ECON Pure Competition 1 Short run

Total Output TFC TVC Total Cost 0 $50 $0 $50 1 $50 $70 $120 2 $50 $120 $170 3 $50 $150 $200 4 $50 $220 $270 5 $50 $300 $350 6 $50 $390 $440 The accompanying table gives cost data for a firm that is selling in a purely competitive market. The marginal cost of the fifth unit of output is Multiple Choice $90. $20. $80. $50.

$80. Correct

In the provided diagram, at the profit-maximizing output, total profit is Multiple Choice A. fgab. B. egac. C. efbc. D. 0fbn.

C. efbc. Correct

The accompanying graph 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? Multiple Choice P1 P2 P4 P3

P3 Correct

Refer to the accompanying diagram. The firm will realise an economic profit if price is Multiple Choice P3. P2. P4. P1

P4. Correct

Price Quantity TFC TVC $5 5 $25 $10 $5 10 $25 $20 $5 15 $25 $50 $5 20 $25 $60 Given the data in the table, at what quantity would a purely competitive firm cover all of its costs and earn only normal profits? Multiple Choice Q = 20 Q = 10 Q = 5 Q = 15

Q = 15 Correct

As long as its total revenues are greater than its total costs, a firm will earn positive economic profits. True or False

True

In the provided diagram, the profit-maximizing output Multiple Choice A. cannot be determined from the information given. B. is h. C. is n. D. is k.

C. is n. Correct

Output Marginal Revenue Marginal Cost 0 -- -- 1 $16 $10 2 $16 $9 3 $16 $13 4 $16 $17 5 $16 $21 Refer to the data in the accompanying table. At the profit-maximizing output, the firm's total revenue is Multiple Choice $48. Correct $32. $80. $64.

$48. Correct

If there are many firms in an industry, then it must be a purely competitive market. True or False

False

Total Product AFC AVC ATC Marginal Cost 1 $150.00 $25.00 $175.00 $25.00 2 $75.00 $23.00 $98.00 $21.00 3 $50.00 $20.00 $70.00 $14.00 4 $37.50 $21.00 $58.50 $24.00 5 $30.00 $23.00 $53.00 $31.00 6 $25.00 $25.00 $50.00 $35.00 7 $21.43 $28.00 $49.43 $46.01 8 $18.75 $33.00 $51.76 $68.07 9 $16.67 $39.00 $55.67 $86.95 10 $15.00 $48.00 $63.00 $128.97 The accompanying table gives cost data for a firm that is selling in a purely competitive market. If the market price for this firm's product is $87, it will produce Multiple Choice 8 units at an economic profit of $130.72. 6 units at a loss of $90. 9 units at an economic profit of zero. 9 units at an economic profit of $281.97.

9 units at an economic profit of $281.97. Correct

A purely competitive firm is producing at the point where its marginal cost equals the price of its product. If the firm increases its output, then total revenue will Multiple Choice A. decrease and profits will decrease. B. increase and profits will decrease. C. decrease and profits will increase. D. increase and profits will increase.

B. increase and profits will decrease. Correct

Refer to the diagram for a purely competitive producer. The lowest price at which the firm should produce (as opposed to shutting down) is Multiple Choice A. P3. B. P4. C. P1. D. P2.

D. P2. Correct

Which of the output levels in the accompanying graph is the profit-maximizing output level for this firm? Multiple Choice A. Q4 B. Q1 C. Q2 D. Q3

D. Q3 Correct

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 Multiple Choice A. expand its production. B. produce zero units of output. C. reduce output to about 80 units. D. continue to produce 100 units.

B. produce zero units of output. Correct

Suppose that Joe sells pork in a purely competitive market. The market price of pork is $3 per pound. Joe's marginal revenue from selling the 12th pound of pork would be Multiple Choice A. $36. B. 12 lb. C. $3. D. 1 lb.

C. $3. Correct

Refer to the diagram, which pertains to a purely competitive firm. Curve A represents Multiple Choice A. total revenue only. B. marginal revenue only. C. total revenue and marginal revenue. D. total revenue and average revenue.

A. total revenue only. Correct

In the short run, a purely competitive firm that seeks to maximize profit will produce Multiple Choice A. at any point where the total revenue and total cost curves intersect. B. where the demand and the ATC curves intersect. C. that output at which economic profits are zero. D. where total revenue exceeds total cost by the maximum amount.

D. where total revenue exceeds total cost by the maximum amount. Correct

Refer to the diagram. Other things equal, an increase of product price would be shown as Multiple Choice A. an increase in the steepness of curve (3), an upward shift in curve (2), and an upward shift in curve (1). B. a downward shift in curve (4) and an upward shift in curve (1), with no changes in curves (2) and (3). C. a decrease in the steepness of curve (3), a downward shift in curve (2), and an upward shift in curve (1). D. an upward shift in curve (2) only.

A. an increase in the steepness of curve (3), an upward shift in curve (2), and an upward shift in curve (1). Correct

The lowest point on a purely competitive firm's short-run supply curve corresponds to Multiple Choice A. the minimum point on its AVC curve. B. the minimum point on its MC curve. C. the minimum point on its ATC curve. D. the minimum point on its AFC curve.

A. the minimum point on its AVC curve. Correct

The resource cost falls in a purely competitive industry. This change will result in a(n) Multiple Choice A. decrease in marginal cost for firms in the industry and an increase in the industry supply curve. B. decrease in marginal cost for firms in the industry and a decrease in the industry supply curve. C. increase in marginal cost for firms in the industry and an increase in the industry supply curve. D. increase in marginal cost at each output level for firms in the industry and an increase in the industry supply curve.

A. decrease in marginal cost for firms in the industry and an increase in the industry supply curve. Correct

Refer to the diagram for a purely competitive producer. If product price is P3, Multiple Choice A. economic profits will be zero. B. new firms will enter this industry. C. the firm will maximize profit at point d. D. the firm will earn an economic profit.

A. economic profits will be zero. Correct

Curve (2) in the diagram is a purely competitive firm's Multiple Choice A. marginal revenue curve. Correct B. total economic profit curve. C. total cost curve. D. total revenue curve.

A. marginal revenue curve. Correct

Curve (4) in the diagram is a purely competitive firm's Multiple Choice A. total cost curve. B. marginal revenue curve. C. total revenue curve. D. total profit curve.

A. total cost curve. Correct

The soft drink and automobile industries would be examples of which market model? Multiple Choice A. pure competition B. pure monopoly C. oligopoly D. monopolistic competition

C. oligopoly Correct

Quantity Demanded Price Quantity Supplied 400,000 $5 800,000 500,000 $4 700,000 600,000 $3 600,000 700,000 $2 500,000 800,000 $1 400,000 The accompanying table applies to a purely competitive industry composed of 100 identical firms. If each of the 100 firms in the industry is maximizing its profit, each must have a marginal cost of Multiple Choice $4. $5. $3. $2.

$3. Correct

Which of the following is characteristic of a purely competitive seller's demand curve? Multiple Choice A. Average revenue is less than price. B. Its elasticity coefficient is 1 at all levels of output. C. Price and marginal revenue are equal at all levels of output. D. It is the same as the market demand curve

C. Price and marginal revenue are equal at all levels of output. Correct

If MR > MC for a competitive firm, it should reduce its level of output in order to make MR equal to MC. True or False

False

Total Product TFC TVC 0 $150 $0 1 $150 $50 2 $150 $75 3 $150 $105 4 $150 $145 5 $150 $200 6 $150 $270 7 $150 $360 8 $150 $475 9 $150 $620 10 $150 $800 The first table shows cost data for a single firm. Now suppose that there are 600 identical firms in this industry, each with the same cost data. Suppose, too, that the demand curve for this industry is as shown in the second table. Price Quantity Demanded $20 6,800 $30 5,975 $45 5,500 $60 5,125 $75 4,500 $95 4,200 $120 3,600 $150 2,400 When the market is in equilibrium, each of the firms will be producing Multiple Choice 6 units. 5 units. 7 units. 9 units.

7 units. Correct

Which of the following is not a necessary characteristic of a purely competitive industry? Multiple Choice A. The industry or market demand is highly elastic. B. Firms can easily enter or leave the industry. C. Consumers see no difference between the product of one firm and that of another. D. There are so many small firms that no one firm can influence the market price.

A. The industry or market demand is highly elastic. Correct

If a purely competitive firm shuts down in the short run, Multiple Choice A. it will realize a loss equal to its total fixed costs. B. it will realize a loss equal to its total variable costs. C. it will realize a loss equal to its explicit costs. D. its loss will be zero.

A. it will realize a loss equal to its total fixed costs. Correct

In which of the following market structures is there clear-cut mutual interdependence with respect to price-output policies? Multiple Choice A. oligopoly B. pure competition C. monopolistic competition D. pure monopoly

A. oligopoly Correct

For a purely competitive seller, price equals Multiple Choice A. total revenue divided by output. B. all of these. C. average revenue. D. marginal revenue

B. all of these. Correct

Output Total Cost 0 $50 1 $90 2 $120 3 $140 4 $170 5 $210 6 $260 7 $330 The accompanying table gives cost data for a firm that is selling in a purely competitive market. If product price is $60, the firm will Multiple Choice A. shut down. B. produce 6 units and realize a $100 economic profit. C. produce 3 units and incur a $40 loss. D. produce 4 units and realize a $120 economic profit.

B. produce 6 units and realize a $100 economic profit. Correct

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

B. straight line, parallel to the horizontal axis. Correct

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

B. total profit. Correct

Refer to the accompanying diagram. The firm's supply curve is the segment of the Multiple Choice A. AVC curve above its intersection with the MC curve. B. ATC curve above its intersection with the MC curve. C. MC curve above its intersection with the AVC curve. D. MC curve above its intersection with the ATC curve.

C. MC curve above its intersection with the AVC curve. Correct

Which is necessarily true for a purely competitive firm in short-run equilibrium? Multiple Choice A. Marginal revenue is zero. B. Total revenue minus total cost equals zero. C. Marginal revenue minus marginal cost equals zero. D. Price minus average total cost equals zero.

C. Marginal revenue minus marginal cost equals zero. Correct

The accompanying graph shows short-run cost curves for a competitive firm. At what price would the firm face the same profit or loss whether it chooses to produce or not? Multiple Choice A. P2 B. P1 C. P3 D. P4

C. P3 Correct

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

C. can sell as much output as it chooses at the existing price. Correct

Suppose you find that the price of your product is less than minimum AVC. You should Multiple Choice A. minimize your losses by producing where P = MC. B. close down because total revenue exceeds total variable cost. C. close down because, by producing, your losses will exceed your total fixed costs. D. maximize your profits by producing where P = MC

C. close down because, by producing, your losses will exceed your total fixed costs. Correct

In pure competition, price is determined where the industry Multiple Choice A. average total cost equals total variable cost. B. demand intersects the individual firm's marginal cost curve. C. demand and supply curves intersect. D. total cost is less than total revenue.

C. demand and supply curves intersect. Correct

A purely competitive seller should produce (rather than shut down) in the short run Multiple Choice A. only if total revenue exceeds total cost. B. only if total cost exceeds total revenue. C. if total revenue exceeds total cost or if total cost exceeds total revenue by some amount less than total fixed cost. D. if total cost exceeds total revenue by some amount greater than total fixed cost.

C. if total revenue exceeds total cost or if total cost exceeds total revenue by some amount less than total fixed cost. Correct

Which of the following is not a characteristic of pure competition? Multiple Choice A. no barriers to entry B. a standardised product C. pricing strategies by firms D. a larger number of sellers

C. pricing strategies by firms Correct

If a purely competitive firm is producing at the P = MC output and realizing an economic profit, at that output Multiple Choice A. total revenue equals total cost. B. ATC is being minimized. C. marginal revenue is less than price. D. marginal revenue exceeds ATC.

D. marginal revenue exceeds ATC. Correct

The fast-food restaurant industry in a large city would be an example of which market model? Multiple Choice A. pure competition B. pure monopoly C. oligopoly D. monopolistic competition

D. monopolistic competition Correct

On a per-unit basis, economic profit can be determined as the difference between Multiple Choice A. marginal revenue and product price. B. marginal revenue and marginal cost. C. average fixed cost and product price. D. product price and average total cost.

D. product price and average total cost. Correct

Consider This) An otherwise unprofitable motel located on a largely abandoned roadway might be able to stay open for several years by Multiple Choice A. eliminating its fixed costs, including its opportunity costs. B. charging room rates that exceed marginal revenue. C. increasing its nightly room rates. D. reducing or eliminating its annual maintenance expenses.

D. reducing or eliminating its annual maintenance expenses. Correct

In a purely competitive industry, competition centers more on advertising and sales promotion than on price. True or False

False

Price and marginal revenue are identical for an individual purely competitive seller. True or False

True

Total Product AFC AVC ATC Marginal Cost 1 $150.00 $25.00 $175.00 $25.00 2 $75.00 $23.00 $98.00 $21.00 3 $50.00 $20.00 $70.00 $14.00 4 $37.50 $21.00 $58.50 $24.00 5 $30.00 $23.00 $53.00 $31.00 6 $25.00 $25.00 $50.00 $35.00 7 $21.43 $28.00 $49.43 $46.01 8 $18.75 $33.00 $51.76 $68.07 9 $16.67 $39.00 $55.67 $86.95 10 $15.00 $48.00 $63.00 $128.97 The accompanying table gives cost data for a firm that is selling in a purely competitive market. The marginal cost column reflects Multiple Choice the law of diminishing returns. economies of scale. the law of diminishing marginal utility. diseconomies of scale.

the law of diminishing returns. Correct