Ch.10 Test Bank

(Last Word) Temporary shutdowns of firms are most widespread when:

the economy experiences recession.

The lowest point on a purely competitive firm's short-run supply curve corresponds to:

the minimum point on its AVC curve

Economists use the term imperfect competition to describe:

those markets which are not purely competitive

The MR = MC rule applies:

to firms in all types of industries

Firms seek to maximize:

total profit

A firm reaches a break-even point (normal profit position) where:

total revenue and total cost are equal

A competitive firm will maximize profits at that output at which:

total revenue exceeds total cost by the greatest amount.

A purely competitive firm should produce in the short run if its total revenue is sufficient to cover its:

total variable costs

A purely competitive firm's short-run supply curve is:

unsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve

In the short run a purely competitive firm that seeks to maximize profit will produce:

where total revenue exceeds total cost by the maximum amount.

If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue:

will also be $5

For a purely competitive firm total revenue:

- is price times quantity sold; - increases by a constant absolute amount as output expands; - graphs as a straight upsloping line from the origin (has all of these characteristics)

The short-run supply curve of a purely competitive producer is based primarily on its:

MC curve

Assume for a competitive firm that MC = AVC at $12, MC = ATC at $20, and MC = MR at $16. This firm will:

minimize its losses by producing in the short run

In the short run, a purely competitive firm will earn a normal profit when:

P = ATC

In the short run, a purely competitive firm will always make and economic profit if:

P > ATC

Which of the following statements is correct?

The demand curve for a purely competitive firm is perfectly elastic, but the demand curve for a purely competitive industry is downsloping.

A purely competitive seller is:

a "price taker"

Which of the following industries most closely approximates pure competition?

agriculture

For a purely competitive seller, price equals:

average revenue, marginal revenue, total revenue divided by output -- all of these

When a firm is maximizing profit, it will necessarily be:

maximizing the difference between total revenue and total cost

A perfectly elastic demand curve implies that the firm:

can sell as much output as it chooses at the existing price

Suppose that at 500 units of output marginal revenue is equal to marginal cost. The firm is selling its output at $5 per unit and average total cost at 500 units of output is $6. On the basis of this information we

cannot determine whether the firm should produce or shut down in the short run

Marginal revenue is the:

change in total revenue associated with the sale of one more unit of output.

Suppose you find that the price of your product is less than minimum AVC. You should:

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

The demand curve in a purely competitive industry is _____, while the demand curve to a single firm in that industry is _____.

downsloping, perfectly elastic

The MR = MC rule can be restated for a purely competitive seller as P = MC because:

each additional unit of output adds exactly its price to total revenue

Price is constant or given to the individual firm selling in a purely competitive market because:

each seller supplies a negligible fraction of total supply.

A purely competitive seller should produce (rather than shut down) in the short run:

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

The marginal revenue curve of a purely competitive firm:

is horizontal at the market price.

In the short run, a purely competitive seller will shut down if product price:

is less than AVC

Assume a purely competitive firm is selling 200 units of output at $3 each. At this output its total fixed cost is $100 and its total variable cost is $350. This firm:

is making a profit, but not necessarily the maximum profit.

Assume the XYZ Corporation is producing 20 units of output. It is selling this output in a purely competitive market at $10 per unit. Its total fixed costs are $100 and its average variable cost is $3 at 20 units of output. This corporation:

is realizing an economic profit of $40

If a purely competitive firm is maximizing economic profit:

it may or may not be maximizing per unit profit

Which of the following statements applies to a purely competitive producer?

it will not advertise its product

In the short run the individual competitive firm's supply curve is that segment of the:

marginal cost curve lying above the average variable cost curve

A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating:

marginal revenue and marginal cost.

If a purely competitive firm is producing at the P = MC output and realizing an economic profit, at that output:

marginal revenue exceeds ATC

If a purely competitive firm is producing at some level less than the profit-maximizing output, then:

marginal revenue exceeds marginal cost

If a profit-seeking competitive firm is producing its profit-maximizing output and its total fixed costs fall by 25 percent, the firm should:

not change its output

The demand schedule or curve confronted by the individual purely competitive firm is:

perfectly elastic

(Consider This) An unprofitable motel will stay open in the short-run if:

price (average nightly room rate) exceeds average variable cost.

Which of the following is a characteristic of a purely competitive seller's demand curve?

price and marginal revenue are equal at all levels of output

If a firm is confronted with economic losses in the short run, it will decide whether or not to produce by comparing:

price and minimum average variable cost

In the short run a purely competitive seller will shut down if:

price is less than average variable cost at all outputs

Which of the following is not a valid generalization concerning the relationship between price and costs for a purely competitive seller in the short run?

price must be at least equal to average total cost

(Last Word) Oil wells and seasonal resorts will often shut down temporarily because:

prices for their output temporarily fall below their average variable costs of production.

output: 0 1 2 3 4 5 6 7 total cost: 50 90 120 140 170 210 260 330 Refer to the above data. If product price is $45, the firm will:

produce 5 units and realize a $15 economic profit.

output: 0 1 2 3 4 5 6 7 total cost: 50 90 120 140 170 210 260 330 Refer to the above data. If product price is $60, the firm will:

produce 6 units and realize a $100 economic profit

A firm finds that at its MR = MC output, its TC = $1,000, TVC = $800, TFC = $200, and total revenue is $900. This firm should:

produce because the resulting loss is less than its TFC

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

produce zero units of output

On a per unit basis economic profit can be determined as the difference between:

product price and average total cost

The fact that a purely competitive firm's total revenue curve is linear and upsloping to the right implies that:

product price is constant at all levels of output

The principle that a firm should produce up to the point where the marginal revenue from the sale of an extra unit of output is equal to the marginal cost of producing it is known as the:

profit-maximizing rule

An industry comprised of a very large number of sellers producing a standardized product is known as:

pure competition

output: 0 1 2 3 4 5 6 7 total cost: 50 90 120 140 170 210 260 330 Refer to the above data. If product price is $25, the firm will:

shut down and incur a $50 loss

If at the MC = MR output, AVC exceeds price:

some firms should shut down in the short run

In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. Refer to the above information. For a purely competitive firm, marginal revenue graphs as a:

straight line, parallel to the horizontal axis

In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. Refer to the above information. For a purely competitive firm, total revenue graphs as a:

straight, upsloping line

The short-run supply curve for a purely competitive industry can be found by:

summing horizontally the segments of the MC curves lying above the AVC curve for all firms.

In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. Refer to the above information. For a purely competitive firm:

the demand and marginal revenue curves will coincide