1.

Question 1
Partnerships, unlike sole proprietorships, enjoy limited liability similar to corporations.

True

False

2.
Question 2
Suppose a perfectly competitive firm is producing a quantity along the upward sloping
portion of its marginal cost curve at a point where marginal cost is greater than price, and it
is earning positive economic profit. This firm should:

1 point

Increase price to further enhance its profits.

Increase the quantity produced because profits are still positive.

Increase price to further enhance its profits AND decrease the quantity produced because
doing so will increase profit.

Continue to produce at this profitable level.

Decrease the quantity produced because doing so will increase profit.

3.
Question 3
When do new firms tend to enter a competitive industry?

1 point

When the small firms are leaving the industry

When the largest firms in the industry are leaving the industry

When new entrants can earn positive profits AND when the largest firms in the industry are
leaving the industry
When new entrants can earn positive profits

When the industry is in long run equilibrium

4.
Question 4
In the long run, a perfectly competitive firm will always earn zero profits.

1 point

True

False

It depends

5.
Question 5
Which of the following is a feature of a perfectly competitive market?

1 point

Differentiated products

Firms set the prices

Perfect information

Large number of influential buyers and sellers

6.
Question 6
Which of the following is NOT a feature of a perfectly competitive market?

1 point

Homogenous products

Unrestricted entry and exit

Large number of relatively small buyers

None of the other options. They are all features of a perfectly competitive market.

7.
Question 7
Which of the following quantities represents the marginal revenue curve for a firm in a
perfectly competitive market?

1 point

Fixed cost

Price

Variable cost

None of the other options are correct.

Marginal cost

8.
Question 8
Which of the conditions must hold true to produce at profit maximizing quantity in a
perfectly competitive market?

1 point

TR = AVC

MR = ATC

MC = AVC

MR = MC

9.
Question 9
Select all that apply. If a profit maximizing perfectly competitive firm in the short run is
making positive output, we can be certain that:

1 point

MC = ATC

MR = MC

P > AVC

10.
Question 10
A firm in a perfectly competitive industry reports a profit of $10,000 in the previous financial
year.

True or false? We can say for certain that the industry is not perfectly competitive as profits
must be zero in such an industry.

1 point

True

False

11.
Question 11
Which of the following conditions must hold true for long run equilibrium?

1 point

Demand must equal supply.

Firms must make positive economic profits.

Marginal cost must equal AVC.

There should not be access to free entry and exit from the market.

12.
Question 12
Arrange the following changes in the correct order of occurrence when demand for a
product increases in a perfectly competitive industry currently in long run equilibrium.
 1. Existing firms earn positive profits.

2. Demand curve shifts to the right.

3. Supply curve shifts to the right.

4. New firms decide to enter the market.

1 point

1, 2, 4, 3

2, 1, 3, 4

2, 1, 4, 3

2, 3, 1, 4

13.
Question 13
Negative economic profits faced by individual firms will cause which of the following
changes in a perfectly competitive industry in the long run?

1 point

Firms will exit the market.

Demand for the product will increase.

None of the other options are correct.

Prices will fall in the long run.

ATC for each individual firm will rise.

14.
Question 14
Which of the following answers best represents the market supply curve in a perfectly
competitive industry?

1 point

The marginal cost curve of an individual firm

The price of the product

The product of marginal cost curves of all firms in the industry

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