Market Structures

To maximize profit, firms in all market structures produce the quantity of output at which __________.

• total revenue equals total cost

• marginal revenue equals marginal cost

• average revenue equals average cost

• total revenue equals marginal cost

• marginal revenue equals total cost

A perfectly competitive firm’s total revenue and total cost at various levels of output are shown in the table. What must the market price be? $____

A perfectly competitive firm’s total revenue and total cost at various levels of output are shown in the table. What quantity of output should the firm produce to maximize its profit?

Suppose that a perfectly competitive firm is currently producing a quantity of output each month at which marginal cost is rising but is still significantly less than marginal revenue.  To maximize profit, the firm should _________.

• increase its quantity of output

• decrease its quantity of output

• increase its price

• decrease its price

Which of the following is not a characteristic of a perfectly competitive market?

• No individual firm is large enough to affect the market price.

• An individual firm can increase its profits by raising its price

• There are low barriers to entry in the market

• Each firm sells a product that is essentially identical to its competitors’ products.

• Individual firms have no incentive to advertise

The demand for a perfectly competitive firm’s product is _______________.

• elastic

• inelastic

• perfectly elastic

• perfectly inelastic

• unit elastic

Which of the following best describes what will happen in the long run if many firms in a perfectly competitive market are earning short-run positive economic profits?

• Firms’ costs will decrease, causing their economic profits to increase

• Firms will enter the industry, causing market demand to increase

• Firms will go out of business, causing market demand to decrease

• Firms will enter the industry, causing market supply to increase

• Firms will go out of business, causing market supply to decrease

Which of the following best describes what will happen in the long run if many firms in a perfectly competitive market are experiencing short-run economic losses?

• Firms’ costs will decrease, causing their economic profits to increase

• Firms will enter the industry, causing market demand to increase

• Firms will go out of business, causing market demand to decrease

• Firms will enter the industry, causing market supply to increase

• Firms will go out of business, causing market supply to decrease

In long run equilibrium, a perfectly competitive firm will tend to earn _____________.

• zero accounting profit

• zero economic profit

• positive economic profit

• negative economic profit

• negative accounting profit

Which of the following is NOT a characteristic of a monopoly?

• There is only one firm in the market

• There are no close substitutes for the firm’s product.

• The firm faces a perfectly elastic (horizontal) demand curve for its product

• There are high barriers to entry into the market.

• The firm’s marginal revenue is less than the price it charges.