Practice Questions
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In a perfectly competitive market, what is the condition for a firm to maximize its profit?
A firm maximizes profit when its marginal cost, the cost of producing one more unit, equals marginal revenue, the money earned from selling one more u...
In which market structure do firms have some degree of market power and can influence prices, while still facing competition from similar products?
In monopolistic competition, many firms sell similar products. Other options are incorrect because In perfect competition, all firms sell identical pr...
In a monopolistically competitive market, how does the presence of product differentiation affect consumer surplus compared to a perfectly competitive market?
In monopolistic competition, companies sell different products. Other options are incorrect because Some might think more variety means more value; It...
In a monopolistically competitive market, which of the following factors plays a significant role in determining the market equilibrium and profit maximization for firms, considering the barriers to entry?
Low barriers to entry mean new businesses can easily start up. Other options are incorrect because Some might think high barriers create a strong mono...
In a perfectly competitive market, what condition describes the long-run equilibrium for firms in terms of marginal revenue and marginal cost?
In the long run, firms adjust their production until their marginal revenue, which is the money made from selling one more unit, equals their marginal...
In a perfectly competitive market, what is the primary condition for a firm to maximize its profit?
A firm maximizes profit when the price it charges is equal to the cost of producing one more unit. Other options are incorrect because Some might thin...
In a monopoly market structure, what is the primary factor that allows the monopolist to maximize profits?
A monopolist controls the entire supply of a product. Other options are incorrect because Some might think that competition helps profits; People may ...
In an oligopoly market structure, which of the following is a key characteristic that affects profit maximization?
In an oligopoly, only a few firms control the market. Other options are incorrect because Some might think many firms mean more competition; People ma...
A firm operates in a perfectly competitive market and finds that its marginal cost equals the market price. What can the firm conclude about its current production level?
When a firm's marginal cost is equal to the market price, it means the firm is producing the right amount. Other options are incorrect because Some mi...
Perfect competition is to price-taking behavior as monopolistic competition is to what?
In monopolistic competition, companies can set their own prices. Other options are incorrect because This idea means that increasing production doesn'...
Which of the following statements accurately describe the characteristics of firms in a perfectly competitive market? Select all that apply.
In a perfectly competitive market, firms cannot set prices or earn long-term profits. Other options are incorrect because Some might think firms can i...
Arrange the following steps in the correct order for a firm in perfect competition to maximize profits: A) Set output level where marginal cost equals marginal revenue, B) Adjust production to ensure average total cost is minimized, C) Identify market price based on supply and demand, D) Determine profit by subtracting total cost from total revenue.
First, the firm finds the market price from supply and demand. Other options are incorrect because This option suggests starting with output level, wh...
In a perfectly competitive market, firms are considered to be price ____, meaning they accept the market price as given and cannot influence it by their individual output levels.
Firms in a perfectly competitive market are price takers. Other options are incorrect because Some might think firms create prices; This suggests firm...
In a perfectly competitive market, what condition must hold true for firms to maximize their profits?
Firms maximize profits when the price they receive for their product equals the cost of making one more unit. Other options are incorrect because Some...
A local bakery operates in a perfectly competitive market and is currently selling its pastries at the market price of $3 each. If the bakery's average total cost per pastry is $2.50, what would be the most appropriate strategy for the bakery to maximize its profits in the short run?
The bakery should keep selling at $3. Other options are incorrect because Raising the price to $3.50 might scare away customers; Cutting back on how m...
If a perfectly competitive firm is experiencing economic profits in the short run, which of the following is the most likely consequence in the long run?
When a firm makes extra money, other businesses notice. Other options are incorrect because Some might think that higher profits mean costs will go up...
In a perfectly competitive market, if a firm finds its marginal cost exceeds the market price, what should it do to maximize profit?
When a firm's cost to produce one more unit is higher than what they can sell it for, they lose money. Other options are incorrect because Some might ...
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