Chapter 10 Micro Econ

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

False

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

Marginal; output

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

Pure

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

True

Match each market structure with the description that best describes the conditions for exit and entry into that industry. a. very easy, no obstacles b. relatively easy c. significant obstacles d. blocked 1. purely competitive 2. monopoly 3. oligopoly 4. monopolistically competitive

a. 1. b. 4. c. 3. d. 2.

Match each market structure with the correct type of product that it produces. a. standardized product b. differentiated product c. standardized or differentiated d. unique, no close substitute 1. monopolistically competitive 2. purely competitive 3. oligopoly 4. monopoly

a. 2. b. 1. c. 3. d. 4.

Match the market models based on the number of firms present in each model. (match the letter with the number) a. very large number b. relatively large number c. few d. one 1. monopolistic competition 2. monopoly 3. pure competition 4. oligopoly

a. 3. b. 1. c. 4. d. 2.

Match each market structures with the correct description of how price control is exerted. a. none b. some, but within narrow limits c. limited by mutual interdependence d. considerable control 1. oligopoly 2. monopolistically competitive 3. monopoly 4. purely competitive

a. 4. b. 2. c. 1. d. 3.

Which of the following best summarizes why a firm in a purely competitive market will not increase its product price? a. Asking a price higher than the market price would be futile because consumers could substitute with other perfectly identical products b. Asking a price higher than the market price would be advantageous because consumers could substitute with other perfectly identical products c. Asking a price lower than the market price would be futile because consumers could substitute with other perfectly identical products d. Asking a price equal to the market price would be futile because consumers could substitute with other perfectly identical products

a. Asking a price higher than the market price would be futile because consumers could substitute with other perfectly identical products

Given the following table, which of the following explains the firm's decision to shut down at a price of $71? a. At every output level, AVC is greater than price. The smallest loss incurred by producing is greater than the fixed cost incurred by shutting down. b. At every output level, AVC is greater than price. The smallest loss it can incur by producing is less than the fixed cost incurred by shutting down. c. At every output level, AVC is less than price and the smallest loss is greater than the fixed cost incurred by shutting down. d. At every output level, AFC is greater than the price and the smallest loss is greater than the fixed cost incurred by shutting down.

a. At every output level, AVC is greater than price. The smallest loss incurred by producing is greater than the fixed cost incurred by shutting down.

Which of the following best summarizes why firms in purely competitive industries do no differentiate their products? a. Because there are so many of them selling a standardized product b. Because there is not enough demand for differentiated products c. Because there are so many of them selling a non-standardized product d. Because of scarce resources that limit the production of alternative products

a. Because there are so many of them selling a standardized product

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

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

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

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

A firm within pure competition will produce up to the point where marginal revenue equals marginal cost because: (check all that apply) a. It will experience the lowest possible losses at this point. b. It will experience the highest possible profits at this point. c. It will experience greater profits at a production level less than this point. d. It will produce the most amount of output where this equality holds.

a. It will experience the lowest possible losses at this point. b. It will experience the highest possible profits at this point.

Between p2 and p4, the firm will minimize its losses by producing and supplying the quantity at which: a. MR=P=MC b. P=AVC c. MR=ATC d. MR=AVC

a. MR=P=MC

Which of the following are considered the four basic market structures? (check all that apply) a. Oligopoly b. Pure competition c. Pure monopoly d. Monopolistic competition e. Capitalism

a. Oligopoly b. Pure competition c. Pure monopoly d. Monopolistic competition

Which of the following improves as production increases? a. Price-marginal cost relationship b. Opportunity cost c. Fixed costs d. Price-marginal revenue relationship

a. Price-marginal cost relationship

Which of the following statements are true of perfectly competitive firms? (check all that apply) a. Quantity supplied increases in direct response to an increase in product price and desire to maximize profit. b. Quantity supplied decreases in direct response to an increase in product price and desire to maximize profit. c. At greater levels of output, the higher marginal costs equal the product price and marginal revenue and profit is maximized. d. A purely competitive firm must get higher prices to motivate it to produce more output.

a. Quantity supplied increases in direct response to an increase in product price and desire to maximize profit. c. At greater levels of output, the higher marginal costs equal the product price and marginal revenue and profit is maximized. d. A purely competitive firm must get higher prices to motivate it to produce more output.

When price is above _______________ total cost, the firm incurs an economic profit. a. average b. marginal c. variable

a. average

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

a. average revenue to a seller

Which of the following is not a valid market structure? a. competitive monopoly b. pure monopoly c. pure competition d. monopolistic competition e. oligopoly

a. competitive monopoly

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

a. equal to

Which of the following are conditions necessary to have pure competition? (check all that apply) a. free entry and exit b. barriers to entry c. standardized product d. very large number of firms or sellers e. price searchers

a. free entry and exit c. standardized product d. very large number of firms or sellers

A firm within a purely competitive market can maximize its profit in the short run by producing up to the point where a. marginal cost is equal to marginal revenue. b. marginal cost is greater than marginal revenue. c. total revenue is equal to total cost d. marginal cost is less than marginal revenue.

a. marginal cost is equal to marginal revenue.

A firm within pure competition will maximize its profit by profit by finding the point where total revenue is ________________ total cost. a. maximized over b. minimized under

a. maximized over

In pure competition, a firm's total revenue can be calculated by _____________________ the product price and the quantity demanded. a. multiplying b. dividing c. adding d. subtracting

a. multiplying

This graph illustrates a firm that can pay part, but not all, of its fixed costs by producing where: a. price exceeds minimum average variable cost but is less than minimum average total cost b. price exceeds minimum average variable cost but is less than marginal cost c. price equals minimum average variable cost but is less than minimum average total cost d. price exceeds minimum average total cost but is less than average fixed cost

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

Since firms within pure competition are ___________________, all or a majority of firms within an industry must agree to change output in order to affect price. a. price takers b. many c. price searchers d. price makers

a. price takers

The market structures designated as "imperfect competition" are: a. pure monopoly; oligopoly; monopolistic competition b. pure monopoly; pure competition; monopolistic competition c. pure monopoly; pure competition; oligopoly d.pure competition; monopolistic competition; oligopoly

a. pure monopoly; oligopoly; monopolistic competition

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

a. slopes downward

All of the following describe purely competitive firms, except: a. they engage in non-price competition b. they make no attempt to differentiate their products c. they produce homogeneous products d. they produced standardized products e. they produce identical products

a. they engage in non-price competition

A firm's price multiplied by the quantity of output or goods produced equals: a. total revenue b. total profits c. marginal revenue d. average revenue

a. total revenue

Market models are distinguished based upon difference in: (check all that apply) a. type of product b. the number of firms c. conditions of profits d. non-price competition e. conditions of entry

a. type of product b. the number of firms d. non-price competition e. conditions of entry

In the table, total economic profits at the profit-maximizing level of output are calculated as total revenue of _______________ minus approximate total costs of _______________. a. $1310; $880 b. $1179; $880 c. $880; $1179 d. $1179; $750 e. $880; $1310

b. $1179; $880

The demand curve for a purely competitive firm is perfectly elastic because _______________. a. It cannot obtain a lower price by restricting its output, nor does it need to lower its price to increase its sales volume b. It cannot obtain a higher price by restricting its output, nor does it need to lower its price to increase its sales volume c. It cannot obtain a higher price by increasing its output, nor does it need to lower its price to increase its sales volume d. It cannot obtain a higher price by restricting its output, nor does it need to raise its price to increase its sales volume

b. It cannot obtain a higher price by restricting its output, nor does it need to lower its price to increase its sales volume

A purely competitive firm will ask all of the following questions except: a. will production result in economic profit? b. will production result in normal profit? c. should this firm produce? d. what quantity should this firm produce?

b. will production result in normal profit?

Which of the following best describes why a firm continues to operate even though it incurs and economic loss? a. Whenever price exceeds average variable costs but is less than average fixed costs, the firm can pay part of its variable costs by producing. b. Whenever price exceeds average variable costs but is less than average total costs, the firm can pay part, but not all, its fixed costs by producing. c. Whenever price is less than average total costs, the firm can pay part, but not all, its fixed costs by producing. d. Whenever price equals marginal cost but is less than average total costs, the firm can pay part, but not all, its fixed costs by producing.

b. Whenever price exceeds average variable costs but is less than average total costs, the firm can pay part, but not all, its fixed costs by producing.

From an economic standpoint, the break-even point is the level of output at which a firm makes _________________ profit. (check all that apply) a. an accounting b. a normal c. an economic d. a zero

b. a normal d. a zero

Which of the following describes and industry that would best fit the oligopolistic market structure? a. local utilities b. airlines c. dry-cleaning d. argiculture

b. airlines

The shaded area on the graph represents: a. a normal profit b. an economic loss c. an economic profit d. an economic loss and the firm shuts down

b. an economic loss

A firm operating in a purely competitive market is a price taker because it: a. can change market price in the short run b. cannot change market price, it can only adjust to it c. cannot change market price in the long run d. can change market price in the long run

b. cannot change market price, it can only adjust to it

The shaded area on the graph represents: a. economic loss but continue to operate b. economic profit c. economic loss and shutdown d. normal profit e. economic loss

b. economic profit

An oligopoly has _________________ sellers and must consider the decisions of its rivals in determining its own __________________ and output. a. few; costs b. few; price c. many; costs d. many; price

b. few; price

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

b. it is a price taker

In the initial stages of production, where output is relatively ____________________, marginal ____________________ will usually, but not always, exceed marginal ___________________. a. high; revenue; cost b. low; revenue; cost c. high; cost; revenue

b. low; revenue; cost

In pure competition, economic profit is calculated as _____________ or _______________. (check all that apply) a. price minus average variable cost multiplied by quantity b. marginal revenue minus average total cost multiplied by quantity c. total revenue minus average total cost multiplied by the marginal product of labor d. price minus average total cost plus quantity e. price minus average total cost multiplied by the quantity

b. marginal revenue minus average total cost multiplied by the quantity e. price minus average total cost multiplied by the quantity

In the short run, a purely competitive firm will maximize profit by producing up to the point where marginal revenue is equal to marginal cost if a. market price is less than average variable cost. b. market price exceeds average variable cost.

b. market price exceeds average variable cost.

A purely competitive firm's profit is ______________ when total revenue exceeds total cost by the maximum amount. a. minimized b. maximized

b. maximized

In a purely competitive industry, buyers view the products of firms B, C, D and E as ________________ for the product of firm A. a. relative substitutes b. perfect substitutes c. perfect complements d. relative complements

b. perfect substitutes

A firm should produce if (check all that apply) a. price is equal to or less than minimum average variable cost, meaning that the firm is profitable or that losses are less than fixed costs. b. price is equal to or greater than minimum average total cost, meaning that the firm is profitable or is breaking even (earning a normal profit). c. price is equal to or greater than minimum average variable cost, meaning that the firm is profitable or that losses are less than fixed costs. d. price is equal to or less than minimum average fixed cost, meaning that the firm is profitable or that losses than variable costs.

b. price is equal to or greater than minimum average total cost, meaning that the firm is profitable or is breaking even (earning a normal profit). c. price is equal to or greater than minimum average variable cost, meaning that the firm is profitable or that losses are less than fixed costs.

Total revenue equals _______________ times _________________. a. average revenue; price b. price; quantity c. demand; quantity d. average revenue; demand

b. price; quantity

Which of the following describes an industry that would best fit the monopolistically competitive market structure? a. household appliances b. retail trade c. cable television d. wheat e. agriculture

b. retail trade

In a purely competition industry at profit-maximization or loss-minimization, marginal ______________ is equal to _________________. (check all that apply) a. output; marginal cost b. revenue; marginal cost c. cost; price d. revenue; price

b. revenue; marginal cost c. cost; price d. revenue; price

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

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

A firm should stop producing if its average __________________ cost is _________________ price. a. marginal; greater than b. variable; greater than c. variable; less than d. variable; equal to

b. variable; greater than

Which of the following best describes monopolistic competition? a. A relatively small number of sellers producing differentiated products and in which entry or exit from the industry is quite easy. b. A relatively large number of sellers producing a single unique product and in which entry or exit from the industry is quite easy. c. A relatively large number of sellers producing differentiated products and in which entry or exit from the industry is quite easy. d. A relatively large number of sellers producing differentiated products and in which entry or exit from the industry is quite difficult.

c. A relatively large number of sellers producing differentiated products and in which entry or exit from the industry is quite easy.

By which two ways can a purely competitive firm determine the level of output at which it will realize maximum profit or minimum losses? (check all that apply) a. By comparing marginal costs to total costs b. By comparing unit costs to total costs c. By comparing marginal revenue to marginal costs d. By comparing total revenue to total costs e. By comparing marginal revenue to total revenue

c. By comparing marginal revenue to marginal costs d. By comparing total revenue to total costs

Which of the following best explains why a firm would not stop producing if the loss is less than its fixed costs? a. 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 MC. b. Fixed costs are paid regardless of whether something or nothing is produced, and the firm receives enough revenue per-unit to cover ATC and some FC. c. 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. d. Fixed costs are paid regardless of whether something or nothing is produced, and the firm receives enough revenue per-unit to cover ATC and some MC.

c. 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.

Which of the following describes the purely competitive industry's supply curve? a. It is the sum of the supply curves of all the firms in the industry and does not have an important bearing on price b. It is the sum of the supply curves of all the firms in the industry and does not have an important bearing on output c. It is the sum of the supply curves of all the firms in the industry and has an important bearing on price d. It is the sum of the supply curves of some firms in the industry and has an important bearing on price

c. It is the sum of the supply curves of all the firms in the industry and has an important bearing on price

When the marginal cost of an additional unit of output exceeds the marginal revenue, the firm should a. Reduce its fixed plant b. Continue producing more units output c. Not produce that additional unit of output d. Shut down

c. Not produce that additional unit of output

Which of the following describes a pure monopoly? a. One firm selling a single unique product, with ease of entry into the industry and product differentiation is not an issue. b. Many firms selling a single unique product, where entry of additional firms is blocked and product differentiation is not an issue. c. One firm selling unique product, where entry of additional firms is blocked and product differentiation is not an issue. d. One firm selling differentiated products or services and in which entry of additional firms is blocked.

c. One firm selling unique product, where entry of additional firms is blocked and product differentiation is not an issue.

Which of the following best describes marginal revenue? a. The total revenue that an additional or extra unit of output contributes to marginal revenue. b. The additional or extra revenue that total output contributes to total revenue. c. The additional or extra revenue that an additional or extra unit of output contributes to total revenue. d. The additional or extra revenue that an additional or extra unit of output contributes to average revenue.

c. The additional or extra revenue that an additional or extra unit of output contributes to total revenue.

Which of the following best describes the economic break-even point? a. The point where total revenue covers all explicit costs b. The point where marginal revenue covers all costs, including implicit and explicit costs c. The point where total revenue covers all costs, including implicit and explicit costs d. The point where total revenue covers all marginal costs, including implicit and explicit costs

c. The point where total revenue covers all costs, including implicit and explicit costs

Which of the following summarizes why it is possible for a firm to freely enter and exit a purely competitive market? a. There are significant legal, technological, financial or other obstacles permitting firms entry and exit. b. There are significant legal, technological, financial or other obstacles prohibiting firms from entry and exit. c. There are no significant legal, financial or other obstacles prohibiting firms from entry and exit.

c. There are no significant legal, financial or other obstacles prohibiting firms from entry and exit.

In the graph, the shut-down point for the firm would be: a. any price between the minimum average variable cost and minimum average total cost b. any price above the average total cost c. at the intersection of AVC and MC d. at the intersection of ATC and MC

c. at the intersection of AVC and MC

A purely competitive firm's total revenue curve will a. have a variable slope due to changes in each extra unit of sales that vary with different levels of sales b. slope downward and to the right because each extra unit of sales increases total revenue by a constant amount c. have a constant slope because each extra unit of sales increases total revenue by a constant amount

c. have a constant slope because each extra unit of sales increases total revenue by a constant amount

The quantity of a product supplied by a firm in pure competition should ______________ as long as price rises. a. remain constant b. decrease c. increase

c. increase

Within pure competition, a supplier will ________________ production as price rises, as long as marginal cost is less than marginal revenue. a. decrease b. resume c. increase d. stop

c. increase

A basic feature of the purely competitive market is the presence of __________________. a. differentiated prices b. high barriers to entry c. large number of sellers d. differentiated products

c. large number of sellers

For the firm, at a price of $131 and 7 units of output: a. the firm would earn only a normal profit b. total revenue is less than total cost c. marginal revenue (MR) exceeds marginal cost (MC) and the firm should expand its output d. average variable cost (AVC) exceeds average total cost (ATC)

c. marginal revenue (MR) exceeds marginal cost (MC) and the firm should expand its output

A firm should produce any unit of output whose: a. price is less than marginal cost b. marginal cost is greater than marginal revenue c. marginal revenue is greater than marginal cost d. total revenue is greater than marginal cost

c. marginal revenue is greater than marginal cost

In a purely competitive market, the _______________ revenue coincides with the demand curve because the product price and hence marginal revenue, is ____________________. a. total; constant b. marginal; falling c. marginal; constant d. total; falling e. marginal; rising f. total; rising

c. marginal; constant

Because of the law of diminishing returns, ______________ costs eventually _______________ as more units of output are produced. a. total; fall b. total; disappear c. marginal; rise d. marginal; fall

c. marginal; rise

At price ________________ the firm will realize an economic profit by producing and supplying ____________ units of output. In fact, at any price above ___________________, the firm will obtain economic profit by producing to the point where MR=P=MC. a. p2; q2; p1 b. p5; q5; p3 c. p5; q5; p4 d. p4; q4; p2

c. p5; q5; p4

In pure competition the demand curve faced by an individual firm graphs as a ________________ curve and the market demand in pure competition is graphed as a ________________ curve. a. downsloping; perfectly inelastic b. perfectly inelastic; upsloping c. perfectly elastic; downsloping d. perfectly elastic; perfectly inelastic

c. perfectly elastic; downsloping

The MR = MC rule is known as the" a. profit-minimizing rule b. loss-maximizing rule c. profit-maximizing rule

c. profit-maximizing rule

Marginal revenue is the _________________ in total revenue that results from selling __________________ more unit (extra unit) of output.

change; one

At a profit-maximizing level of output of 25 units, a perfectly competitive firm's marginal revenue is $4, average variable cost is $.30, the average total cost is $1.22 and marginal cost is $3.75. This firm's economic profit equals: a. $.25 b. $6.25 c. $3.70 d. $69.50 e. $92.50

d. $69.50

At a profit-maximizing (or loss-minimizing) level of output of 15 units, a perfectly competitive firm's marginal revenue is $6, average cost is $1.70, average total cost is $7.22 and marginal cost is $5.95. This firm's economic profit or loss equals: a. $64.50 b. -$82.78 c. $.75 d. -$18.30

d. -$18.30

In this table, at price of $131, the profit-maximizing level of output is _________________. a. 2 units of output b. 8 units of output c. 10 units of output d. 9 units of output e. 7 units of output

d. 9 units of output

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

d. 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 explain why technological progress reduces marginal cost? a. Because technological progress increases the need for additional variable inputs. b. Because technological progress decreases the productivity of labor. c. Because technological progress increases the need for labor. d. Because technological progress increases the productivity of labor.

d. Because technological progress increases the productivity of labor.

Which of the following best describes the situation of a price-taking firm? a. One of a small number of firms producing an identical product as every firm in its industry and only providing a fraction of total market supply b. One of a few firms producing an identical product as every firm in its industry and only providing a fraction of total market supply c. One of a large number of firms producing an identical product as every firm in its industry and providing a large share of total market supply d. One of a large number of firms producing an identical product as every firm in its industry and only providing a fraction of total market supply

d. One of a large number of firms producing an identical product as every firm in its industry and only providing a fraction of total market supply

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

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

Which of the following is a given fact to the individual competitive firm, but a basic determinant of quantity supplied for the entire competitive industry? a. Input prices b. Marginal revenue c. Marginal cost d. Product price

d. Product price

Which of the following reasons could be given as an obstacle for a purely competitive firm in entering or exiting an industry? a. Technological b. Contractual c. Legal issues d. There are no obstacles e. Financial matters

d. There are no obstacles

Which of the following does not describe a purely competitive firm? a. The produce a small fraction of total supply. b. They are price takers. c. They do no exert control over product price. d. They produce a large fraction of total supply.

d. They produce a large fraction of total supply.

All of the following statements describe a purely competitive market, except: a. stock market. b. foreign exchange market. c. many independently acting sellers. d. a single seller selling only in national market. e. selling in both national and international markets.

d. a single seller selling only in national market.

A purely competitive firm's marginal revenue curve will _______________ the firm's demand curve. a. be above b. be perpendicular to c. not be parallel to the d. coincide with

d. coincide with

The green box in this graph represents the firm's: a. economic loss calculated as (P-Q)*A b. economic profit calculated as (P-Q)*A c. economic loss calculated as (P-AVC)*Q d. economic profit calculated as (P-ATC)*Q

d. economic profit calculated as (P-ATC)*Q

In a perfectly competitive market, price is ________________ marginal revenue, therefore, price is __________________ marginal cost at the profit-maximizing output. a. greater than; less than b. less than; greater than c. less than; less than d. equal to; equal to e. greater than; greater than

d. equal to; equal to

A wage _________________ would raise marginal cost and shift the supply curve _________________. a. decrease; downward b. increase; downward c. decrease; upward d. increase; upward

d. increase; upward

This graph shows a firm that: a. incurs a loss but continues to operate because price exceeds marginal revenue b. incurs a profit but continues to operate because price exceeds the lowest average variable cost c. incurs a loss but continues to operate because price exceeds total variable costs d. incurs a loss but continues to operate because price exceeds the lowest average variable cost

d. incurs a loss but continues to operate because price exceeds the lowest average variable cost

The price at which the firm will break-even or where it earns a normal profit, but not an economic profit is: a. p3 b. p2 c. p1 d. p4 e. p5

d. p4

Profit in a purely competitive market is maximized when ______________ equals ______________ equals _________________. a. marginal revenue; marginal cost; average total cost b. marginal revenue; total revenue; price c. price; marginal revenue; average total cost d. price; marginal revenue; marginal cost

d. price; marginal revenue; marginal cost

A firm's decisions concerning _________________ and _________________ depend on the character of the market in which it is operating. a. price; labor b. price; capital c. price; technology d. price; production

d. price; production

In this graph, price is ________________ than the lowest average total cost, but above the lowest average _____________ cost and therefore the firm incurs a loss, but continues to operate. a. less; fixed b. less; total c. more; fixed d. more; variable e. less; variable

e. less; variable

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

elastic

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

elastic

When price is ___________________ to a firm's lowest average ___________________ cost, the firm will be able to cover its _____________________ variable cost and its loss will equal its total ___________________ cost.

equal; variable; total; fixed

In regards to its slope, a purely competitive firm's demand curve is perfectly _______________ (horizontal/vertical).

horizontal

If price is ___________________ than a firm's minimum average __________________ cost, the firm will not operate.

less; variable

The portion of a firm's _________________ cost curve lying _______________ (above/below) its average ___________________ cost curve is its short-run supply curve.

marginal; above; variable

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

output

Changes in __________________ and changes in prices of variable inputs alter costs and shift the marginal cost or short run supply curve.

technology

In pure competition, to calculate economic profit, we first calculate the difference between product ____________________ or __________________ revenue and average total cost and then multiply it by output.

price; marginal

A ____________________ competitive firm's average-revenue schedules is also known as its demand schedule.

purely

In a purely competitive market, price per unit to the purchaser is synonymous with ___________________ per unit or ________________ revenue to a seller.

revenue; average

Purely competitive firms produce ________________ products.

standardized

The portion of a firm's marginal cost curve that lies above its average variable cost is the firm's short-run ___________________ curve.

supply

A purely competitive firm is a price ______________________.

taker