Econ Exam 2
The short-run supply curve of a purely competitive producer is based primarily on its
MC curve
Which of the following is correct as it relates to cost curves?
Marginal cost intersects average total cost at the latter's minimum point.
If marginal cost is below average variable cost,
both average total cost and average variable cost are decreasing.
A perfectly elastic demand curve implies that the firm
can sell as much output as it chooses at the existing price.
Which of the following is characteristic of a purely competitive seller's demand curve?
Price and marginal revenue are equal at all levels of output.
Frank buys 10 magazines and 25 newspapers. The magazines cost $5 each and the newspapers cost $2.50 each. Suppose that his MU from the final magazine is 10 utils while his MU from the final newspaper is also 10 utils. According to the utility-maximizing rule, Frank should:
Reallocate spending from magazines to newspapers
Marginal revenue is the
change in total revenue associated with the sale of one more unit of output.
Marginal utility is the
change in total utility obtained by consuming one more unit of a good.
The law of diminishing marginal utility explains why
demand curves slope downward.
Price is constant to the individual firm selling in a purely competitive market because
each seller supplies a negligible fraction of total supply.
The long-run average total cost curve
indicates the lowest unit costs achievable when a firm has had sufficient time to alter plant size.
The marginal revenue curve of a purely competitive firm
is horizontal at the market price
The minimum efficient scale of a firm
is the smallest level of output at which long-run average total cost is minimized.
When a firm is experiencing economies of scale,
long-run average (per-unit) total cost is decreasing.
A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating
marginal revenue and marginal cost
A consumer's demand curve for a product is downsloping because
marginal utility diminishes as more of a product is consumed.
To maximize utility, a consumer should allocate money income so that the
marginal utility obtained from the last dollar spent on each product is the same.
Suppose that MUx/Px exceeds MUy/Py. To maximize utility, the consumer who is spending all her money income should buy
more of X and/or less of Y.
Diseconomies of scale arise primarily because
of the difficulties involved in managing and coordinating a large business enterprise.
The demand schedule or curve confronted by the individual, purely competitive firm is
perfectly elastic
A purely competitive seller is
price taker
Which of the following is not a characteristic of pure competition?
pricing strategies by firms
The fact that a purely competitive firm's total revenue curve is linear and upsloping to the right implies that
product price is constant at all levels of output.
An industry comprising a very large number of sellers producing a standardized product is known as
pure competition
Suppose that Ms. Thomson is currently exhausting her money income by purchasing 10 units of A and 8 units of B at prices of $2 and $4, respectively. The marginal utility of the last units of A and B are 16 and 24, respectively. These data suggest that Ms. Thomson
should buy less B and more A.
In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. For a purely competitive firm, marginal revenue graphs as a
straight line, parallel to the horizontal axis.
In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. For a purely competitive firm, total revenue graphs as a
straight, upward sloping
A purely competitive firm's short-run supply curve is
upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve.
If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue
will also be $5
