Q1. Which of the following are characteristics of competitive markets? Select all that apply.

A. Many buyers and sellers.

B. Products are identical across firms.

C. Free entry and exist for firms from the industry.

D. Firms choose their own prices (price-makers).

Q2. For a perfectly competitive firm who maximizes profits, which of the following is always true regarding the short run? Select all that apply.

A. The firm should shut down if average total cost is greater than marginal cost.

B. The firm should shut down if total revenue is less than total cost.

C. The firm should remain operational if average variable cost is less than average revenue.

D. Fixed costs are considered sunk and should not be taken into consideration.

Q3. Consider an upward sloping supply curve and downward sloping demand curve. Firms are perfectly competitive and maximize profits. An outward shift in the demand curve leads to which long run outcome for firms?

A. Firms will produce more, operating at positive profit until demand returns to its original level.

B. Firms will exit the industry until profits are driven down to zero.

C. Firms will produce less, operating at positive profit until demand returns to its original level.

D. Firms will enter the industry until profits are driven down to zero.

Q4. Jim's pool cleaning service is a perfectly competitive firm who maximizes profits. Jim cleans pools for $50 each and cleans about 7 pools per day. Also, his total costs each day add up to $400, with $80 of that being fixed costs. What should Jim do in the long run?

A. Both possible answers have the same outcome regarding profits in the long run, so either are acceptable recommendations.

B. Jim should close his firm in the long run.

C. Jim should not close his firm in the long run.