1. An assumption of the model of perfect competition is:
A) few buyers and sellers.
B) difficult entry and exit.
C) identical goods.
D) limited information.
2. Which of the following is true in a perfectly competitive market?
a) Barriers to entry are relatively strong.
B) Brand preferences exist but are very slight.
C) One unit of a good or service cannot be differentiated from any other on any basis.
D) Information is costly.
3. A perfectly competitive firm will incur an economic loss but will continue producing the profit-maximizing quantity of output in the short run if price is:
A) less than average variable cost.
B) less than marginal cost.
C) greater than average total cost.
D) greater than average variable cost and less than average total cost.
4. Suppose that some firms in a perfectly competitive industry are incurring negative economic profits. In the long run, the:
A) number of firms in the industry will increase.
B) number of firms in the industry will not change.
C) industry supply curve will shift to the left.
D) industry supply curve will not shift.
5. A perfectly competitive firm will not produce any output in the short run and will shut down if price is:
A) greater than average variable cost and less than average total cost.
B) less than marginal cost.
C) less than average variable cost.
D) greater than marginal cost.
6. A perfectly competitive firm will earn a profit and will continue producing the profit-maximizing quantity of output in the short run if price is:
A) greater than marginal cost.
B) less than marginal cost.
C) less than average variable cost.
D) greater than average total cost.