Multiple choice problems related to perfectly competitive industry, downward-sloping demand functions.
1. Suppose that there is an improvement in the techniques utilized by company in a perfectly competitive industry. After all adjustments have taken place, we would expect to see:
a) an increase in equilibrium price and quantity.
b) an increase in equilibrium price and a decrease in quantity.
c) a decrease in equilibrium price and an increase in quantity.
d) a decrease in equilibrium price and quantity.
2. An industry would be assumed to be most competitive when the price-cost margin is:
a) equal to 1.
b) close to zero.
c) greater than 1.
d) close to infinity.
3. As the case study in the text illustrates, there is a relatively limited amount of competition in the potato industry.
a) True
b) False
4. Assume that at the current level of output produced by a perfectly competitive firm, MR = $7.50 and MC = $6. In order to maximize its profit, the firm should increase output.
a) True
b) False
5. Which of the subsiquent is not a characteristic of perfect competition?
a) Large number of firms in the industry.
b) No barriers to entry or exit.
c) Outputs of the firms are perfect substitutes for one another.
d) Firms face downward-sloping demand functions.
6. The manager of a perfectly competitive firm has to decide:
a) the quantity of output the firm should produce and the price it should charge.
b) the price the firm should charge for its output.
c) the quantity of output the firm should produce.
d) neither the quantity of output the firm should produce nor the price it should charge because the market makes both of these decisions.
7. Which of the following statements is definitely true when price is less than average total cost for a firm producing the profit-maximizing level of output in the short run?
a) The firm will minimize its losses by shutting down.
b) The firm is running a loss in an accounting sense, so that total revenue is less than total explicit costs.
c) The firm will be earning negative total revenue.
d) The firm is incurring an economic loss.
8. Assume a perfectly competitive firm is producing 500 units of output, P = $7, ATC of the 500th unit is $6, marginal cost of the 500th unit = $7, and AVC of the 500th unit = $5. Based on this information, the firm is:
a) earning an economic profit of $1,000
b) earning an economic profit of $500
c) incurring a loss of $1,000
d) incurring a loss of $500
9. Which of the following is not an option for the perfectly competitive firm in the short run?
a) Exit the market altogether.
b) Shut down.
c) Increase its level of production.
d) Decrease its level of production.
10. Which of the following statements regarding the agricultural industry is correct?
a) Economies of scale and consolidation have significantly reduced the degree of competition in the industry.
b) Although farming has become increasingly concentrated over the last 70 years, it is still a highly competitive industry.
c) Corporate farms now control more than 50 percent of the market for each of the major crops.
d) The largest 5 percent of growers of any particular product are characterized by a small number of interdependent producers.