Practice Test: Firms in Competitive Markets
Question 1:
A firm has market power if it can ............
- minimize costs.
- influence the market price of the good it sells.
- maximize profits
- hire as many workers as it needs at the prevailing wage rate.
- 1 and 3
- none of the above
Question 2:
A key characteristic of a competitive market is that ................
- firms have price setting power
- firms minimize total costs.
- government antitrust laws do not regulate competition.
- producers sell almost identical products.
Question 3:
Which of the following is not a characteristic of a competitive market?
- Free entry is limited.
- Each firm chooses an output level that maximizes profits.
- Each firm sells a virtually identical product.
- Buyers and sellers are price takers.
Question 4:
Price discrimination is teh business of ........
- hiring marketing experts to increase consumers' brand loyalty.
- pricing above marginal cost.
- selling the same good at different prices to different customers.
- bundling related products to increase total sales.
Question 5:
In a competitive market, the actions of any single buyer or seller will ...............
- adversely affect the profitability of more than one firm in the market.
- affect marginal revenue and average revenue but not price.
- have little effect on market equilibrium quantity but will affect market equilibrium price.
- have a negligible impact on the market price.
- none of the above
Question 6:
Why does a firm in a competitive industry charge the market price?
- If a firm charges less than the market price, it loses potential revenue.
- If a firm charges more than the market price, it loses all its customers to other firms. .
- The firm can sell as many units of output as it want to at the market price.
- All of the above are correct.
Question 7:
If the market price is P1, in the short run, the perfectly competitive firm will earn.
- zero economic profits.
- positive economic profits.
- negative economic profits and will shut down.
- negative economic profits but will try to remain open.
Question 8:
If the market price is P2, in the short run, the perfectly competitive firm will earn
- zero economic profits.
- negative economic profits and will shut down.
- negative economic profits but will try to remain open.
- positive economic profits.
- none of the above
Question 9:
If the market price is P3, in the short run, the perfectly competitive firm will earn
- negative economic profits but will try to remain open.
- positive economic profits.
- zero economic profits.
- negative economic profits and will shut down.
Question 10:
If the market price is P4, in the short run, the perfectly competitive firm will earn
- negative economic profits but will try to remain open.
- positive economic profits.
- zero economic profits.
- negative economic profits and will shut down.
- none of the above
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