Free Practice Quiz Question List

2 Perfect Competition Online Quiz Questions

Use this free practice quiz with 20 questions to review 2 Perfect Competition, test your knowledge, and prepare for your next test or exam.

20 questions

True or false

1 point

In the short run, a competitive firm shuts down temporarily if the market price is below minimum average variable cost.

A
True
B
False

Choose one

1 point

What demand curve does an individual firm face in a perfectly competitive market?

A
A downward-sloping demand curve because it chooses its own price
B
A horizontal demand curve at the market price
C
A vertical demand curve because its output is fixed
D
No demand curve because it sells an identical product

Written response

1 point

What is the shape of an individual price-taking firm's demand curve at the market price?

Choose one

1 point

A competitive firm's market price is above its average variable cost but below its average total cost. What is the appropriate short-run decision?

A
Shut down immediately because price is below average total cost
B
Exit the industry immediately because price is below average total cost
C
Continue producing in the short run while accepting an economic loss
D
Raise its price above the market price to cover its costs

True or false

1 point

In long-run equilibrium, zero economic profit means that the firm's revenue covers its explicit costs and the opportunity cost of resources supplied by its owners.

A
True
B
False

Choose all

1 point

When firms in a competitive industry earn positive economic profit, which outcomes are part of the long-run adjustment? Select all that apply.

A
Entry by firms tends to increase market supply
B
The increased supply tends to lower the market price
C
Existing firms are guaranteed to keep earning the same positive profit
D
The lower price tends to reduce the economic profit of firms

Written response

1 point

A competitive firm sells $100$ units at a market price of $\$12$ per unit, and its average total cost is $\$9$ per unit. Using $\pi = (P - ATC)q$ , what is its economic profit in dollars?

Choose one

1 point

Which condition describes long-run equilibrium for a representative firm in the standard perfect-competition model?

A
$P = ATC$ at any output and $MC > P$
B
$P = MC = \min LRAC$
C
$P < MC$ and firms earn positive economic profit
D
$P = MR$ , but firms have an incentive to enter

Choose all

1 point

Which statements correctly describe the two efficiency properties of long-run competitive equilibrium under the model's assumptions? Select all that apply.

A
Allocative efficiency: price equals marginal cost
B
Productive efficiency: every firm earns positive economic profit
C
Productive efficiency: firms produce at minimum average total cost
D
Allocative efficiency: market supply is always horizontal

Open ended

1 point

Explain the difference between a competitive firm's short-run shutdown decision and its long-run exit decision. Include the condition that triggers shutdown and describe how persistent losses and exit can affect market supply and price.

True or false

1 point

With identical firms, long-run market supply must be horizontal even when expanding the industry changes input prices and firms' costs.

A
True
B
False

Choose one

1 point

Suppose an industry has several competitive firms, each with a short-run supply curve. How is the market short-run supply quantity determined at a given price?

A
Average the firms' prices at each quantity
B
Add firms' marginal costs vertically at each quantity
C
Add the quantities supplied by firms at each price
D
Use only the output of the largest firm

Choose one

1 point

A small firm in a perfectly competitive market can sell more output without changing the price it receives. Which demand curve does the firm face?

A
A horizontal demand curve at the market price
B
A downward-sloping demand curve that it can shift by changing output
C
A vertical demand curve because its output is fixed
D
A demand curve that always lies below the market price

Choose one

1 point

How is the market short-run supply curve constructed from the supply curves of individual firms?

A
Add firms’ prices vertically at each quantity.
B
Add firms’ quantities horizontally at each price.
C
Use only the output of the largest firm.
D
Average the firms’ marginal costs at each price.

Written response

1 point

A firm leaves its industry in the long run, rather than temporarily producing zero. What is this decision called?

Choose one

1 point

In the short run, a competitive firm faces a price below the minimum of its average variable cost. What should it do?

A
Continue producing to cover part of its fixed costs
B
Exit the industry immediately
C
Shut down temporarily and produce zero
D
Increase output until average total cost is minimized

Choose one

1 point

Firms in a competitive industry are earning positive economic profit. What long-run adjustment does the model predict?

A
Entry increases market supply, tending to lower price and profits.
B
Entry reduces market supply, tending to raise price and profits.
C
Exit increases market supply, tending to lower price and profits.
D
Entry has no effect on market supply or price.

Written response

1 point

A competitive firm sells $q=4$ units at $P=\$12$ per unit and has $ATC=\$9$ per unit. Using $\pi=(P-ATC)q$ , what is its economic profit in dollars?

Fill in the blank

1 point

A small orchard sells apples at a market price of $8 per bushel. Assuming it produces on the rising portion of its marginal-cost curve, the orchard should choose the output where .

Fill in the blank

1 point

An orchard can adjust its labor this season, but it cannot change the amount of land it farms until later. The orchard is making its production decision in the .

2 Perfect Competition Online Quiz Questions

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