Reading Quiz: Chapter 10. Pure Competition in the Short Run
Which of the following is a method of calculating economic profit in pure competition?
Price minus average total cost multiplied by quantity
Based on the chart, what happens at a price P3 and an output of Q3?
The firm incurs a loss but covers part of its fixed cost.
Which of the following statements is true of the firm represented by this graph?
The firm incurs a loss but should continue to operate because price exceeds the lowest average variable cost.
In a perfectly competitive market, the demand curve for an individual firm is perfectly at the market price.
Elastic
Which of the following improves as production increases?
Price-marginal cost relationship
In this table, at a price of $71, the profit-maximizing or loss-minimizing level of output is ______.
0 units
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 market structures produces only a standardized product?
A purely competitive 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 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.
True or false: Quantity supplied increases as price decreases, and economic profit is usually higher at lower product prices and output.
False
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.
Between P2 and P4, the firm will minimize its losses by producing and supplying the quantity at which:
MR=P=MC
revenue is the additional revenue that an additional unit of would add to total revenue. (Enter one word in each blank.)
Marginal Output
Which of the following are scenarios in which a firm should continue to produce?
Marginal revenue is $5 and marginal cost is $4.75. Marginal revenue is $1.50 and marginal cost is $1.45. Marginal revenue is $0.25 and marginal cost is $0.20.
Based on the information given in the table, which of the following statements are true?
The ninth unit of output is the profit-maximizing level of output. Every unit of output up to and including the ninth unit represents greater marginal revenue than marginal cost.
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.
Multiplying product price by output reveals which of the following?
Total revenue
True or false: Firms within pure competition will produce standardized products.
True
In a purely competitive market, price per unit to a buyer equals:
average revenue to a seller
Pure ______ involves a very large number of firms.
competition
In a purely competitive industry, at the profit-maximizing or loss-minimizing level of output, marginal ______ is equal to ______.
cost; price revenue; price revenue; marginal cost
Firms that operate in a purely competitive industry:
do not differentiate their products
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
True or false: A pure monopoly involves a very large number of firms producing a single unique product.
false
An oligopoly has ___ sellers and must consider the decisions of its rivals in determining its own ___ and output.
few; price
A firm should not produce a unit of output when the marginal cost is (greater/lesser) than its marginal revenue.
greater, bigger, larger, more, or higher
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
The quantity of a product supplied by a firm in pure competition should _____ as long as price rises.
increase
What is the firm's most likely response if price is exactly equal to minimum average variable cost?
indifference to producing or shutting down
A purely competitive firm can maximize its economic profit (or minimize its loss) by adjusting only its output because it ______.
is a price taker
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
In this graph, a firm incurs a loss but continues to operate because price is ______ than the lowest average total cost but above the lowest average ______ cost.
less; variable
The change in total revenue that results from selling one more unit of output is called revenue.
marginal
A firm would not produce a unit of output where ______.
marginal cost exceeds marginal revenue
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
In which market model do firms rely on product differentiation to distinguish themselves from the competition?
monopolistic competition
From an economic standpoint, the break-even point is the level of output at which a firm makes a(n) ______ profit.
normal
In the short run, a purely competitive firm can maximize its economic profit (or minimize its loss) by adjusting its
output, production, supply, or quantity
In a purely competitive industry, buyers view the products of firms B, C, D and E as ______ for the product of firm A.
perfect substitutes
In a purely competitive market, marginal revenue is a constant that is equal to which of the following?
price
In pure competition, marginal revenue and are equal. (Remember to type only one word per blank.)
price
The MR = MC rule is known as the:
profit-maximizing rule
competition is considered to be rare in the real world.
pure
Which of the following are conditions necessary to have pure competition?
standardized product free entry and exit very large number of firms or sellers
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
A purely competitive firm is a price (Enter one word).
taker
Firms within pure competition are considered to be price
takers or taker
The two ways to determine the level of output at which a firm will realize maximum profit or minimum loss are to compare total revenue to ______ and to compare marginal revenue to ______.
total cost; marginal cost
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
If price is below a firm's minimum average cost, the firm will not operate. (Insert only one word in the blank.)
variable
A firm should always stop producing if its average ______ cost is ______ price.
variable; greater than
In the table, total economic profits at the profit-maximizing level of output are calculated as a total revenue of $______ minus approximate total costs of $
1179; 880
At any price above ______, the firm will obtain economic profit by producing to the point where MR=P=MC.
P4
Given an output of Q4, at which price will the firm break even or earn a normal profit?
P4
Which factors illustrate that the demand curve for a purely competitive firm is perfectly elastic?
The firm does not need to lower its price to increase its sales volume. The firm cannot obtain a higher price by restricting its output.
Match the market models based on the number of firms present in each model.
Very large number- Pure competitionrelatively large number- monopolistic competitionfew-oligopolyone-monopoly
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.
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.
large; only a fraction
In pure competition, to calculate economic profit, we first calculate the difference between and average total cost and then multiply it by output. (Type only one word in blank.)
price
This graph illustrates that a firm can minimize its losses by producing where ______.
price exceeds minimum average variable cost but is less than average total cost
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
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
Economists group industries into distinct market structures.
4
In this table, at a price of $81.00, the loss-minimizing level of output is _____.
6 units
In this table, at a price of $131, the profit-maximizing level of output is _____ units of output.
9
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 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
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
Based on the information in this chart, at which price will a firm shut down?
P1
At which point will a firm be indifferent whether to shut down or continue to produce?
Point b
Which of the following factors will alter costs and shift the marginal cost or short-run supply curve to a new location?
Prices of variable inputs Technology
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
Which market structure has the fewest obstacles to entry or exit?
Pure competition
Which of the following are considered to be the four basic market structures?
Pure competition Monopolistic competition Oligopoly Pure monopoly
______ is relatively rare in the real world, although this market model is highly ______ to several industries.
Pure competition; relevant
A(n) competitive firm's average-revenue schedule is also known as its demand schedule.
Purely
Match each market structure with the description that best describes the conditions for exit and entry into that industry.
Purely competitive=very easy, no obstacles; Monopolistic competitive=relatively easy; oligopoly=significant obstacles; monopoly=blocked
In a purely competitive market, price per unit to the purchaser is synonymous with per unit or revenue to a seller. (Enter one word per blank.)
Revenue Average
Which of the following features occur in a purely competitive market?
Sales in both national and international markets. Many independently acting sellers
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?
A basic feature of the purely competitive market is the presence of ______.
a large number of sellers
The equation for determining economic profit or loss is ______ minus ______.
total revenue; total cost
A purely competitive firm's total revenue (TR) is a straight line that slopes (upward/downward) and to the (left/right).
upward right