AP Microeconomics Practice Quiz: Perfect Competition
Written by AP Content Team, Verified for 2026 AP Exams, Last updated: May 2026
Test your understanding with short quizzes. This quiz has 16 questions to check your progress.
Question 1 of 16
All Questions (16)
A) It has significant market power to influence price.
B) It faces significant barriers to entry.
C) It is a price taker and has no market power.
D) It produces a differentiated product.
Correct Answer: C
According to the provided content, 'Firms in perfectly competitive markets face no barriers to entry and have no market power.' and 'firms are price takers'. This means they must accept the market-determined price.
A) Marginal cost equals average total cost.
B) Price equals average total cost.
C) Marginal cost equals marginal revenue.
D) Total revenue is at its highest point.
Correct Answer: C
The content explicitly states that 'firms are price takers and select output to maximize profit by producing the level of output where the marginal cost equals marginal revenue (at the price).'
A) Firms are earning zero economic profit.
B) The price of the product equals both the private marginal benefit and the private marginal cost.
C) All firms are producing at their minimum average total cost.
D) There are no barriers to entry or exit.
Correct Answer: B
The provided text defines allocative efficiency: 'At a competitive market equilibrium, the price of a product equals both the private marginal benefit received by the last unit consumed and the private marginal cost incurred to produce the last unit, thus achieving allocative efficiency.'
A) Existing firms will exit the market due to losses.
B) The market is in long-run equilibrium.
C) Firms will earn economic profits, motivating the entry of new firms.
D) Firms will reduce their output to increase the market price.
Correct Answer: C
As stated in the content, 'In a short-run competitive equilibrium, price can either be above or below its long-run competitive level resulting in profits or losses, motivating entry or exit of firms.' A price above ATC results in profits, which motivates entry.
A) Firms are earning positive economic profits.
B) Price is equal to marginal cost and minimum average total cost.
C) The number of firms in the industry is fixed.
D) Price is equal to marginal revenue but greater than marginal cost.
Correct Answer: B
The content specifies that 'In a long-run perfectly competitive equilibrium... price equals marginal cost and minimum average total cost, and firms earn zero economic profit.' This single option captures the key conditions for both allocative (P=MC) and productive (P=min ATC) efficiency.
A) P > MR
B) P < MR
C) P = MR
D) P and MR are unrelated.
Correct Answer: C
The content states that 'firms can sell all their outputs at a constant price determined by the market' and that they maximize profit where 'marginal cost equals marginal revenue (at the price)'. This implies that the revenue from selling one more unit (MR) is simply the constant market price (P).
A) Perfectly inelastic.
B) Downward sloping.
C) Perfectly elastic.
D) The same as the market demand curve.
Correct Answer: C
The content states that 'In perfectly competitive markets, firms can sell all their outputs at a constant price determined by the market.' A perfectly elastic demand curve is a horizontal line at the market price, reflecting this condition.
A) The new long-run price will be the same as the original price, but industry output will be higher.
B) The new long-run price will be lower than the original price, and industry output will be higher.
C) The new long-run price will be higher than the original price, and industry output will be higher.
D) The new long-run price will be higher than the original price, but industry output will return to its original level.
Correct Answer: C
The content notes that 'Firms may be in a constant cost, increasing cost, or decreasing cost industry. Long-run prices depend on the portion of the long-run cost curves on which firms operate.' In an increasing-cost industry, as new firms enter to meet higher demand, input prices are bid up, raising the average total cost for all firms. This results in a new, higher long-run equilibrium price.
A) The price consumers pay equals the marginal cost of production.
B) Firms earn positive economic profits, allowing for reinvestment.
C) All operating firms produce at their efficient scale, which is the minimum of average total cost.
D) Prices effectively communicate the marginal benefits of consumption to producers.
Correct Answer: C
The definition is provided directly in the content: 'In a long-run perfectly competitive equilibrium, productive efficiency implies all operating firms produce at efficient scale, price equals marginal cost and minimum average total cost...'
A) Positive, equal to the market price.
B) Negative, forcing firms to exit.
C) Zero.
D) It cannot be determined without cost data.
Correct Answer: C
The content is explicit: 'In a long-run perfectly competitive equilibrium... firms earn zero economic profit.' This occurs because the entry of new firms (when profits are positive) or exit of existing firms (when profits are negative) will continue until price equals the minimum average total cost.
A) To ensure all firms earn a positive economic profit.
B) To create significant barriers to entry for new firms.
C) To allow individual firms to exert market power.
D) To communicate marginal costs and benefits and provide incentives.
Correct Answer: D
According to the provided text, 'In perfectly competitive markets, prices communicate to consumers and producers the magnitude of others' marginal costs of production and marginal benefits of consumption and provide incentives to act on that information.'
A) Firms will earn economic profits, and new firms will enter.
B) The market price will fall, and firms will incur economic losses.
C) The market price will remain constant, but firms will reduce output.
D) Firms will immediately exit the market, restoring the original price.
Correct Answer: B
A decrease in market demand will shift the demand curve to the left, causing the market price to fall. In the short run, firms will face this new, lower price. Since they were previously at long-run equilibrium (P=min ATC), the new price will be below their average total cost, causing them to incur economic losses. This is consistent with the content stating that in the short run, 'price can either be above or below its long-run competitive level resulting in profits or losses.'
A) Productive efficiency but not allocative efficiency.
B) Allocative efficiency but not productive efficiency.
C) Both allocative and productive efficiency.
D) Neither allocative nor productive efficiency.
Correct Answer: C
The content provides a clear summary: 'A perfectly competitive market in long-run equilibrium is allocatively and productively efficient.' Allocative efficiency is achieved because P=MC, and productive efficiency is achieved because firms produce at P=minimum ATC.
A) Less than $10.
B) Exactly $10.
C) Greater than $10.
D) Equal to the firm's marginal cost.
Correct Answer: B
The content states, 'In perfectly competitive markets, firms can sell all their outputs at a constant price determined by the market.' This means the additional revenue (marginal revenue) from selling one more unit is always equal to the constant market price. Therefore, the MR is $10.
A) Profit of $10,000
B) Profit of $2,500
C) Loss of $2,500
D) Zero economic profit
Correct Answer: B
Economic profit is calculated as (Price - Average Total Cost) * Quantity. Using the data provided: ($20 - $15) * 500 = $5 * 500 = $2,500. Since price is above ATC, the firm is earning a profit. The fact that P=MC indicates the firm is producing at the profit-maximizing quantity.
A) Positive economic profits being earned by other firms.
B) A market price equal to the minimum average total cost.
C) A market price below the long-run competitive level, resulting in losses.
D) A desire to gain market power and set their own prices.
Correct Answer: C
The content explains that in the short run, a price 'below its long-run competitive level resulting in... losses, motivating... exit of firms.' Firms will exit an industry if they are consistently unable to cover their total costs, which is what economic losses represent.