ECON 202 Chapter 10

A purely competitive firm should produce in the short run if its total revenue is sufficient to cover its: A. total variable costs. B. total costs. C. total fixed costs. D. marginal costs.

A

An industry comprised of 40 firms, none of which has more than 3 percent of the total market for a differentiated product, is an example of: A. monopolistic competition. B. oligopoly. C. pure monopoly. D. pure competition.

A

In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. Refer to the information. For a purely competitive firm, total revenue graphs as a: A. straight, upsloping line. B. straight line, parallel to the vertical axis. C. straight line, parallel to the horizontal axis. D. straight, downsloping line.

A

In which of the following industry structures is the entry of new firms the most difficult? A. Pure monopoly. B. Oligopoly. C. Monopolistic competition. D. Pure competition.

A

The MR = MC rule applies: A. to firms in all types of industries. B. only when the firm is a "price taker." C. only to monopolies. D. only to purely competitive firms.

A

The MR = MC rule can be restated for a purely competitive seller as P = MC because: A. each additional unit of output adds exactly its price to total revenue. B. the firm's average revenue curve is downsloping. C. the market demand curve is downsloping. D. the firm's marginal revenue and total revenue curves will coincide.

A

Which of the following industries most closely approximates pure competition? A. Agriculture. B. Farm implements. C. Clothing. D. Steel.

A

A firm finds that at its MR = MC output, its TC = $1,000, TVC = $800, TFC = $200, and total revenue is $900. This firm should: A. shut down in the short run. B. produce because the resulting loss is less than its TFC. C. produce because it will realize an economic profit. D. liquidate its assets and go out of business.

B

A perfectly elastic demand curve implies that the firm: A. must lower price to sell more output. B. can sell as much output as it chooses at the existing price. C. realizes an increase in total revenue that is less than product price when it sells an extra unit. D. is selling a differentiated (heterogeneous) product.

B

If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue: A. may be either greater or less than $5. B. will also be $5. C. will be less than $5. D. will be greater than $5.

B

When a firm is maximizing profit, it will necessarily be: A. maximizing profit per unit of output. B. maximizing the difference between total revenue and total cost. C. minimizing total cost. D. maximizing total revenue.

B

A purely competitive seller is: A. both a "price maker" and a "price taker." B. neither a "price maker" nor a "price taker." C. a "price taker." D. a "price maker."

C

Assume for a competitive firm that MC = AVC at $12, MC = ATC at $20, and MC = MR at $16. This firm will: A. realize a profit of $4 per unit of output. B. maximize its profit by producing in the short run. C. minimize its losses by producing in the short run. D. shut down in the short run.

C

Firms seek to maximize: A. per unit profit. B. total revenue. C. total profit. D. market share.

C

. In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. Refer to the information. For a purely competitive firm: A. marginal revenue will graph as an upsloping line. B. the demand curve will lie above the marginal revenue curve. C. the marginal revenue curve will lie above the demand curve. D. the demand and marginal revenue curves will coincide.

D

A firm reaches a break-even point (normal profit position) where: A. marginal revenue cuts the horizontal axis. B. marginal cost intersects the average variable cost curve. C. total revenue equals total variable cost. D. total revenue and total cost are equal.

D

Assume the XYZ Corporation is producing 20 units of output. It is selling this output in a purely competitive market at $10 per unit. Its total fixed costs are $100 and its average variable cost is $3 at 20 units of output. This corporation: A. should close-down in the short run. B. is maximizing its profits. C. is realizing a loss of $60. D. is realizing an economic profit of $40.

D

For a purely competitive firm, total revenue: A. is price times quantity sold. B. increases by a constant absolute amount as output expands. C. graphs as a straight upsloping line from the origin. D. has all of these characteristics.

D

In the short run, a purely competitive firm will always make an economic profit if: A. P = ATC. B. P > AVC. C. P = MC. D. P > ATC.

D

The Ajax Manufacturing Company is selling in a purely competitive market. Its output is 100 units, which sell at $4 each. At this level of output total cost is $600, total fixed cost is $100, and marginal cost is $4. The firm should: A. reduce output to about 80 units. B. expand its production. C. continue to produce 100 units. D. produce zero units of output.

D