.

b. Yes. When price increases, consumers move to a higher indifference curve.

c. No. When price increases, consumers stay on the same indifference curve.

d. No. When price increases, the higher price has no effect on budget constraints or indifference curves.

e. None of the above

4. If a competitive firm’s sets its output such that marginal revenue, marginal cost and average total cost are equal, economic profit must be:

a. Negative

b. positive

c. Zero

d. Indeterminate from the given information

5. Which of the following is a characteristic of a perfectly competitive market?

a. Firms are price setters.

b. There are few sellers in the market.

c. Firms can exit and enter the market freely.

d. All of the above are correct.