AP Micro Unit 3

The demand curve for a perfectly competitive firm is:

• perfectly inelastic.
• perfectly elastic.
• downward sloping.
• relatively but not perfectly elastic.

Zoe's Bakery determines that P < ATC and P > AVC. Zoe should:

• continue to operate even though she is taking an economic loss.
• continue to operate, as she is making an economic profit.
• shut down immediately, as she is taking an economic loss.
• raise the price until she has maximized her profits.

What should you do?

• Shut Down
• Take loss but stay open
• Stay open, Normal Profit
• Stay open, Positive Economic Profit

What should you do?

• Shut Down
• Stay open and take a loss
• Stay open, Positive Economic Profit
• Stay open, Normal Profit

All of the following are essential characteristics of a perfectly competitive industry EXCEPT: 

• All products produced by the firms in the industry are homogeneous. 
• All firms in the industry are price takers. 
• Price is equal to marginal revenue for every firm in the industry. 
• There are barriers to entry into and exit from the industry.
  

Based on the cost and output data in the table shown, a perfectly competitive firm will shut down if price falls below:

• $15 
• $16
• $18
• $20

A profit-maximizing firm will shut down in the short run any time the firm’s total revenue is less than its:

• total cost
  
• fixed cost
  
• total variable cost 
• explicit cost
  

In the short run, the firm will realize an economic loss but will continue to produce if the price is:

• below P2
  
• between P1 and P2 
• between P2 and P3 
• between P3 and P4 

How do firms in monopolistic competition try to make their products stand out?

• They lower their prices.
• They use nonprice competition such as advertising.
• They raise their prices.
• They maximize profits.

How does the profit-maximizing behavior of a monopolistic competitor compare to that of perfect competitors, oligopolies, and monopolies?

• They all try to find the level of output where their marginal cost is equal to their marginal revenue.
• The monopolistic competitor is similar to monopoly but not to pure competition.
• The monopolistic competitor is similar to pure competition but not to oligopoly.
• The monopolistic competitor is similar to monopoly but not to oligopoly.