ECO 201

In the standard model of pure competition, a profit-maximizing firm will shut down in the short run if price is below: A. Marginal cost B. Average cost C. Average fixed cost D. Average variable cost

Average variable cost

Given the diagram above, which level of output should the entrepreneur choose? A. Either X1 or X3 since the profit level will be the same B. X3 since any increase in output will reduce profits C. X1 since any decrease in output will reduce profits D. X2 since at this level the difference between MR and MC is maximized

X3 since any increase in output will reduce profits

A purely competitive firm can be identified by the fact that: A. There are other firms in the industry producing similar products B. It is making only normal profits in the short run C. Its average revenue equals its marginal revenue D. It experiences diminishing marginal returns

Its average revenue equals its marginal revenue

Consider the purely competitive firm pictured above. The firm is earning: A. Normal profits, since its price is above AVC B. Economic profits, since its price is above AVC C. Normal profits, since its price just covers ATC D. Losses, since it is operating at the shutdown point

Normal profits, since its price just covers ATC

Refer to the above graph. It shows short-run cost curves for a competitive firm. At what minimum price would the firm be willing to produce some output in the short run? A. P1 B. P2 C. P3 D. P4

P3

At what quantity would a purely competitive firm cover all of its costs and earn only normal profits? A. Q = 5 B. Q = 10 C. Q = 15 D. Q = 20

Q = 20

Refer to the above graph. Which of the output levels is the profit-maximizing output level for this firm? A. Q1 B. Q2 C. Q3 D. Q4

Q3

Which of the following is true for a purely competitive firm in short-run equilibrium? A. The firm is making only normal profits B. The firm's marginal cost is greater than its marginal revenue C. The firm's marginal revenue is equal to its marginal cost D. A decrease in output would lead to a rise in profits

The firm's marginal revenue is equal to its marginal cost

A purely competitive firm will be willing to produce even at a loss in the short run, as long as: A. The loss is smaller than its total variable costs B. The loss is smaller than its marginal costs C. The loss is smaller than its total fixed costs D. Price exceeds marginal costs

The loss is smaller than its total variable costs

In the standard model of pure competition, a profit-maximizing firm will shut down in the short run if: A. Marginal cost is greater than average revenue B. Average cost is greater than average revenue C. Average fixed cost is greater than average revenue D. Total revenue is less than total variable cost

Total revenue is less than total variable cost

In a graph for a firm in pure competition with the quantity of output measured on the horizontal axis, the total revenue curve is: A. Downward-sloping B. Horizontal C. Vertical D. Upward-sloping

Upward-sloping

Which is a feature of a purely competitive market? A. Price differences between firms producing the same product B. Significant barriers to entry into the industry C. The industry's demand curve is perfectly elastic D. Products are standardized or homogeneous

roducts are standardized or homogeneous

Refer to the above graph. At what price will the firm make just a normal profit? A. $2 B. $5 C. $7 D. $10

$10

The demand curve faced by a purely competitive firm: A. Has unitary elasticity B. Yields constant total revenues even when price changes C. Is identical to the market demand curve D. Is the same as its marginal revenue curve

Is the same as its marginal revenue curve

Refer to the above table. The marginal revenue from the third unit of output is: A. $40 B. $50 C. $120 D. $160

$40

Refer to the above table. The market price of the product in the short run is:A. A. $40 B. $80 C. $120 D. $160

$40

Refer to the above graph. This pure competitive firm will not produce unless price is at least: A. $2 B. $5 C. $7 D. $10

$5

Refer to the above graph. At what price will the firm make an economic profit? A. $2 B. $5 C. $7 D. $10

$7

Refer to the above graph for a purely competitive firm in the short run. What minimum output level should the firm produce just for it to break even? A. A B. B C. C D. Greater than C

A

Refer to the above graph. At the profit-maximizing level of output, the firm earns profits given by the area: A. 0AHE B. ACFH C. BCFG D. ABGH

ABGH

As president and owner of the Sour Grapes Lemonade Company, you know that you face: To maximize your financial well-being, you should: A. Continue to operate in the short run because rent is less than sales B. Shut down because variable costs exceed fixed costs C. Shut down because the company is losing money D. Continue operating in the short run

Continue operating in the short run

75. Technological advance improves productivity in a purely competitive industry. This change will result in a shift: A. Down of the individual firm's MC curve, causing the market supply curve to shift to the left B. Down of the individual firm's MC curve, causing the market supply curve to shift to the right C. Up of the individual firm's MC curve, causing the market supply curve to shift to the left D. Up of the individual firm's MC curve, causing the market supply curve to shift to the right

Down of the individual firm's MC curve, causing the market supply curve to shift to the right

Price is taken to be a "given" by an individual firm selling in a purely competitive market because: A. The firm's demand curve is downward-sloping B. There are no good substitutes for the firm's product C. Each seller supplies a negligible fraction of total market D. Product differentiation is reinforced by extensive advertising

Each seller supplies a negligible fraction of total market

In pure competition, each extra unit of output that a firm sells will yield a marginal revenue that is: A. Equal to the price B. Less than the price C. Greater than the price D. Equal to the average cost

Equal to the price

Let us suppose Harry's, a local supplier of chili and pizza, has the following revenue and cost structure: A. Harry's should stay open in the long run B. Harry's should shut down in the short run C. Harry's should stay open in the short run D. Harry's should shut down in the short run but reopen in the long run

Harry's should stay open in the short run