Perfect Competition

Which of the following is TRUE regarding a perfectly competitive firm?

• The firm can charge a lower price than its competitors and thereby sell more output and increase its profits.

• The firm always earns a normal profit.

• The firm's marginal revenue continually decreases.

• The firm's minimum efficient scale is small relative to the market demand.

Perfect competition exists in a market if

• There are many firms producing an identical product.

• There are many firms producing a similar product, each of which may have unique features.

• The firm is protected by a barrier to entry.

• The firm is always at the break-even point where it is earning only a normal profit.

When a firm is considered to be a "price taker" that means that the firm

• can charge any price that it wants to charge, that is, "take" any price it wants.

• pays a fixed price for all of its inputs.

• will accept ("take") the lowest price that its customers offer.

• cannot influence the market price of the good that it sells.

In perfect competition, an individual firm

• faces unitary elasticity of demand.

• has a price elasticity of supply equal to one.

• faces a perfectly elastic demand.

• has perfectly elastic supply.

The economic profit of a perfectly competitive firm

• is less than its total revenue.

• equals its total revenue.

• is greater than its total revenue.

• is less than its total revenue if its supply curve is inelastic and is greater than its total revenue if its supply curve is elastic.

For a perfectly competitive firm, price is the same as

• Marginal revenue.

• Average variable cost.

• Total revenue.

• Both answers A and B are correct.

Sue's Sea Shells by the Sea Shore is a perfectly competitive firm selling sea shells at the market price of $2 per dozen. Sue's Sea Shells by the Sea Shore has fixed costs of $40 per day and a variable cost schedule in the table above. The profit-maximizing level of output for Sue's Sea Shells by the Sea Shore is

• 202 dozen sea shells by the sea shore per day.

• 204 dozen sea shells by the sea shore per day.

• 205 dozen sea shells by the sea shore per day.

• 206 dozen sea shells by the sea shore per day.

Sue's Sea Shells by the Sea Shore is a perfectly competitive firm selling sea shells at the market price of $2 per dozen. Sue's Sea Shells by the Sea Shore has fixed costs of $40 per day and a variable cost schedule in the table above. The maximum profit attainable by Sue's Sea Shells by the Sea Shore is

• $262.00 per day.

• $262.50 per day.

• $302.00 per day.

• $302.50 per day.

Sue's Sea Shells by the Sea Shore is a perfectly competitive firm selling sea shells at the market price of $2 per dozen. Sue's Sea Shells by the Sea Shore has fixed costs of $40 per day and a variable cost schedule in the table above. Based on this information, we can expect the number of firms in the sea shell market to

• Decrease.

• Increase.

• Remain constant.

• It is impossible to say.

The above figure shows the cost curves for a perfectly competitive firm. If all firms in the market have the same cost curves and the price equals $16 per unit

• The market is in its long-run equilibrium.

• Over time, firms will leave this market.

• The firm is making zero economic profit.

• Over time, the price will fall as new firms enter the market.