Econ chapter 10
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
Which of the following are scenarios in which a firm should continue to produce?
Marginal revenue is $0.25 and marginal cost is $0.20. Marginal revenue is $1.50 and marginal cost is $1.45. Marginal revenue is $5 and marginal cost is $4.75.
Which of the following explains why technological progress reduces marginal cost?
Technological progress increases the productivity of labor.
Which of the following describes the individual competitive firm's supply curve?
The individual firm's supply curve represents a negligible fraction of total supply and therefore cannot affect price.
After a company has determined that it should produce a product and the amount of the product to produce, what basic question should it ask?
What economic profit (or loss) will we realize?
When will a firm earn an economic profit?
When price is greater than average total cost.
The MR = MC rule can be applied to ______ firms; however, the rule can be restated as P = MC only when applied to ______ firms.
all; purely competetive
monopolitically competetive Match each market structure with the correct type of product that it produces.
defferientiated product
In pure competition, a firm should produce if price is ______.
equal to or greater than minimum average variable cost
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.
equals
In the initial stages of production, where output is relatively low, marginal revenue will usually ______ marginal cost. Multiple choice question.
exceed
The firm should produce in the short run as long as the price
exceeds the average variable cost.
True or false: A firm within pure competition will maximize its profit when total cost is maximized over total revenue.
false
True or false: A purely competitive firm in the short run will maximize profit by producing up to the point where marginal revenue is equal to marginal cost if the market price is less than minimum average variable cost.
false
True or false: Because of the law of diminishing returns, marginal costs eventually fall as more units of output are produced.
false
True or false: Quantity supplied increases as price decreases, and economic profit is usually higher at lower product prices and output.
false
oligopoly Match the market models based on the number of firms present in each model.
few
An oligopoly has ___ sellers and must consider the decisions of its rivals in determining its own ___ and output.
few, price
A firm would not stop producing if the loss is less than its ______ costs.
fixed
Economist group industries into ________ distinct market strucures
four
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
horizontal; downward sloping
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. Multiple choice question.
horizontal; downward sloping
Because of the law of diminishing returns, marginal costs ______ at a(n) ______ rate at higher levels of output. Multiple choice question.
increase; increasing
A wage ______ would raise marginal cost and shift the supply curve _______.
increase; upward
A firm with no fixed costs
is really in the long run
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. Multiple choice question.
large; only a fraction
For purely competitive firms, the MR = MC rule can be restated so that ______ replaces marginal revenue.
price
In pure competition, marginal revenue and ___ are equal.
price
In pure competition, to calculate economic profit, we first calculate the difference between_____ and average total cost and then multiply it by output.
price
Total revenue equals ______ times ______.
price; quantity
In purely competitive markets, an individual firm lacks control over which factor?
product price
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?
product price
The MR = MC rule is known as the:
profit maximizing rule
A firm will not increase its product price in a(n) _____competitive market because consumers can switch to a lower-priced identical product.
pure
_____ compettion is considered rare in the real world
pure
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.
pure competition; pure monopoly
Changes in _____ (Enter one word) and changes in prices of variable inputs alter costs and shift the marginal cost or short run supply curve.
technology
When an industry is purely competitive, price can be substituted for marginal revenue in the MR = MC rule because
the demand curve is perfectly elastic and the price is constant regardless of the quantity demanded, so the MR is constant and equal to the price
A purely competitive firm will maximize its profits by producing up to the point where
the vertical distance between the total revenue and total cost curves is the greatest.
oligopy Match each market structure with the description that best describes the conditions for exit and entry into that industry.
significant obsticles
The market demand curve for a purely competitive industry:
slopes downward
The market demand curve for a purely competitive industry: Multiple choice question.
slopes downward
monopolistically competitive (Match each market structure with the correct description of how price control is exerted)
some, but with narrow limits
oligopoly Match each market structure with the correct type of product that it produces.
standardized or diferentiated
purely competetive Match each market structure with the correct type of product that it produces.
standardized product
In a purely competitive industry, an increase in the price of the product produced by firm A will cause buyers to ______.
substitute with products of firms B, C, or D
The portion of a firm's marginal cost curve that lies above its average variable cost is the firm's short-run ______curve.
supply
Firms within pure competition are considered to be price
takers
A firm produces 10 units of a product with a market price of $5 and an average total cost of $3. What is the firm's economic profit?
$20
If a firm's loss-minimizing output is 10 units and its average total cost at that level of output is $25, it will suffer a loss of $ ____given a price of $20.
$50
At a profit-maximizing level of output of 25 units, a perfectly competitive firm's marginal revenue is $4, average variable cost is $.30, average total cost is $1.22, and marginal cost is $3.75. What is the firm's economic profit? Multiple choice question.
$69.50
Assume that there are 100 identical firms in an industry that produces a product with a market price of $10. Each firm has an average total cost of $2 and an equilibrium output of 10 units. What is the industry's economic profit?
$8,000
At a price of $10 and a profit-maximizing (or loss-minimizing) level of output of 20 units, a perfectly competitive firm's average total cost is $15. This firm's economic profit or loss equals: Multiple choice question.
-$100
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
Which of the following is a characteristic of a monopolistically competitive market?
A relatively large number of sellers producing differentiated products
Which of the following statements about product price are true?
All competitive producers as a group can influence product price with their supply plans.Product price is a given fact for the individual firm.
In purely competitive industries, firms can freely:
All firms reducing output simultaneously
Which of the following best describes pure competition?
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 best summarizes why a firm in a purely competitive market will not increase its product price?
Asking a price higher than the market price would be futile because consumers could substitute with identical products that are cheaper.
Which of the following best explains why the price-marginal cost relationship improves as production increases?
At the very early stages of production, marginal product is low, making marginal cost unusually high.
Which of the following reasons explains why the purely competitive firm's demand curve is perfectly elastic?
Because the individual firm is a price taker, the marginal revenue curve coincides with the firm's equilibrium price.
Which of the following best summarizes why firms in purely competitive industries do not differentiate their 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 revenue to marginal costs By comparing total revenue to total 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?
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
What is the firm's most likely response if price is exactly equal to minimum average variable cost?
Indifference to producing or shutting down
Which of the following best describes oligopoly?
Involves only a few sellers of a standardized or differentiated product, so each firm is affected by the decisions of its rivals.
Strictly speaking, pure competition is relatively rare. Then why do we study it?
It produces ideal results in terms of low-cost production and allocative efficiency, which can be used as a basis of comparison.
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 only if which of the following is true?
Market price exceeds minimum average variable cost.
When the marginal cost of an additional unit of output exceeds the marginal revenue, what should the firm do?
Not produce that additional unit of output
Which of the following best describes a pure monopoly?
One firm selling a single unique product, where entry of additional firms is blocked and there is considerable control over price
A purely competitive firm's average revenue curve is equal to or coincides with which of the following?
Price demand curve
In which scenario will production result in an economic profit?
Price exceeds average total cost.
In which scenario can a firm pay part, but not all, of its fixed costs and should therefore continue producing even though it is experiencing a loss?
Price exceeds average variable cost but is less than average total cost.
Which of the following improves as production increases?
Price-marginal cost relationship
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 decline or loss would increase
The supply schedule for a purely competitive firm confirms that there is a direct relationship between which two factors?
Product price and quantity supplied
What are the effects of technology on the firm and its short-run supply curve?
Productivity increases. The short-run supply curve shifts downward (to the left). Marginal costs decrease.
Which market structure has the fewest obstacles to entry or exit?
Pure competition
Select all that apply Confronted with the market price of its product, a purely competitive producer will ask which three questions?
Should we produce this product? If we produce this product, in what amount? What economic profit or loss will we realize if we produce this product?
Which of the following factors will alter costs and shift the marginal cost or short-run supply curve to a new location?
Technology* Prices of variable input
Which factors illustrate that the demand curve for a purely competitive firm is perfectly elastic?
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.
What is the primary difference between the individual firm's supply curve and the industry supply curve?
The individual supply curve has no effect on price, whereas the industry supply curve has an important bearing on price.
At which stage of production is marginal revenue most likely to exceed marginal cost?
The initial stage
Which of the following best describes the economic break-even point?
The point where total revenue covers all costs, but there is no economic profit.
Which of the following best describes marginal revenue?
The revenue that an additional unit of output contributes to total revenue.
Which statement about obstacles to selling in a purely competitive market is true?
There are no significant obsticles to selling
Which of the following are true about the profit-maximizing rule of MR = MC?
The rule is an accurate guide to profit maximization for all firms regardless of their market structure. The rule applies only if producing is preferable to shutting down. The rule can be restated as P = MC when applied to a purely competitive firm because product price and MR are equal.
Which of the following indicates the profit-maximizing level of output?
The vertical distance between the total revenue and total cost curves
Which of the following are true of purely competitive firms?
They do not exert control over product price; They are price takers; They produce a small fraction of total supply
A basic feature of the purely competitive market is the presence of ______.
a large number of sellers
Which of the following market structures produces only a standardized product?
a purely competetive market
In pure competition, a firm's product price is ______ marginal revenue.
equal to
In a purely competitive market, price per unit to a buyer equals: Multiple choice question.
average revenue to a seller
Monopoly Match each market structure with the description that best describes the conditions for exit and entry into that industry.
blocked
A firm operating in a purely competitive market is a price taker because 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.
coincide
monopoly (Match each market structure with the correct description of how price control is exerted)
considerable control
Firms that operate in a purely competitive industry:
do not defrientiate their products
In a perfectly competitive market, the demand curve for an individual firm is perfectly ________ at the market price.
elastic
Each purely competitive firm's demand curve is perfectly _______at the equilibrium price.
elastic, flat, or horizontal
In pure competition, a firm's average revenue will be _____ the product's price.
equal to
Which of the following are conditions necessary to have pure competition?
free entry and exit; very large number of firms or sellers; standardized product
A firm should not produce a unit of output when the marginal cost is __________(greater/lesser) than its marginal revenue.
greater
Whenever price is ______ average variable costs but is ______ average total costs, the firm can pay part, but not all, its fixed costs by producing.
greater than, less than
A purely competitive firm's total revenue curve will
have a constant slope because each extra unit of sales increases total revenue by a constant amount
A purely competitive firm's total revenue curve will Multiple choice question.
have a constant slope because each extra unit of sales increases total revenue by a constant amount
In regard to its slope, a purely competitive firm's demand curve is perfectly
horizontal
The quantity of a product supplied by a firm in pure competition should _____ as long as price rises.
increase
Within pure competition, a supplier will ______ production as price rises, as long as marginal cost is less than marginal revenue.
increase
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; decreasing
The equality of marginal revenue and marginal cost is essential for profit maximization in all market structures because when this is true
last unit produced adds more to revenue than to costs, and its production must necessarily increase profits or reduce losses
oligopoly (Match each market structure with the correct description of how price control is exerted)
limited by mutual interdependence
Which of the following features occur in a purely competitive market?
many independent and acting sellers; sales in both national and international markets
The change in total revenue that results from selling one more unit of output is called ______ revenue
marginal
_____revenue is the additional revenue that an additional unit of _____would add to total revenue.
marginal output
A firm would not produce a unit of output where ______.
marginal cost exceeds marginal revenue
Select all that apply A purely competitive firm's demand schedule is equal to which of the following?
marginal revenue average revenue
A firm should produce any unit of output whose ______.
marginal revenue is greater than marginal cost
The portion of a firm's _____ cost curve lying above its average _____ cost curve is its short-run supply curve.
marginal, varriable
A purely competitive firm's profit is ______ when total revenue exceeds total cost by the maximum amount.
maximized
In which market model do firms rely on product differentiation to distinguish themselves from the competition?
monopolistic competetion
Consider a firm that has no fixed costs and which is currently losing money. Are there any situations in which it would want to stay open for business in the short run?
no the firm will want to shut down
Purely Competetive (Match each market structure with the correct description of how price control is exerted)
none
From an economic standpoint, the break-even point is the level of output at which a firm makes a(n) ______ profit.
normal
monopoly Match the market models based on the number of firms present in each model.
one
In the short run, a purely competitive firm can maximize its economic profit (or minimize its loss) by adjusting its
output
A purely competitive firm's horizontal demand curve indicates
perfect price elasticity
In a purely competitive industry, buyers view the products of firms B, C, D and E as ______ for the product of firm A.
perfect substituites
A firm's total revenue is ______ calculated as times quantity produced.
price
In which type of market does profit-maximizing output occur at the level at which price is equal to marginal cost?
pure compettion
_____ is relatively rare in the real world, although this market model is highly ______ to several industries.
pure compettion, relevant
In which type of market structure does a single firm produce a unique product with no close substitutes?
pure monopoly
The market structures designated as "imperfect competition" are:
pure monopoly; oligopoly; monopolistic competition
A(n) ______competitive firm's average-revenue schedule is also known as its demand schedule.
purely
monopolistically competitive Match each market structure with the description that best describes the conditions for exit and entry into that industry.
relatively easy
monopolistic competition Match the market models based on the number of firms present in each model.
relatively large number
In a purely competitive market, price per unit to the purchaser is synonymous with ____ per unit or ____ revenue to a seller.
revenue, average
In a purely competitive industry, at the profit-maximizing or loss-minimizing level of output, marginal ______ is equal to ______.
revenue; marginal cost cost; price revenue; price
Multiplying product price by output reveals which of the following?
total revenue
The price, multiplied by the firm's output or goods produced, equals ______.
total revenue
A firm will break even where ______ will just cover ______ because the revenue per unit and the average total cost per unit are equal.
total revenue; total cost
The equation for determining economic profit or loss is ______ minus ______.
total revenue; total cost
True or false: Firms within pure competition will produce standardized products.
true
Consider the statement: "Even if a firm is losing money, it may be better to stay in business in the short run." This statement is
true if the loss is less than the fixed cost
monopoly Match each market structure with the correct type of product that it produces.
unique, no close substitute
A purely competitive firm's total revenue (TR) is a straight line that slopes ______(upward/downward) and to the _____ (left/right). Listen to the complete question
upward; right
A wage increase would increase marginal costs and shift the supply curve:
upward; to the left
A firm should always stop producing if its average ______ cost is ______ price.
variable; greater than
If price is below a firm's minimum average _____cost, the firm will not operate.
varriable
purely competetive Match each market structure with the description that best describes the conditions for exit and entry into that industry.
very easy, no obsticles
pure competition Match the market models based on the number of firms present in each model.
very large number
