Chapter 10 Microeconomics

Which factors illustrate that the demand curve for a purely competitive firm is perfectly elastic? The firm has no legal or financial barriers for entering or exiting the industry. 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 cannot obtain a higher price by restricting its output.

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

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. is less than is greater than eliminates equals

equals

A firm would not stop producing if the loss is less than its ______ costs. fixed marginal variable total

fixed

Economists group industries into ______ distinct market structures.

four

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

price

In pure competition, marginal revenue and ______ are equal. (Remember to type only one word per blank.)

price

The MR = MC rule is known as the: loss-maximizing rule profit-maximizing rule profit-minimizing rule

profit-maximizing rule

A purely competitive firm will maximize its profits by producing up to the point where the horizontal distance between the total revenue and average variable cost curve is the greatest. the vertical distance between the total revenue and total cost curve is the least. the vertical distance between the total revenue and total cost curves is the greatest. the horizontal distance between the total revenue and average fixed cost curve is the greatest.

the vertical distance between the total revenue and total cost curves is the greatest.

The market demand curve for a purely competitive industry: is perfectly elastic is perfectly inelastic slopes downward slopes upward

slopes downward

Firms within pure competition are considered to be price ______.

takers

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 $______.

393; 131

oligopoly

A market structure in which a few firms sell either a standardized or differentiated product, into which entry is difficult, in which the firm has limited control over product price because of mutual interdependence (except when there is collusion among firms), and in which there is typically nonprice competition.

pure, or perfect, competition

A market structure in which a very large number of firms sells a standardized product, into which entry is very easy, in which the individual seller has no control over the product price, and in which there is no nonprice competition; a market characterized by a very large number of buyers and sellers.

monopolistic competition

A market structure in which many firms sell a differentiated product, entry is relatively easy, each firm has some control over its product price, and there is considerable nonprice competition.

pure monopoly

A market structure in which one firm sells a unique product, into which entry is blocked, in which the single firm has considerable control over product price, and in which nonprice competition may or may not be found.

Which of the following explains why a purely competitive firm is a price taker? 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 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 set the price for the market 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 accept the price determined by the market

price taker

A seller (or buyer) that is unable to affect the price at which a product or resource sells by changing the amount it sells (or buys).

Which of the following best describes pure competition? 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 one large firm producing many products and in which new firms cannot 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.

break-even point

An output at which a firm makes a normal profit (total revenue = total cost) but not an economic profit.

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

Because there are so many of them selling a standardized product

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? By comparing marginal costs to total costs By comparing total revenue to total costs By comparing marginal revenue to marginal costs By comparing unit costs to total costs

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

Which of the following best explains why a purely competitive firm would not stop producing if the loss is less than its fixed costs? At a certain level of output, fixed costs decline. Therefore, the firm will earn a profit by expanding its output. Fixed costs are paid regardless of whether something or nothing is produced, and the firm receives enough revenue per-unit to cover AVC and some FC. When purely competitive firms suffer losses in the short run, the price will rise to the point of total cost in the long run. Pure competition involves high barriers to exit. Therefore, shutting down would cost the firm more than the losses it sustains while producing.

Fixed costs are paid regardless of whether something or nothing is produced, and the firm receives enough revenue per-unit to cover AVC and some FC.

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

Marginal,output

A purely competitive firm's average revenue curve is equal to or coincides with which of the following? Price Total revenue curve Demand curve Minimum average total cost curve

Price Demand curve

Which of the following is a method of calculating economic profit in pure competition? 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

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

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

Which market structure has the fewest obstacles to entry or exit? Oligopoly Monopoly Pure competition Monopolistic competition

Pure competition

In which type of market structure does a single firm produce a unique product with no close substitutes? Oligopoly Pure monopoly Monopolistic competition Pure competition

Pure monopoly

Which of the following are considered to be the four basic market structures? Representative democracy Pure monopoly Monopolistic competition Pure competition

Pure monopoly Oligopoly Monopolistic competition Pure competition

marginal revenue

The change in total revenue that results from the sale of 1 additional unit of a firm's product; equal to the change in total revenue divided by the change in the quantity of the product sold.

Which of the following best describes the economic break-even point? The point where total revenues exceed those of the strongest competitor in the industry. 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 revenue covers all costs, but there is no economic profit.

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

MR = MC rule

The principle that a firm will maximize its profit (or minimize its losses) by producing the output at which marginal revenue and marginal cost are equal, provided product price is equal to or greater than average variable cost.

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

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

total revenue (TR)

The total number of dollars received by a firm (or firms) from the sale of a product; equal to the total expenditures for the product produced by the firm (or firms); equal to the quantity sold (demanded) multiplied by the price at which it is sold.

Which of the following indicates the profit-maximizing level of output? The lowest point on the total cost curve The vertical distance between the total revenue and total cost curves The highest point on the total revenue curve The points at which total revenue and total cost intersect

The vertical distance between the total revenue and total cost curves

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

Total revenue

average revenue

Total revenue from the sale of a product divided by the quantity of the product sold (demanded); equal to the price at which the product is sold when all units of the product are sold at the same price.

In pure competition, a firm's average revenue will be _____ the product's price. equal to greater than less than

equal to

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

average revenue to a seller

In a purely competitive market, a firm's demand schedule is also its ______-______ schedule.

average-revenue

A firm operating in a purely competitive market is a price taker because it ______. can change the market price in the long run 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

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

A purely competitive firm's marginal revenue curve will ______ the firm's demand curve. not be parallel to the be perpendicular to be above coincide with

coincide with

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

do not differentiate their products

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

elastic

In pure competition the demand curve faced by an individual firm graphs as a(n) ______ line and the market demand in pure competition is graphed as a(n) ______ curve. upward sloping; vertical horizontal; downward sloping vertical; horizontal downward sloping; upward sloping

horizontal; downward sloping

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; only a fraction small; a large share large; a large share small; only a fraction

large; only a fraction

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

large; smaller; decreasing

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

normal

The market structure in which individual firms have the least amount of control over price is ______, whereas in ______ a single firm has significant control over price. oligopoly; pure monopoly pure competition; pure monopoly pure competition; monopolistic competition pure monopoly; pure competition

pure competition; pure monopoly

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 ______. average revenue; cost per unit marginal cost; total cost total cost; marginal cost maximum willingness to pay; equilibrium price

total cost; marginal cost

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

total revenue

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

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