microeconmics chapter 10

In a purely competitive market, price per unit to the purchaser is synonymous with _______ per unit or ________ revenue to a seller. (Enter one word per blank.)

1. revenue 2. marginal

Number of firms in pure competition

a very large number

In a purely competitive market, price per unit to a buyer equals: Multiple choice question. average profits to a seller total revenue to a seller average revenue to a seller total profits to a seller

average revenue to a seller

True or false: A pure monopoly involves a very large number of firms producing a single unique product.f

false

number of firms in monopoly

one

Which of the following improves as production increases? Multiple choice question. Price-marginal revenue relationship Fixed costs Opportunity cost Price-marginal cost relationship

Price-marginal cost relationship Reason: Remember that in the very early stages of production, marginal product is low, making marginal cost unusually high. With increased production, the price-marginal cost relationship improves.

number of firms in monopolistic competition

many/relatively large number

Which of the following explains why a purely competitive firm is a price taker? Multiple choice question. A purely competitive firm produces all of total market supply and therefore must accept the price determined by the market A purely competitive firm offers only a negligible fraction of total market supply and therefore must set the price for the market A purely competitive firm offers a large fraction of total market supply and therefore determines market price A purely competitive firm offers only a negligible fraction of total market supply and therefore must accept the price determined by the market

A purely competitive firm offers only a negligible fraction of total market supply and therefore must accept the price determined by the market

Which of the following is a characteristic of a monopolistically competitive market? Multiple choice question. Firms not having any control over the selling price of goods High barriers to entry and exit A perfectly elastic demand curve A relatively large number of sellers producing differentiated products

A relatively large number of sellers producing differentiated products

Which of the following reasons explains why the purely competitive firm's demand curve is perfectly elastic? Multiple choice question. Because the individual firm is a price taker, the marginal revenue curve coincides with the firm's equilibrium price. Because the individual firm is a price maker, the total revenue curve coincides with the firm's equilibrium price. Because the individual firm is a price maker, the marginal revenue curve coincides with the firm's equilibrium price. Because the individual firm is a price taker, the marginal cost curve coincides with the firm's equilibrium price.

Because the individual firm is a price taker, the marginal revenue curve coincides with the firm's equilibrium price.

What are two ways that a purely competitive firm can determine the level of output at which it will realize maximum profit or minimum losses? Multiple select question. By comparing marginal costs to total costs By comparing unit costs to total costs By comparing marginal revenue to marginal costs By comparing total revenue to total costs

By comparing marginal revenue to marginal costs By comparing total revenue to total costs

What is the firm's most likely response if price is exactly equal to minimum average variable cost? Multiple choice question. Indifference to producing or shutting down Allocating more resources to production Shutting down production entirely Decreasing production to reduce variable costs

Indifference to producing or shutting down

Which of the following best describes oligopoly? Multiple choice question. Involves only a few sellers of an identical product, so each firm is affected by the decisions of its rivals. Involves only a few sellers of a standardized or differentiated product, so each firm is unaffected by the decisions of its rivals. Involves many sellers of a standardized or differentiated product, so each firm is affected by the decisions of its rivals. Involves only a few sellers of a standardized or differentiated product, so each firm is affected by the decisions of its rivals.

Involves only a few sellers of a standardized or differentiated product, so each firm is affected by the decisions of its rivals.

Which factors illustrate that the demand curve for a purely competitive firm is perfectly elastic? Multiple select question. The firm cannot obtain a higher price by restricting its output. The firm produces only a small fraction of the total industry output. The firm does not need to lower its price to increase its sales volume. The firm has no legal or financial barriers for entering or exiting the industry.

The firm cannot obtain a higher price by restricting its output. The firm does not need to lower its price to increase its sales volume.

Which of the following is not a necessary characteristic of a purely competitive industry? Multiple Choice The industry or market demand is highly elastic. Firms can easily enter or leave the industry. There are so many small firms that no one firm can influence the market price. Consumers see no difference between the product of one firm and that of another.

The industry or market demand is highly elastic.

Which of the following best describes the economic break-even point? Multiple choice question. The point where total revenue exceeds total costs and economic profits are realized. The point where total revenue covers fixed costs but not variable costs. The point where total revenues exceed those of the strongest competitor in the industry. The point where total revenue covers all costs, but there is no economic profit.

The point where total revenue covers all costs, but there is no economic profit.

Which of the following best describes marginal revenue? Multiple choice question. The sum of revenue received by producing at a certain level of output The cost that an additional unit of output contributes to total cost The level of output needed to produce revenue that covers all of the firm's costs The revenue that an additional unit of output contributes to total revenue

The revenue that an additional unit of output contributes to total revenue

After a company has determined that it should produce a product and the amount of the product to produce, what basic question should it ask? Multiple choice question. Which sales promotions should we offer? How will our level of output affect market price? What level of output is provided by our closest competitor? What economic profit (or loss) will we realize?

What economic profit (or loss) will we realize?

Firms that operate in a purely competitive industry: Multiple choice question. never incur short-run profits do not differentiate their products differentiate their products make long-run profits

do not differentiate their products

Technological advance improves productivity in a purely competitive industry. This change will result in a shift Multiple Choice down of the individual firm's MC curve, causing the market supply curve to shift to the left. down of the individual firm's MC curve, causing the market supply curve to shift to the right. up of the individual firm's MC curve, causing the market supply curve to shift to the left. up of the individual firm's MC curve, causing the market supply curve to shift to the right.

down of the individual firm's MC curve, causing the market supply curve to shift to the right.

In a perfectly competitive market, the demand curve for an individual firm is perfectly _______ at the market price.

elastic

Each purely competitive firm's demand curve is perfectly _______ at the equilibrium price.

elastic (horizontal, flat)

The profit-maximizing rule of MR=MC states that in the short run, the firm will maximize profit or minimize loss by producing the output for which marginal revenue ______ marginal cost. Multiple choice question. is less than eliminates is greater than equals

equals

An oligopoly has ___ sellers and must consider the decisions of its rivals in determining its own ___ and output.

few; price

Economists group industries into ______ distinct market structures.

four

Which of the following are conditions necessary to have pure competition? Multiple select question. barriers to entry free entry and exit standardized product very large number of firms or sellers price searchers

free entry and exit standardized product very large number of firms or sellers

A firm should not produce a unit of output when the marginal cost is (greater/lesser) than its marginal revenue.

greater

The quantity of a product supplied by a firm in pure competition should _____ as long as price rises. Multiple choice question. remain constant increase decrease

increase

In the short run, fixed costs for a profitable competitive firm are Multiple Choice zero. negative. important determinants of the output level. irrelevant in determining the optimal level of output.

irrelevant in determining the optimal level of output.

Which of the following best describes the situation of a price-taking firm? A price-taking firm is one of a ______ number of firms producing a product that is identical to that of every other firm in the industry and providing ______ of total market supply. large; a large share small; only a fraction large; only a fraction small; a large share

large; only a fraction Reason: A price taker provides a small amount or fraction of the total supply.

A purely competitive firm's demand schedule is equal to which of the following? Multiple select question. quantity supplied total revenue marginal revenue average revenue

marginal revenue average revenue

Changes in _______ (Enter one word) and changes in prices of variable inputs alter costs and shift the marginal cost or short run supply curve.

technology

In pure competition, if the first unit of output sold increases total revenue from $0 to $131, marginal revenue for that unit is $131. If the second unit sold increases total revenue from $131 to $262, marginal revenue is again $131. The third unit sold increases total revenue to $______ and marginal revenue is now $______. Multiple choice question. 131; 393 393; 131 393; 262 131; 131

393; 131

_____ competition is considered to be rare in the real world.

pure

In which market model would there be a unique product for which there are no close substitutes?

pure monopoly

Which of the following best explains why the price-marginal cost relationship improves as production increases? Multiple choice question. At the very early stages of production, marginal product is high, making marginal cost unusually high. At the very late stages of production, marginal product is low, making marginal cost unusually high. At the very early stages of production, marginal revenue is low, making marginal cost unusually high. At the very early stages of production, marginal product is low, making marginal cost unusually high.

At the very early stages of production, marginal product is low, making marginal cost unusually high.

Local electric or gas utility companies mostly operate in which market structure?

pure monopoly

Which market model assumes the least number of firms in an industry?

pure monopoly

Which of the following is true under conditions of pure competition? Multiple Choice There are differentiated products. The market demand curve is perfectly elastic. No single firm can influence the market price by changing its production level. Each individual firm has the ability to set its own price.

No single firm can influence the market price by changing its production level.

When the marginal cost of an additional unit of output exceeds the marginal revenue, what should the firm do? Multiple choice question. Reduce its fixed plant size Continue producing more units output Shut down Not produce that additional unit of output

Not produce that additional unit of output

Which of the following best describes a pure monopoly? Multiple choice question. One firm selling a single unique product, with ease of entry into the industry and little control over price One firm selling a single unique product, where entry of additional firms is blocked and there is considerable control over price Many firms selling a single unique product, where entry of additional firms is blocked and there is considerable control over price One firm selling differentiated products or services and in which entry of additional firms is blocked

One firm selling a single unique product, where entry of additional firms is blocked and there is considerable control over price

Which of the following is a method of calculating economic profit in pure competition? Multiple choice question. Price minus average variable cost multiplied by quantity Price minus average total cost plus quantity Price minus average total cost multiplied by quantity Total revenue minus marginal cost divided by quantity

Price minus average total cost multiplied by quantity

At which point will a firm be indifferent whether to shut down or continue to produce?

Recall that a firm will be indifferent to shutting down or producing when price is equal to minimum average variable cost.

______ revenue is the additional revenue that an additional unit of _______ would add to total revenue

marginal, output

Which of the following market structures produces only a standardized product? Multiple choice question.

A purely competitive market

Which of the following is a characteristic of a monopolistically competitive market? Multiple choice question. Firms not having any control over the selling price of goods High barriers to entry and exit A relatively large number of sellers producing differentiated products A perfectly elastic demand curve

A relatively large number of sellers producing differentiated products

Which of the following best describes pure competition? Multiple choice question. An industry involving one large firm producing many products and in which new firms cannot enter or exit the industry very easily. An industry involving a few firms producing identical products and in which new firms cannot enter or exit the industry very easily. An industry involving a very large number of firms producing identical products and in which new firms can enter or exit the industry very easily. An industry involving two firms producing identical products and in which new firms can enter or exit the industry very easily.

An industry involving a very large number of firms producing identical products and in which new firms can enter or exit the industry very easily.

Which of the following best summarizes why firms in purely competitive industries do not differentiate their products? Multiple choice question. Because there is not enough demand for differentiated products Because there are so many of them selling a standardized product Because there are so many of them selling a non-standardized product Because of scarce resources that limit the production of alternative products

Because there are so many of them selling a standardized product

Which of the following is a method of calculating economic profit in pure competition? Multiple choice question. Total revenue minus marginal cost divided by quantity Price minus average variable cost multiplied by quantity Price minus average total cost multiplied by quantity Price minus average total cost plus quantity

Price minus average total cost multiplied by quantity

Which of the following factors will alter costs and shift the marginal cost or short-run supply curve to a new location? Multiple select question. Consumer preferences Prices of variable inputs Availability of product substitutes Technology

Prices of variable inputs Technology

Which of the following explains why a firm would not produce a unit of output where MC exceeds MR? Multiple choice question. Producing it would add more to revenue than to costs, and profit would decline or loss would increase. Producing it would add more to revenue than to costs, and profit would increase or loss would decrease. Producing it would add more to costs than to revenue, and profit would decline or loss would increase. Producing it would add more to costs than to revenue, and profit would increase or loss would decrease.

Producing it would add more to costs than to revenue, and profit would decline or loss would increase.

Which of the following features occur in a purely competitive market? Multiple select question. One seller dominating the market Sales in both national and international markets. Major restrictions on where products can be sold Many independently acting sellers

Sales in both national and international markets. Many independently acting sellers

Multiplying product price by output reveals which of the following? Multiple choice question. Quantity demanded Total revenue Marginal revenue Average total cost

Total revenue

Confronted with the market price of its product, a purely competitive producer will ask which three questions? Multiple select question. If we sell above market price what will our profits be? What economic profit or loss will we realize if we produce this product? If we produce this product, in what amount? If we produce this product, what price should we charge? Should we produce this product?

What economic profit or loss will we realize if we produce this product? If we produce this product, in what amount? Should we produce this product?

When will a firm earn an economic profit? Multiple choice question. When price is less than average total price. When price is greater than average total cost. When price is equal to average variable price. When price is equal to average total price.

When price is greater than average total cost.

A basic feature of the purely competitive market is the presence of ______. Multiple choice question. a large number of sellers differentiated prices differentiated products high barriers to entry

a large number of sellers

A firm operating in a purely competitive market is a price taker because it ______. Multiple choice question. can change the market price in the long run cannot change the market price, it can only adjust to it cannot change the market price in the long run can change the market price in the short run

cannot change the market price, it can only adjust to it

A firm operating in a purely competitive market is a price taker because it ______. Multiple choice question. cannot change the market price in the long run can change the market price in the short run can change the market price in the long run cannot change the market price, it can only adjust to it

cannot change the market price, it can only adjust to it

Pure ______ involves a very large number of firms.

competition

True or false: Quantity supplied increases as price decreases, and economic profit is usually higher at lower product prices and output.

false

number of firms in oligopoly

few

A purely competitive firm can maximize its economic profit (or minimize its loss) by adjusting only its output because it ______. Multiple choice question. has access to unlimited resources has market power is a price maker is a price taker

is a price taker

A purely competitive industry has a very ______ number of sellers, whereas the other three market structures reflect a progressively ______ or ______ number of sellers. Multiple choice question. small; smaller; decreasing large; smaller; increasing large; smaller; decreasing small; larger; increasing large; larger; increasing

large; smaller; decreasing

The change in total revenue that results from selling one more unit of output is called _____ revenue.

marginal

A firm would not produce a unit of output where ______. marginal cost exceeds average revenue marginal revenue exceeds marginal cost marginal cost exceeds marginal revenue marginal cost equals marginal revenue

marginal cost exceeds marginal revenue

When a firm is maximizing profit, it will necessarily be Multiple Choice maximizing profit per unit of output. maximizing the difference between total revenue and total cost. minimizing total cost .maximizing total revenue.

maximizing the difference between total revenue and total cost.

In which market model do firms rely on product differentiation to distinguish themselves from the competition? Multiple choice question. pure competition pure monopoly monopolistic competition oligopoly

monopolistic competition

From an economic standpoint, the break-even point is the level of output at which a firm makes a(n) ______ profit. Multiple choice question. normal economic accounting negative

normal

In the short run, a purely competitive firm can maximize its economic profit (or minimize its loss) by adjusting its ______

output

If a firm is a price taker, then the demand curve for the firm's product is Multiple Choice equal to the total revenue curve. perfectly inelastic. perfectly elastic. unit elastic.

perfectly elastic

A firm's total revenue is calculated as ______ times quantity produced. (Enter one word in the blank)

price

In a purely competitive market, marginal revenue is a constant that is equal to which of the following? Multiple choice question. quantity consumer surplus average total cost price

price

In pure competition, marginal revenue and ______ are equal.

price

In pure competition, to calculate economic profit, we first calculate the difference between _______ and average total cost and then multiply it by output. (Type only one word in blank.)

price

This graph illustrates that a firm can minimize its losses by producing where ______. Multiple choice question. price exceeds minimum average variable cost but is less than marginal cost price exceeds minimum average variable cost but is less than average total cost price exceeds minimum average total cost but is less than average fixed cost price equals minimum average variable cost but is less than minimum average total cost

price exceeds minimum average variable cost but is less than average total cost

Total revenue equals ______ times ______. Multiple choice question. demand; quantity average revenue; price price; quantity average revenue; demand

price; quantity

The MR = MC rule is known as the:

profit maximizing rule

A(n) ______ competitive firm's average-revenue schedule is also known as its demand schedule.

pure

A(n) _______ competitive firm's average-revenue schedule is also known as its demand schedule.

pure

In a purely competitive industry, at the profit-maximizing or loss-minimizing level of output, marginal ______ is equal to ______. Multiple select question. output; marginal cost revenue; marginal cost revenue; price cost; price

revenue; marginal cost revenue; price cost; price

A purely competitive firm is a price _______

taker

Firms within pure competition are considered to be price _______

takers

The two ways to determine the level of output at which a firm will realize maximum profit or minimum loss are to compare total revenue to ______ and to compare marginal revenue to ______. Multiple choice question. marginal cost; total cost maximum willingness to pay; equilibrium price average revenue; cost per unit total cost; marginal cost

total cost; marginal cost

The price, multiplied by the firm's output or goods produced, equals ______. Multiple choice question. marginal revenue average revenue total profits total revenue

total revenue

A firm will break even where ______ will just cover ______ because the revenue per unit and the average total cost per unit are equal. Multiple choice question. marginal cost; marginal revenue total revenue; total cost total revenue; marginal cost marginal revenue; total cost

total revenue; total cost

True or false: Firms within pure competition will produce standardized products.

true

If price is below a firm's minimum average _______ cost, the firm will not operate. (Insert only one word in the blank.)

variable

A firm should always stop producing if its average ______ cost is ______ price. Multiple choice question. variable; greater than total; less than total; greater than variable; less than

variable; greater than