1. The perfectly competitive market structure is defined with the help of various characteristics, including

a. the assumption that there are so many buyers and so many sellers that no single person, acting alone, can influence the market price.
b. the assumption that, in the minds of the buyers, all units of the good traded are identical, which makes it irrelevant who produced it.
c. the assumption that all market participants are perfectly informed about all the factors that are relevant to their trading (prices, product quality, sources of supply, and so on).
d. the assumption that new firms can enter the market easily, while existing firms can exit it just as easily.
e. all of the above.

2. In a perfectly competitive market,

a. a dissatisfied buyer, who leaves the market to buy something else, thereby drives the price down.
b. a dissatisfied seller, who leaves the market to produce and sell something else, thereby drives the price up.
c. the entry of a new buyer, by raising demand, thereby drives the price up.
d. the entry of a new seller, by raising supply, thereby drives the price down.
e. none of the above occurs.

3. Which of the following statements about a perfectly competitive firm is correct?

a. It faces a demand curve that is perfectly elastic at the market equilibrium price.
b. It faces a demand curve that is perfectly inelastic at the market equilibrium price.
c. It faces a marginal revenue curve that is perfectly inelastic at the market equilibrium price.
d. It faces a marginal revenue curve that lies below its (downward-sloping) demand curve.
e. Both (b) and (c).

Table 21.1

Output Quantity	Total Revenue	Marginal Revenue
0
200
500		$3
	$3,000

4. Consider Table 21.1. It contains selected data for a perfectly competitive firm. Which of the following statements about it is correct?

a. From top to bottom, the missing entries in the middle column are $0, $400, $1,500.
b. From top to bottom, the missing entries in the middle column are $0, $600, $1,500.
c. From top to bottom, the missing entries in the last column are $1, $2, $4.
d. The missing entry in the first column is 800.
e. None of the above; there is insufficient information here.

5. In order to maximize its profit, a perfectly competitive firm is well advised

a. to produce an output quantity at which MR = MC, provided P > ATC.
b. to produce nothing at all, provided P < AVC.
c. to produce an output quantity at which MR = MC, provided ATC > P > AVC.
d. to incur short run losses as long as ATC > P > AVC.
e. to do all of the above.

6. Consider Figure 21.1. It pictures three cost curves of a perfectly competitive producer of apples. It also pictures a variety of possible market prices, ranging from $1.10 per bushel to $4.90 per bushel. We assume that the firm wants to maximize profit. Under the circumstances, which of the following statements is correct?

a. If the market price is $4.90 per bushel, this firm produces 54,000 bushels/year.
b. If the market price is $4.90 per bushel, this firm's marginal revenue curve is the horizontal line going through b and f.
c. If the market price is $4.90 per bushel, this firm's total revenue equals $264,600 per year.
d. If the market price is $4.90 per bushel and points g and m correspond to $4.00 and $2.40 per bushel, respectively, this firm's total fixed cost equals $86,400 per year.
e. All of the above.

7. Consider Figure 21.1. It pictures three cost curves of a perfectly competitive producer of apples. It also pictures a variety of possible market prices, ranging from $1.10 per bushel to $4.90 per bushel. We assume that the firm wants to maximize profit. Under the circumstances, which of the following statements is correct?

a. If the market price is $4.90/bu. and assuming point g corresponds to $4.00/bu., this firm's economic profit equals $48,600/year.
b. If the market price is $4.90/bu. and assuming point g corresponds to $4.00/bu., this firm's total cost equals $200,000/year.
c. If the market price is $4.90/bu. and assuming point m corresponds to $2.40/bu., this firm's total variable cost equals $150,000/year.
d. If the market price is $4.90/bu. and assuming points g and m correspond to $4.00/bu. and $2.40/bu., respectively, this firm's total fixed cost equals $50,000/year.
e. All of the above.

8. Consider Figure 21.1. It pictures three cost curves of a perfectly competitive producer of apples. It also pictures a variety of possible market prices, ranging from $1.10 per bushel to $4.90 per bushel. We assume that the firm wants to maximize profit. Under the circumstances, which of the following statements is correct?

a. To maximize profit, this firm should produce an output volume that minimizes marginal cost, as at point o.
b. To maximize profit, this firm should produce an output volume that minimizes average variable cost, as at point j.
c. To maximize profit, this firm should produce an output volume that minimizes average total cost, as at point e.
d. If the market price is $4.90/bu., we know that a 54,000- bushel output volume maximizes profit because MR > MC if output is less (which argues for greater production) and MR < MC if output is more (which argues for smaller production).
e. None of the above.

9. Consider Figure 21.1. It pictures three cost curves of a perfectly competitive producer of apples. It also pictures a variety of possible market prices, ranging from $1.10 per bushel to $4.90 per bushel. We assume that the firm wants to maximize profit. Under the circumstances, which of the following statements is correct?

a. If the market price is $3.90 per bushel, this firm produces 50,000 bushels/year.
b. If the market price is $3.90 per bushel, this firm's economic profit is zero.
c. If the market price is $3.90 per bushel and points g and m correspond to $4.00 and $2.40 per bushel, respectively, this firm's total fixed cost equals $86,400 per year.
d. All of the above.
e. None of the above.

10. Consider Figure 21.1. It pictures three cost curves of a perfectly competitive producer of apples. It also pictures a variety of possible market prices, ranging from $1.10 per bushel to $4.90 per bushel. We assume that the firm wants to maximize profit. Under the circumstances, which of the following statements is correct?

a. If the market price is $3.10 per bushel, this firm produces 54,000 bushels/year.
b. If the market price is $3.10 per bushel, this firm's economic profit is zero.
c. If the market price is $3.10 per bushel and points g and m correspond to $4.00 and $2.40 per bushel, respectively, this firm's total fixed cost equals $86,400 per year.
d. If the market price is $3.10 per bushel, this firm shuts down operations at once.
e. If the market price is $3.10 per bushel, this firm incurs a loss of dk times 46,000 bushels/year.

11. Consider Figure 21.1. It pictures three cost curves of a perfectly competitive producer of apples. It also pictures a variety of possible market prices, ranging from $1.10 per bushel to $4.90 per bushel. We assume that the firm wants to maximize profit. Under the circumstances, which of the following statements is correct?

a. If the market price is $1.90 per bushel, this firm may produce 37,000 bushels/year.
b. If the market price is $1.90 per bushel, this firm may produce nothing at all.
c. If the market price is $1.90 per bushel and points g and m correspond to $4.00 and $2.40 per bushel, respectively, this firm's total fixed cost equals $86,400 per year and so do the firm's losses.
d. All of the above.
e. None of the above.

12. Consider Figure 21.1. It pictures three cost curves of a perfectly competitive producer of apples. It also pictures a variety of possible market prices, ranging from $1.10 per bushel to $4.90 per bushel. We assume that the firm wants to maximize profit. Under the circumstances, which of the following statements is correct?

a. If the market price is $1.10 per bushel, this firm may produce 24,000 bushels/year.
b. If the market price is $1.10 per bushel, this firm may produce 18,000 bushels/year.
c. If the market price is $1.10 per bushel, this firm may produce 13,000 bushels/year.
d. If the market price is $1.10 per bushel, this firm will produce nothing at all.
e. None of the above.

13. Consider Figure 21.1. It pictures three cost curves of a perfectly competitive producer of apples. It also pictures a variety of possible market prices, ranging from $1.10 per bushel to $4.90 per bushel. We assume that the firm wants to maximize profit. Under the circumstances, which of the following statements is correct?

a. This firm's short run supply curve is, in effect, its ATC curve from a to g and beyond.
b. This firm's short run supply curve is, in effect, its AVC curve from j to m and beyond.
c. This firm's short run supply curve is, in effect, its MC curve from j to f and beyond.
d. This firm's short run supply curve is, in effect, its MC curve from o to f and beyond.
e. An individual firm, like this one, does not have a short run supply curve.

14. A long-run competitive equilibrium is defined as a situation in which

a. each firm is producing a quantity of output at which price is equal to (rising) marginal cost: P = MC.
b. each firm is producing a quantity of output at which price is equal to short-run average total cost: P = SRATC and economic profit, therefore, is zero.
c. both (a) and (b) pertain and no firm has an incentive to produce its chosen output with a different plant size.
d. SRATC = LRATC.
e. the market supply is horizontal rather than upward-sloping because the ultimate reason for any upward-sloping supply is the law of diminishing returns, which does not apply in the long run.

15. Which of the following conditions holds during a long-run competitive equilibrium?

a. There is no incentive for firms to enter or exit an industry because P = SRATC; hence there are zero economic profits and losses.
b. There is no incentive for firms to enter or exit an industry because SRATC = LRATC.
c. There is no incentive for firms to enter or exit an industry because P = MR.
d. There is no incentive for firms to enter or exit an industry because P = MC.
e. There is no incentive for firms to change plant sizes because MR = MC.

16. Consider a long-run competitive equilibrium. Let the demand for an industry's product rise. In response, we would expect which of the following?

a. An immediate increase in price and higher production by all existing firms (as they equate their MC with the higher market price).
b. The higher supply by so many firms turns their normal profits into losses.
c. The losses give firms an incentive to leave the industry, which lowers supply.
d. The lower supply raises the market price, restores profit to normal, and stops the exodus of firms from the industry.
e. All of the above.

17. Consider a long-run competitive equilibrium. Let the demand for an industry's product fall. In response, we would expect which of the following?

a. An initial decrease in market price and a decrease in the output of each existing firm.
b. Existing firms incur economic losses and begin to leave the industry, thus lowering supply.
c. Both (a) and (b), followed by a rising market price until profits are back to normal.
d. Ultimately, the number of firms in the industry will be unchanged.
e. All of the above.

18. Which of the following statements correctly characterizes an increasing-cost industry?

a. When market demand increases, the equilibrium price rises initially, existing firms begin to earn positive economic profits, new firms enter the industry, and their increase in supply lowers the equilibrium price to its original level (and wipes out positive economic profits).
b. When market demand increases, the equilibrium price rises initially, existing firms begin to earn positive economic profits, new firms enter the industry, and their increase in supply, along with an increase in average total cost, ultimately lowers the equilibrium price to some level above the original (and wipes out positive economic profits).
c. A simultaneous and equal percentage increase in the use of all physical inputs leads to a smaller percentage increase in physical output and, therefore, to an increase in average total cost.
d. A simultaneous and equal percentage decrease in the use of all physical inputs leads to a larger percentage decrease in physical output and, therefore, to an increase in average total cost.
e. Both (c) and (d).

19. Which of the following statements correctly characterizes a decreasing-cost industry?

a. When firms exit this industry, output decreases and so does average total cost.
b. When firms enter this industry, output increases, but average total cost decreases.
c. A simultaneous and equal percentage decrease in the use of all physical inputs leads to a smaller percentage decrease in physical output and, therefore, to a decrease in average total cost.
d. A simultaneous and equal percentage increase in the use of all physical inputs leads to a larger percentage increase in physical output and, therefore, to a decrease in average total cost.
e. Both (c) and (d).

20. A perfectly competitive firm achieves productive efficiency because

a. it produces the quantity of output at which price equals marginal cost.
b. it produces its output at the lowest possible unit cost in the long run.
c. it produces the quantity of output at which the exchange value of resources to demanders equals the opportunity cost of the resources.
d. its firms never waste resources on advertising individually.
e. its firms never waste resources on advertising as a group.