Chapter 10 Practice Exam
The Zebra, Inc. is selling in a purely competitive market. Its output is 250 units, which sell for $2 each. At this level of output, marginal cost is $2 and average variable cost is $2.25. The firm should A. produce zero units of output B. decrease output to 200 units C. continue to produce 250 units D. increase output to maximize profits
A.
If the market price for the firm's product is $140, the competitive firm will produce A. 5 units B. 6 units C. 7 units D. 8 units
B.
An improvement in technology that raises productivity will shift the marginal-cost or short-run supply curve downward. True False
T
If a purely competitive firm is producing output less than its profit-maximizing output, marginal revenue is greater than marginal cost. True False
T
In which market model is the individual seller of a product a price taker? A. pure competition B. pure monopoly C. monopolistic competition D. oligopoly
A.
If, at the profit-maximizing level of output for the purely competitive firm, price exceeds the minimum average variable cost but is less than average total cost, the firm will make a profit. True False
F
One reason for studying the pure competition model is that most industries are purely competitive. True False
F
A purely competitive firm that wishes to produce and not close down will maximize profits or minimize losses at that output at which marginal costs and marginal revenue are equal. True False
T
For this firm, the total fixed costs are A. $100 B. $200 C. $300 D. $400
C.
If other factors are held constant, an increase in wages for a purely competitive firm would result in a shift A. downward in the marginal-cost curve B. downward in the average-fixed-cost curve C. upward in the marginal-cost curve D. upward in the average-fixed-cost curve
C.
If the market price for the firm's product is $290, the competitive firm will produce an economic profit of A. $1,071 B. $1,368 C. $1,539 D. $2,610
A.
If the market price for the firm's product is $60, the competitive firm will produce A. 0 units B. 1 unit C. 2 units D. 3 units
A.
Which industry comes closest to being purely competitive? A. agriculture B. retail trade C. electricity D. automobile
A.
In a purely competitive industry, A. each existing firm will engage in various forms of nonprice competition B. new firms are free to enter and existing firms are able to leave the industry very easily C. individual firms have a price policy D. each firm produces a differentiated (nonstandardized) product
B.
In pure competition, product price is A. greater than marginal revenue B. equal to marginal revenue C. equal to total revenue D. greater than total revenue
B.
Suppose that when 2,000 units of output are produced, the marginal cost of the 2,001st unit is $5. This amount is equal to the minimum of average total cost, and marginal cost is rising. If the optimal level of output in the short run is 2,500 units, then at that level, A. marginal cost is greater than $5 and marginal cost is less than average total cost B. marginal cost is greater than $5 and marginal cost is greater than average total cost C. marginal cost is less than $5 and marginal cost is greater than average total cost D. marginal cost is equal to $5 and marginal cost is equal to average total cost
B.
The individual firm's short-run supply curve is that part of its marginal-cost curve lying above its A. average-total-cost curve B. average-variable-cost curve C. average-fixed-cost curve D. average-revenue curve
B.
Which statement is true of a purely competitive industry in short-run equilibrium? A. Price is equal to average total cost. B. Total quantity demanded is equal to total quantity supplied. C. Profits in the industry are equal to zero. D. Output is equal to the output at which average total cost is a minimum.
B.
Assume there are 100 identical firms in this industry and total or market demand is as shown. Price Quantity Demanded $360 600 290 700 230 800 180 900 140 1,000 110 1,100 80 1,200 The equilibrium price will be A. $140 B. $180 C. $230 D. $290
C.
If the market price for the firm's product is $290, the competitive firm will produce A. 7 units B. 8 units C. 9 units D. 10 units
C.
The demand schedule or curve confronted by the individual purely competitive firm is A. perfectly inelastic B. inelastic but not perfectly inelastic C. perfectly elastic D. elastic but not perfectly elastic
C.
Total revenue for producing 10 units of output is $6. Total revenue for producing 11 units of output is $8. Given this information, the A. average revenue for producing 11 units is $2. B. average revenue for producing 11 units is $8. C. marginal revenue for producing the 11th unit is $2. D. marginal revenue for producing the 11th unit is $8.
C.
Because of the law of diminishing marginal returns, marginal costs eventually A. fall as fewer units of output are produced; thus higher prices are required to motivate producers to supply less B. fall as fewer units of output are produced; thus higher prices are required to motivate producers to supply more C. rise as more units of output are produced; thus lower prices are required to motivate producers to supply less D. rise as more units of output are produced; thus higher prices are required to motivate producers to supply more
D.
For which market model are there a very large number of firms? A. monopolistic competition B. oligopoly C. pure monopoly D. pure competition
D.
If the market price for the firm's product is $140, the competitive firm will A. have an economic loss of $50 B. have an economic profit of $50 C. have an economic profit of $840 D. break even
D.
If the product price is $179, the per-unit economic profit at the profit-maximizing output is A. $15 B. $23 C. $33 D. $39
D.
An increase in the price of a variable input will shift the marginal-cost or short-run supply curve downward. True False
F
Assuming that the purely competitive firm chooses to produce and not close down, to maximize profits or minimize losses it should produce at that point where price equals average cost. True False
F
Economic profit is the difference between total revenue and average revenue. True False
F
Marginal revenue is the change in average revenue that results from selling one more unit of output. True False
F
The structures of the markets in which business firms sell their products in the U.S. economy are very similar. True False
F
There are significant obstacles to entry in a purely competitive industry. True False
F
Under purely competitive conditions, the product price charged by the firm increases as output increases. True False
F
Answer this Question on the basis of the following cost data for a firm that is selling in a purely competitive market. Output AFC AVC ATC MC 0 1 $300 $100 $400 $100 2 150 75 225 50 3 100 70 170 60 4 75 73 148 80 5 60 80 140 110 6 50 90 140 140 7 43 103 146 180 8 38 119 156 230 9 33 138 171 290 10 30 160 190 360
For Question 11, 12, 13, 14, 15, 16
A purely competitive firm will produce in the short run the output at which marginal cost and marginal revenue are equal provided that the price of the product is greater than its average variable cost of production. True False
T
Imperfectly competitive markets are defined as all markets except those that are purely competitive. True False
T
In a purely competitive industry individual firms do not have control over the price of their product. True False
T
In pure competition, price is equal to marginal revenue and also equal to average revenue. True False
T
Price and average revenue are the same in pure competition. True False
T
Product price is a given fact to the individual competitive firm, but the supply plans of all competitive firms as a group are a basic determinant of product price. True False
T
The break-even point means that the firm is realizing normal profits, but not economic profits. True False
T
The demand curves for an individual firm in a purely competitive industry are perfectly inelastic. True False
T
The purely competitive firm can maximize its economic profit (or minimize its loss) only by adjusting its output. True False
T
The purely competitive firm views an average revenue schedule as identical to its marginal-revenue schedule. True False
T
The short-run supply curve of a purely competitive firm tends to slope upward from left to right because of the law of diminishing returns. True False
T
The short-run supply curve of the purely competitive firm is the segment of the firm's short-run marginal-cost curve that lies above the firm's average-variable-cost curve. True False
T
Total revenue for each sales level is found by multiplying price by the quantity the firm can sell at that price. True False
T