1. Which of the following is NOT a basic assumption of perfect​competition?

A. There is free entry and exit from the market.

B. All firms and consumers are price takers.
C. Production is characterized by significant economies of scale.
D. All firms produce​identical, or nearly​identical, products.

2. A firm in a highly competitive market that does not maximize its profit

A. can do well by maximizing revenue instead of profit.

B. will most likely go out of business or be taken over by another firm.
C. can do well by charging a higher price than other firms in the industry.
D. None of the above.
3. The data in the table to the right give the total​cost, C, and
marginal​cost, MC, for a profit maximizing firm in a perfectly q C MC
industry market at each possible level of​output, q. ​(Enter all 0 100 −
numeric responses using integers.​)
1 150 50
What is marginal revenue when the market price is ​$54​? 2 178 28
3 198 20
MR​= ​$ .
4 212 14
What is marginal revenue when market price is ​$40​? 5 230 18

MR​= ​$ 6 250 20
7 272 22
What happens to the​firm's output choice and profit if the price of 8 310 38
the product falls from ​$54 to ​$40.
9 355 45
If the market price falls from ​$54 to ​$40​, then the​firm's output 10 410 55
will (1) from units to 11 475 65
units.

​Further, profit will (2) from ​$ to

​$ .

(1) decrease (2) decrease

increase increase

4. An individual​firm's demand curve in perfect competition is

A. shaped just like the market demand curve but with smaller quantities demanded.
B. equal to marginal cost.
C. a horizontal line at the market price.
D. perfectly inelastic.
5. Why would a firm that incurs losses choose to produce rather than shut​down?

In a perfectly competitive​industry, if a firm is incurring​losses, then it might choose to produce in the short run because

A. price is greater than average variable cost​, resulting in smaller losses than would result from shutting down.
B. variable costs are greater than fixed​costs, resulting in smaller losses than would result from shutting down.
C. revenue is greater than variable costs​, resulting in profit in the long run.
D. fixed costs become zero in the long​run, resulting in profit in the long run.
E. price is greater than average fixed cost​, resulting in smaller losses than would result from shutting down.
6. Consider a city that has a number of hot dog stands operating throughout the downtown area. Suppose that each vendor has a
marginal cost of ​$1.50 per hot dog sold and no fixed cost. Suppose that the maximum number of hot dogs that any one vendor can
sell is 50 per day.

If the price of a hot dog is ​$2.00, how many hot dogs does each vendor want to​sell?

Each vendor will want to sell hot dogs. ​(Enter your response as an integer.​)

If the industry is perfectly​competitive, will the price remain at ​$2.00 for a hot​dog? If​not, what will the price​be?

Assuming the industry is perfectly​competitive, the price of a hot dog will (1) a price of ​$ per hot
dog. ​(Enter your response rounded to two decimal places.​)

If each vendor sells exactly 50 hot dogs a day and the demand for hot dogs from vendors in the city is

D
Q = 4400 − 600​P,

how many vendors are​there?

In​long-run equilibrium, there will be vendors. ​(Enter your response as an integer.​)

Suppose the city decides to regulate hot dog vendors by issuing permits. If the city issues only 20 permits and if each vendor
continues to sell 50 hot dogs a​day, what price will a hot dog sell​for?

Hot dogs will sell for ​$ each. ​(Enter your response rounded to two decimal places.​)

Suppose the city decides to sell the permits. What is the highest price that a vendor would pay for a​permit?

A vendor would pay a maximum of ​$ for a permit. ​(Enter your response rounded to two decimal places.​)

(1) rise to
fall to
remain at

7. A perfectly competitive firm should shut down in the short run if

A. it cannot earn a profit.

B. the firm does not earn enough to pay for all its fixed costs.
C. price is below minimum average total cost.
D. price is below minimum average variable cost.
8. A perfectly competitive​firm's marginal cost function is MC​= 40 ​+ 2q. The​firm's short-run supply curve is

A. q​= − 20 ​+0.5P.
B. q​= − 40 ​+ 2P.
C. q​= 40 ​+ 2P.
D. q​= 20 ​+ 0.5P.

9. The figure to the right shows a perfectly competitive​firm's

marginal cost curve​(MC), average fixed cost curve​(AFC), 30
average variable cost curve​(AVC), and average total cost 28
curve​(ATC). Illustrate the firm's short-run supply curve. Assume 26
all fixed costs are sunk in the short run. 24

Price (dollars per unit of output)

MC
22
Using the line drawing tool​, draw the​firm's short-run supply
20
curve in the figure to the right. Label this line​'S'.
18
Carefully follow the instructions​above, and only draw the 16
ATC
required object. 14
12
AVC
​ herefore, in the short​run, if the market price is ​$10.00​, then the
T
10
firm should produce units of output ​(enter this 8
and the remaining responses rounded to one decimal place.​)​; if 6
the market price is ​$15.00​, then the firm should produce 4
units of output​; and if the market price is 2 AFC
​ 18.00​, then the firm should produce
$ units of 0
0 1 2 3 4 5 6 7 8 9 10 11
output. Output
10. Suppose a perfectly competitive​firm's total cost of production​(TC) is

3 2
​TC(q) = q − 14q + 80q + 30​,

and the​firm's marginal cost of production​(MC) is

2
​MC(q) = 3q − 28q + 80.

The​firm's short-run supply curve is given by

A. P 3 2
= q − 28q + 80 for prices above ​$31.
B. P 2
= q − 14q + 80 for prices above ​$7.
C. 2 30
P = q − 14q + 80 + .
q

D. P 2
= q − 14q + 80 for prices above ​$31.
E. P 3 2
= q − 28q + 80 for prices above ​$62.

11. Explain why the industry supply curve is not the​long-run industry marginal cost curve.

The industry supply curve is not the​long-run industry marginal cost curve because

A. at prices above the minimum​long-run average cost of​production, firms will exit the industry.
B. production will only occur along the​long-run marginal cost curve when profits are earned.
C. firms cannot change fixed inputs in the long​run, resulting in an industry supply curve that equals a​short-run marginal cost c
D. production will only occur along the​long-run marginal cost curve for prices above average variable cost.
E. at prices above the minimum​long-run average cost of​production, firms will enter the industry.

12. What is the difference between economic profit and producer​surplus?

A. Producer surplus includes government taxes but economic profit does not.
B. Economic profit includes variable costs but producer surplus does not.
C. Economic profit includes fixed costs but producer surplus does not.
D. Producer surplus includes marginal costs but economic profit does not.
E. Producer surplus includes opportunity costs but economic profit does not.
13. Why do firms enter an industry when they know that in the long run economic profit will be zero?

Firms would enter an industry if profit will eventually be zero because zero economic profit

A. indicates other industries are earning negative economic profit.

B. corresponds to positive producer surplus in the long run.
C. becomes positive once the value of the next best use of resources used in production is included.
D. includes the opportunity cost of resources used in production and corresponds to negative accounting profit.
E. signifies that a firm is earning as much as it could in its next best activity

14. Consider a perfectly competitive market in which each​firm's short-run total cost function is C​= 36 ​+ 15q ​+ q2​, where q is the
number of units of output produced. The associated marginal cost curve is MC​= 15 ​+ 2q.

In the short run each firm is willing to supply a positive amount of output at any price above ​$ . ​(Enter your
response as a real number rounded to two decimal​places.)

If the market price is ​$31​, each firm will produce units in the​short-run. ​(Enter your response as a real number
rounded to one decimal​place.)

Each firm earns a profit of ​$ . (Enter your response as a real number rounded to two decimal​places, and use a
negative sign if the firm has a loss rather than a​profit.)

In the long​run, firms will (1) the industry.

Suppose the​short-run cost function given above​[C = 36 ​+ 15q ​+ q2​] is the one that all firms would use in the​long-run, because
the corresponding SAC curve is tangent to the LAC curve at the minimum point on the LAC curve. In the long​run, each firm will
produce units. ​(Enter your response as a real number rounded to one decimal​place.)

The​long-run equilibrium price in this market will therefore be ​$ . ​(Enter your response as a real number rounded to
two decimal​places.)

(1) neither enter nor exit

enter
exit
15. Assume the vitamin industry is perfectly competitive. When a new medical study shows that taking vitamins improves both the
quality and length of​life, demand for vitamins increases dramatically. As a​result, vitamin​producers' profits will

A. increase in the​short-run and in the long-run.

B. increase in the​short-run but fall to zero in the​long-run.
C. remain unchanged in both the​short-run and the​long-run.
D. decrease in the​short-run but become positive in the​long-run.