Economics: Chapter 10 Pure Competition
At what price will the firm shown in the accompanying graph make just a normal profit? a.) $2 b.) $5 c.) $7 d.) $10
c.) $7
In which market model would there be a unique product for which there are no close substitutes? a.) monopolistic competition b.) pure competition c.) pure monopoly d.) oligopoly
c.) pure monopoly
The fallacy of composition states that a.) because economic systems are composed of so many diverse economic units, economic laws are necessarily inexact. b.) the anticipation of a particular event can affect the composition of that event when it occurs. c.) what is true for the individual must necessarily be true for the group. d.) because event A precedes event B, A is necessarily the cause of B.
c.) what is true for the individual must necessarily be true for the group.
Unit price and average revenue are the same or equal in a.) pure competition only. b.) pure monopoly only. c.) monopolistic competition only. d.) all market structures.
d.) all market structures.
The accompanying graph shows the cost curves for a competitive firm. If the market price falls to $0.55, the optimal output is a.) 0. b.) 15. c.) 20. d.) more than 20, but less than 35.
a.) 0.
The short-run supply curve of a purely competitive producer is based primarily on its a.) AVC curve. b.) ATC curve. c.) AFC curve. d.) MC curve.
d.) MC curve.
The accompanying table gives cost data for a firm that is selling in a purely competitive market. Which of the following tables gives the firm's short-run supply schedule? a.) Price: $50 $42 $36 $32 $20 $13 Q's: 12 10 8 8 6 0 b.) Price: $50 $42 $36 $32 $20 $13 Q's: 12 11 9 8 6 5 c.) Price: $50 $42 $36 $32 $20 $13 Q's: 11 10 9 8 6 0 d.) Price: $50 $42 $36 $32 $20 $13 Q's: 11 10 9 8 6 5
c.) Price: $50 $42 $36 $32 $20 $13 Q's: 11 10 9 8 6 0
Which of the following is not a characteristic of pure competition? a.) pricing strategies by firms b.) a standardized product c.) no barriers to entry d.) a larger number of sellers
a.) pricing strategies by firms
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 a.) reduce output to about 80 units. b.) expand its production. c.) continue to produce 100 units. d.) produce zero units of output.
d.) produce zero units of output.
Which of the following is a feature of a purely competitive market? a.) price differences exist between firms producing the same product. b.) there are significant barriers to entry into the industry. c.) the industry's demand curve is perfectly elastic. d.) products are standardized or homogeneous.
d.) products are standardized or homogeneous.
(Consider This) An otherwise unprofitable motel located on a largely abandoned roadway might be able to stay open for several years by a.) increasing its nightly room rates. b.) reducing or eliminating its annual maintenance expenses. c.) charging room rates that exceed marginal revenue. d.) eliminating its fixed costs, including its opportunity costs.
b.) reducing or eliminating its annual maintenance expenses.
Which point in the accompanying graph is the break-even point for the firm? a.) A b.) B c.) C d.) D
c.) C
At which of the following prices will the firm shown in the accompanying graph make an economic profit? a.) $2 b.) $5 c.) $7 d.) $10
d.) $10
Which of the following is not a basic characteristic of pure competition? a.) considerable nonprice competition b.) no barriers to the entry or exit of firms c.) a standardized or homogeneous product d.) a large number of buyers and sellers
a.) considerable nonprice competition
A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 1,000 units is $2.5. The minimum possible average variable cost is $2. The market price of the product is $2.5. To maximize profits or minimize losses, the firm should a.) continue producing 1,000 units. b.) continue production, but reduce output. c.) increase production. d.) shut down.
a.) continue producing 1,000 units.
The total revenue of a purely competitive firm from selling 6 units of output is $48. Based on this information, total revenue for 7 units of output must be a.) $56. b.) $54. c.) $55. d.) $336.
a.) $56.
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 a.) $80. b.) $90. c.) $50. d.) $20.
a.) $80.
Refer to the accompanying diagram. The firm's supply curve is the segment of the a.) MC curve above its intersection with the AVC curve. b.) MC curve above its intersection with the ATC curve. c.) AVC curve above its intersection with the MC curve. d.) ATC curve above its intersection with the MC curve.
a.) MC curve above its intersection with the AVC curve.
In the short run, a purely competitive seller will shut down if product price a.) equals average revenue. b.) is greater than MC. c.) is less than AVC. d.) is less than ATC.
c.) is less than AVC.
(Last Word) Under what circumstances should a company stop saving into a sinking fund? a.) When the firm foresees closure and has no reason to replace depreciating equipment. b.) When prices of new equipment are rising dramatically. c.) Firms should never stop saving into a sinking fund. d.) When technological innovation in the industry is stagnant.
a.) When the firm foresees closure and has no reason to replace depreciating equipment.
Which of the output levels in the accompanying graph is the profit-maximizing output level for this firm? a.) Q1 b.) Q2 c.) Q3 d.) Q4
c.) Q3
A purely competitive seller is a.) both a "price maker" and a "price taker." b.) neither a "price maker" nor a "price taker." c.) a "price taker." d.) a "price maker."
c.) a "price taker."
There would be some control over price within rather narrow limits in which market model? a.) monopolistic competition b.) pure competition c.) pure monopoly d.) oligopoly
a.) monopolistic competition
The lowest point on a purely competitive firm's short-run supply curve corresponds to a.) the minimum point on its ATC curve. b.) the minimum point on its AVC curve. c.) the minimum point on its AFC curve. d.) the minimum point on its MC curve.
b.) the minimum point on its AVC curve.
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 a.) $5. b.) $4. c.) $3. d.) $2.
c.) $3.
Refer to the accompanying graph. If the market price for the product falls, then which of the curves would shift? a.) MC b.) ATC c.) AVC d.) D
d.) D
Refer to the accompanying cost table. If price of the product were $30 per unit, the firm would a.) produce 5 units and realize a loss of $50. b.) produce 6 units and realize a loss of $30. c.) produce 7 units and realize a loss of $32. d.) shut down in the short run.
d.) shut down in the short run.
The marginal revenue curve of a purely competitive firm a.) lies below the firm's demand curve. b.) is downsloping because price must be reduced to sell more output. c.) is horizontal at the market price. d.) has all of these characteristics.
c.) is horizontal at the market price.
Average revenue is conceptually equivalent to the a.) unit price of the product. b.) average cost of the product. c.) marginal cost of the product. d.) total revenue of the product.
a.) unit price of the product.
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 and earning only a normal profit, each must have an average total cost of a.) $2. b.) $3. c.) $4. d.) $5.
b.) $3.
In which market model are the conditions of entry into the market easiest? a.) pure competition b.) pure monopoly c.) monopolistic competition d.) oligopoly
a.) pure competition
In which of the following industry structures is the entry of new firms the most difficult? a.) pure monopoly b.) oligopoly c.) monopolistic competition d.) pure competition
a.) pure monopoly
The accompanying table shows cost data for a firm that is selling in a purely competitive market. If the market price for the firm's product is $80, the firm will a.) produce 4 units. b.) produce 5 units. c.) produce 6 units. d.) shut down.
a.) produce 4 units.
The accompanying table gives cost data for a firm that is selling in a purely competitive market. At 5 units of output, average fixed cost, average variable cost, and average total cost are a.) $10, $60, and $70, respectively. b.) $50, $40, and $90, respectively. c.) $10, $70, and $80, respectively. d.) $5, $25, and $30, respectively.
a.) $10, $60, and $70, respectively.
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 and earning only a normal profit, each must have a total cost of a.) $18,000. b.) $20,000. c.) $22,000. d.) $14,000.
a.) $18,000.
Refer to the accompanying graph for a purely competitive firm operating at a loss in the short run. Which area in the graph represents the portion of total costs that the firm can recoup by continuing to produce rather than shutting down? a.) 0beg b.) bcde c.) acdf d.) abef
a.) 0beg
Refer to the accompanying diagram. The firm will shut down at any price less than a.) P1. b.) P2. c.) P3. d.) P4.
a.) P1.
Which of the following changes will not affect the market supply or the market demand in a purely competitive industry? a.) a change in fixed costs b.) a change in the number of buyers c.) a change in marginal costs d.) a change in the number of firms
a.) a change in fixed costs
In pure competition, price is determined where the industry a.) demand and supply curves intersect. b.) total cost is less than total revenue. c.) demand intersects the individual firm's marginal cost curve. d.) average total cost equals total variable cost.
a.) demand and supply curves intersect.
(Consider This) An unprofitable motel will stay open in the short run if a.) price (average nightly room rate) exceeds average variable cost. b.) marginal revenue exceeds marginal cost. c.) price (average nightly room rate) exceeds average fixed cost. d.) marginal revenue exceeds price.
a.) price (average nightly room rate) exceeds average variable cost.
The accompanying table gives cost data for a firm that is selling in a purely competitive market. At 3 units of output, total variable cost is ____ and total cost is ____. a.) $20; $70 b.) $60; $210 c.) $20; $210 d.) $60; $350
b.) $60; $210
Refer to the accompanying graph. The firm will earn maximum total profits if it produces and sells quantity a.) 0A b.) 0B c.) 0C d.) 0K
b.) 0B
The accompanying table gives cost data for a firm that is selling in a purely competitive market. If product price is $75, the firm will produce a.) 3 units of output. b.) 4 units of output. c.) 5 units of output. d.) 6 units of output.
b.) 4 units of output.
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 $35, it will produce a.) 6 units at a loss of $150. b.) 6 units at a loss of $90. c.) 9 units at an economic profit of $281.97. d.) 8 units at an economic profit of $130.72.
b.) 6 units at a loss of $90.
Refer to the accompanying diagram. The firm will produce at a loss if price is a.) less than P1. b.) P2. c.) P3. d.) P4.
b.) P2.
(Last Word) Replacement and repair costs a.) are only relevant to manufacturing firms. b.) are intermittent and often unpredictable. c.) are historically well managed by dictators such as Hugo Chavez, Fidel Castro, and others motivated to secure their power and wealth in perpetuity. d.) should always be managed with sinking funds.
b.) are intermittent and often unpredictable.
Refer to the accompanying graph for a purely competitive firm operating at a loss in the short run. Which area in the graph represents the amount of economic loss for the firm? a.) 0beg b.) bcde c.) acdf d.) abef
b.) bcde
The accompanying graph shows the cost curves for a competitive firm. If the market price of the product is $1.05 per unit, then the firm will produce how many units in the short run? a.) between 0 and 15 b.) between 15 and 20 c.) between 20 and 35 d.) above 35
b.) between 15 and 20
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.
b.) down of the individual firm's MC curve, causing the market supply curve to shift to the right.
If the supply and demand curves in the provided graph represent the market supply and demand for a purely competitive industry, then the demand curve that an individual firm in the industry faces a.) is identical to the market demand. b.) is equal to the marginal-revenue curve, which is a flat line at P0. c.) is more elastic than the market demand but has a marginal-revenue curve lying below it. d.) has the same slope as the market demand, but at P0 its quantity demanded is only a fraction of Q0.
b.) is equal to the marginal-revenue curve, which is a flat line at P0.
The accompanying table gives cost data for a firm that is selling in a purely competitive market. Given the $75 product price, at its optimal output, the firm will a.) realize a $25 economic profit. b.) realize a $30 economic profit. c.) incur a $25 loss. d.) realize a $30 loss.
b.) realize a $30 economic profit.
Based on the cost data given in the accompanying table, which of the price-quantity tables correctly represents the firm's short-run supply schedule? a.) table a b.) table b c.) table c d.) table d
b.) table b
The accompanying table applies to a purely competitive industry composed of 100 identical firms. The equilibrium price in this purely competitive market is a.) $5. b.) $4. c.) $3. d.) $2.
c.) $3.
The table gives data for a purely competitive firm. The market price of the product in the short run is a.) $80. b.) $120. c.) $40. d.) $160.
c.) $40.
In the accompanying graph, at what level of output will the firm earn a maximum unit-profit margin (or profit per unit)? a.) 0A b.) 0B c.) 0C d.) 0K
c.) 0C
The accompanying table applies to a purely competitive industry composed of 100 identical firms. At the equilibrium price, each of the 100 firms in this industry will produce a.) 600,000 units of output. b.) 60,000 units of output. c.) 6,000 units of output. d.) 600 units of output.
c.) 6,000 units of output.
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 a.) 9 units at an economic profit of zero. b.) 6 units at a loss of $90. c.) 9 units at an economic profit of $281.97. d.) 8 units at an economic profit of $130.72.
c.) 9 units at an economic profit of $281.97.
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? a.) P1 b.) P2 c.) P3 d.) P4
c.) P3
The prices of raw materials increase in a purely competitive industry. This change will result in a(n) a.) decrease (downward shift) in the average total cost curve for firms in the industry. b.) decrease (downward shift) in the marginal revenue curve for firms in the industry. c.) increase (upward shift) in the marginal cost curve for firms in the industry. d.) increase (rightward shift) in the short-run supply curve for firms in the industry.
c.) increase (upward shift) in the marginal cost curve for firms in the industry.
A firm should continue to operate even at a loss in the short run if a.) its output is above the break-even point. b.) its revenues are less than its fixed costs. c.) it can cover its variable costs and some of its fixed costs. d.) it has some fixed costs that cannot be brought down to zero.
c.) it can cover its variable costs and some of its fixed costs.
Consider the purely competitive firm whose data are shown in the accompanying graph. 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.
c.) normal profits, since its price just covers ATC.
The short-run supply curve for a competitive firm is the a.) entire MC curve. b.) segment of the MC curve lying below the AVC curve. c.) segment of the MC curve lying above the AVC curve. d.) segment of the AVC curve lying to the right of the MC curve.
c.) segment of the MC curve lying above the AVC curve.
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 $24, it will produce a.) 4 units at a loss of $150. b.) 6 units at a loss of $90. c.) 3 units at an economic profit of zero. d.) 4 units at a loss of $138.
d.) 4 units at a loss of $138.
The accompanying table gives cost data for a firm that is selling in a purely competitive market. We can infer that, at zero output, this firm's total fixed, total variable, and total costs are a.) zero, zero, and zero, respectively. b.) zero, $25, and $175, respectively. c.) $150, $25, and $175, respectively. d.) $150, zero, and $150, respectively.
d.) $150, zero, and $150, respectively.
The accompanying table applies to a purely competitive industry composed of 100 identical firms. For each of the 100 firms in this industry, marginal revenue and total revenue will be a.) $4 and $400, respectively. b.) $3 and $30,000, respectively. c.) $4 and $20,000, respectively. d.) $3 and $18,000, respectively.
d.) $3 and $18,000, respectively.
The provided graph gives short-run data for a firm. Which of the following statements is correct? a.) Production is profitable only when price is above P3. b.) Average fixed cost is (P3 - P1) at output Q4. c.) The firm will produce an output of Q1 when price is P1. d.) At price P1, the firm will not supply any quantity.
d.) At price P1, the firm will not supply any quantity.
At output level H in the provided graph, the area a.) 0CGH represents the firm's total cost of production. b.) ACGE represents the firm's economic profit. c.) 0AEH represents the firm's economic profit. d.) BCGF represents the firm's total fixed cost of production.
d.) BCGF represents the firm's total fixed cost of production.
In the short run, a purely competitive firm will earn a normal profit when a.) P = AVC. b.) P > MC. c.) that firm's MR = market equilibrium price. d.) P = ATC.
d.) P = ATC.
Refer to the accompanying diagram. The firm will realize an economic profit if price is a.) P1. b.) P2. c.) P3. d.) P4.
d.) P4.
The fallacy of composition is essentially the error of a.) omitting relevant variables in constructing a model. b.) conflating correlation with causation. c.) confusing cause and effect in economic relationships. d.) generalizing from the particular to the general.
d.) generalizing from the particular to the general.
Assume that labor is a variable input. The average wage of workers increases in a purely competitive industry. This change will result in a(n) a.) increase 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.) decrease in marginal cost for firms in the industry and an increase in the industry supply curve. d.) increase in marginal cost for firms in the industry and a decrease in the industry supply curve.
d.) increase in marginal cost for firms in the industry and a decrease in the industry supply curve.
The provided graph gives short-run data for a firm. If the product price is P2, the firm will a.) close down to avoid a loss. b.) produce Q2 units and make an economic profit. c.) produce Q5 units and break even. d.) produce Q2 units and suffer a loss.
d.) produce Q2 units and suffer a loss.
The total revenue of a purely competitive firm from selling 6 units of output is $48. Based on this information, the unit price of the output must be a.) $8. b.) $42. c.) $288. d.) $54.
a.) $8.
The table shows the total costs for a purely competitive firm. If the product sells for $600 a unit, the firm's short run profit-maximizing (or loss-minimizing) output is a.) 3. b.) 0. c.) 1. d.) 4.
a.) 3.
The table shows the total costs for a purely competitive firm. If the product sells for $1,200 a unit, the firm's profit-maximizing output is a.) 4. b.) 2. c.) 3. d.) 5.
a.) 4.
Refer to the provided 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.) A
Which of the following industries most closely approximates pure competition? a.) agriculture b.) farm implements c.) clothing d.) steel
a.) agriculture
The MR = MC rule can be restated for a purely competitive seller as P = MC because a.) each additional unit of output adds exactly its price to total revenue. b.) the firm's average revenue curve is downsloping. c.) the market demand curve is downsloping. d.) the firm's marginal revenue and total revenue curves will coincide.
a.) each additional unit of output adds exactly its price to total revenue.
In the provided diagram, at the profit-maximizing output, total profit is a.) efbc. b.) fgab. c.) egac. d.) 0fbn.
a.) efbc.
In the provided diagram, the profit-maximizing output a.) is n. b.) is k. c.) is h. d.) cannot be determined from the information given.
a.) is n.
Which of the following statements applies to a purely competitive producer? a.) it will not advertise its product. b.) in long-run equilibrium, it will earn an economic profit. c.) its product will have a brand name that elicits customer loyalty. d.) its product is slightly different from those of its competitors.
a.) it will not advertise its product.
Which is necessarily true for a purely competitive firm in short-run equilibrium? a.) marginal revenue minus marginal cost equals zero. b.) price minus average total cost equals zero. c.) total revenue minus total cost equals zero. d.) marginal revenue is zero.
a.) marginal revenue minus marginal cost equals zero.
An industry comprising 40 firms, each with about 2-3 percent of the total market for a differentiated product, is an example of a.) monopolistic competition. b.) oligopoly. c.) pure monopoly. d.) pure competition.
a.) monopolistic competition.
Which of the following is characteristic of a purely competitive seller's demand curve? a.) price and marginal revenue are equal at all levels of output. b.) average revenue is less than price. c.) its elasticity coefficient is 1 at all levels of output. d.) it is the same as the market demand curve.
a.) price and marginal revenue are equal at all levels of output.
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, total revenue graphs as a a.) straight, upsloping line. b.) straight line, parallel to the vertical axis. c.) straight line, parallel to the horizontal axis. d.) straight, downsloping line.
a.) straight, upsloping line.
Which of the following is not a necessary characteristic of a purely competitive industry? a.) the industry or market demand is highly elastic. b.) firms can easily enter or leave the industry. c.) there are so many small firms that no one firm can influence the market price. d.) consumers see no difference between the product of one firm and that of another.
a.) the industry or market demand is highly elastic.
A competitive firm will maximize profits at that output at which a.) total revenue exceeds total cost by the greatest amount. b.) total revenue and total cost are equal. c.) price exceeds average total cost by the largest amount. d.) the difference between marginal revenue and price is at a maximum.
a.) 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 a.) total variable costs. b.) total costs. c.) total fixed costs. d.) marginal costs.
a.) total variable costs.
Refer to the data in the accompanying table. If the firm's minimum average variable cost is $10, and total fixed costs equal zero, the firm's economic profit (or loss) is a.) $12. b.) $16. c.) $-14. d.) $3.
b.) $16.
The accompanying table shows cost data for a firm that is selling in a purely competitive market. The firm will produce its output only if the price is at least equal to what minimum level? a.) $3 b.) $4 c.) $5 d.) $9
b.) $4
Refer to the provided graph for a purely competitive firm in the short run. Profits would be maximized if the firm produces which level of output? a.) A b.) B c.) C d.) greater than C
b.) B
Refer to the diagram for a purely competitive producer. The lowest price at which the firm should produce (as opposed to shutting down) is a.) P1. b.) P2. c.) P3. d.) P4.
b.) P2.
If the demand curve faced by an individual firm is downward-sloping, the firm cannot be a.) a monopoly firm. b.) a purely competitive firm. c.) an oligopolistic firm. a.) a monopolistically competitive firm.
b.) a purely competitive firm.
Economists would describe the U.S. automobile industry as a.) purely competitive. b.) an oligopoly. c.) monopolistically competitive. d.) a pure monopoly.
b.) an oligopoly.
Refer to the short-run data in the accompanying graph. Which of the following is correct? a.) this firm will maximize its profit at 440 units of output. b.) any level of output between 100 and 440 units will yield an economic profit. c.) this firm's marginal revenue rises with output. d.) any level of output less than 100 units or greater than 440 units is profitable.
b.) any level of output between 100 and 440 units will yield an economic profit.
A perfectly elastic demand curve implies that the firm a.) must lower price to sell more output. b.) can sell as much output as it chooses at the existing price. c.) realizes an increase in total revenue that is less than product price when it sells an extra unit. d.) is selling a differentiated (heterogeneous) product.
b.) can sell as much output as it chooses at the existing price.
A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 500 units is $1.50. The average variable cost is $1.00. The market price of the product is $1.25. To maximize profits or minimize losses, the firm should a.) continue producing 500 units. b.) continue production, but produce less than 500 units. c.) increase production to more than 500 units. d.) shut down.
b.) continue production, but produce less than 500 units.
The demand curve in a purely competitive industry is ______, while the demand curve to a single firm in that industry is ______. a.) perfectly inelastic; perfectly elastic b.) downsloping; perfectly elastic c.) downsloping; perfectly inelastic d.) perfectly elastic; downsloping
b.) downsloping; perfectly elastic
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 a.) is maximizing its profit. b.) is making a profit, but not necessarily the maximum profit. c.) is incurring losses. d.) should shut down in the short run.
b.) is making a profit, but not necessarily the maximum profit.
A purely competitive firm does not try to sell more of its product by lowering its price below the market price because a.) its competitors would not permit it. b.) it can sell all it wants to at the market price. c.) this would be considered unethical price chiseling. d.) its demand curve is inelastic, so total revenue will decline.
b.) it can sell all it wants to at the market price.
If a purely competitive firm is maximizing economic profit, a.) it is necessarily maximizing per-unit profit. b.) it may or may not be maximizing per-unit profit. c.) then per-unit profit will be minimized. d.) it is necessarily overallocating resources to its product.
b.) it may or may not be maximizing per-unit profit.
In the short run, the individual competitive firm's supply curve is that segment of the a.) average variable cost curve lying below the marginal cost curve. b.) marginal cost curve lying above the average variable cost curve. c.) marginal revenue curve lying below the demand curve. d.) marginal cost curve lying between the average total cost and average variable cost curves.
b.) marginal cost curve lying above the average variable cost curve.
If a profit-seeking competitive firm is producing its profit-maximizing output and its total fixed costs fall by 25 percent, the firm should a.) use more labor and less capital to produce a larger output. b.) not change its output. c.) reduce its output. d.) increase its output.
b.) not change its output.
In which of the following market structures is there clear-cut mutual interdependence with respect to price-output policies? a.) pure monopoly b.) oligopoly c.) monopolistic competition d.) pure competition
b.) oligopoly
An industry comprising four firms, each with about 25 percent of the total market for a product, is an example of a.) monopolistic competition. b.) oligopoly. c.) pure monopoly. d.) pure competition.
b.) oligopoly.
The demand schedule or curve confronted by the individual, purely competitive firm is a.) relatively elastic, that is, the elasticity coefficient is greater than unity. b.) perfectly elastic. c.) relatively inelastic, that is, the elasticity coefficient is less than unity. d.) perfectly inelastic.
b.) perfectly elastic.
If a firm is confronted with economic losses in the short run, it will decide whether or not to produce by comparing a.) marginal revenue and marginal cost. b.) price and average variable cost. c.) total revenue and total cost. d.) total revenue and total fixed cost.
b.) price and average variable cost.
The accompanying table gives cost data for a firm that is selling in a purely competitive market. If the market price for the firm's product is $28, the competitive firm will a.) produce 4 units at a loss of $17.40. b.) produce 7 units at a loss of $14.00. c.) shut down in the short run. d.) produce 6 units at a loss of $23.80.
b.) produce 7 units at a loss of $14.00.
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 a.) shut down in the short run. b.) produce because the resulting loss is less than its TFC. c.) produce because it will realize an economic profit. d.) liquidate its assets and go out of business.
b.) produce because the resulting loss is less than its TFC.
On a per-unit basis, economic profit can be determined as the difference between a.) marginal revenue and product price. b.) product price and average total cost. c.) marginal revenue and marginal cost. d.) average fixed cost and product price.
b.) product price and average total cost.
A purely competitive firm's short-run supply curve is a.) perfectly elastic at the minimum average total cost. b.) upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve. c.) upsloping and equal to the portion of the marginal cost curve that lies above the average total cost curve. d.) upsloping only when the industry has constant costs.
b.) upsloping 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 a.) where the demand and the ATC curves intersect. b.) where total revenue exceeds total cost by the maximum amount. c.) that output at which economic profits are zero. d.) at any point where the total revenue and total cost curves intersect.
b.) where total revenue exceeds total cost by the maximum amount.
To maximize profits, the firm whose data is shown in the graph should produce the quantity a.) 0A. b.) 0B. c.) 0C. d.) 0K.
c.) 0C.
The accompanying table shows cost data for a firm that is selling in a purely competitive market. If the price of the product is $6, what output level will the firm produce? a.) 0 b.) 12 c.) 14 d.) 16
c.) 14
Refer to the short-run data in the accompanying graph. The profit-maximizing output for this firm is a.) above 440 units. b.) 440 units. c.) 320 units. d.) 100 units.
c.) 320 units.
The accompanying table shows cost data for a firm that is selling in a purely competitive market. If the market price for the firm's product is $180, the firm will produce a.) 5 units and earn economic profits of $900. b.) 6 units and earn economic profits of $800. c.) 7 units and earn economic profits of $238. d.) 8 units and earn economic profits of $278.
c.) 7 units and earn economic profits of $238.
Refer to the provided graph for a purely competitive firm in the short run. If the firm is maximizing profit, the price of the product is a.) D. b.) E. c.) F. d.) G.
c.) F.
DASH Airlines is considering the addition of a flight from Red Cloud to David City. The total cost of the flight would be $1,100, of which $800 are fixed costs already incurred. Expected revenues from the flight are $600. DASH should a.) not add this flight, because only flights that cover their full costs are profitable. b.) not add this flight, because it is not profitable at the margin. c.) add this flight, because marginal revenue exceeds marginal costs and total revenue exceeds total variable cost. d.) not add this flight, because total costs exceed total revenue.
c.) add this flight, because marginal revenue exceeds marginal costs and total revenue exceeds total variable cost.
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 a.) can say that the firm should close down in the short run. b.) can say that the firm can produce and realize an economic profit in the short run. c.) cannot determine whether the firm should produce or shut down in the short run. d.) can assume the firm is not using the most efficient technology.
c.) cannot determine whether the firm should produce or shut down in the short run.
In the graph, the amount of profit is measured by the gap between a.) e and the vertical axis. b.) e and the horizontal axis. c.) d and e. d.) e and f.
c.) d and e.
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 the total market. d.) product differentiation is reinforced by extensive advertising.
c.) each seller supplies a negligible fraction of the total market.
In a typical graph for a purely competitive firm, at the point where the total cost and total revenue curves intersect, the firm a.) earns some economic profit. b.) suffers some economic loss. c.) earns some normal profit. d.) suffers some accounting loss.
c.) earns some normal profit.
In pure competition, the demand for the product of a single firm is perfectly a.) elastic because the firm produces a unique product. b.) inelastic because the firm produces a unique product. c.) elastic because many other firms produce the same product. d.) inelastic because many other firms produce the same product.
c.) elastic because many other firms produce the same product.
A firm sells a product in a purely competitive market. The marginal cost of the product at the current output is $4 and the market price is $4.5. What should the firm do? a.) shut down if the minimum possible average variable cost is below $4.5 b.) decrease output if the minimum possible average variable cost is below $4.5 c.) increase output if the minimum possible average variable cost is below $4.50 d.) increase output if the minimum possible average variable cost is above $4.5
c.) increase output if the minimum possible average variable cost is below $4.50
A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 800 units is $3.50. The minimum possible average variable cost is $2.00. The market price of the product is $4.00. To maximize profits or minimize losses, the firm should a.) continue producing 800 units. b.) continue production, but reduce output. c.) increase production. d.) shut down.
c.) increase production.
If a purely competitive firm shuts down in the short run, a.) its loss will be zero. b.) it will realize a loss equal to its total variable costs. c.) it will realize a loss equal to its total fixed costs. d.) it will realize a loss equal to its explicit costs.
c.) it will realize a loss equal to its total fixed costs.
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.
c.) its average revenue equals its marginal revenue.
In which two market models would advertising be used most often? a.) pure competition and monopolistic competition b.) pure competition and pure monopoly c.) monopolistic competition and oligopoly d.) pure monopoly and oligopoly
c.) monopolistic competition and oligopoly
Which of the following is true under conditions of pure competition? a.) there are differentiated products. b.) the market demand curve is perfectly elastic. c.) no single firm can influence the market price by changing its production level. d.) each individual firm has the ability to set its own price.
c.) no single firm can influence the market price by changing its production level.
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 a.) shut down. b.) produce 4 units and realize a $120 economic profit. c.) produce 6 units and realize a $100 economic profit. d.) produce 3 units and incur a $40 loss.
c.) produce 6 units and realize a $100 economic profit.
The fact that a purely competitive firm's total revenue curve is linear and upsloping to the right implies that a.) product price increases as output increases. b.) product price decreases as output increases. c.) product price is constant at all levels of output. d.) marginal revenue declines as more output is produced.
c.) product price is constant at all levels of output.
The table gives data for a purely competitive firm. When the firm produces 3 units of output, it makes an economic a.) profit of $40. b.) loss of $3. c.) profit of $3. d.) loss of $39.
c.) profit of $3.
If a firm has at least some control over the price of its product, then the firm cannot be in which market model? a.) oligopoly b.) pure monopoly c.) pure competition d.) monopolistic competition
c.) pure competition
In which market model are the conditions of entry the most difficult? a.) monopolistic competition b.) pure competition c.) pure monopoly d.) oligopoly
c.) pure monopoly
Local electric or gas utility companies mostly operate in which market structure? a.) monopolistic competition b.) pure competition c.) pure monopoly d.) oligopoly
c.) pure monopoly
The short-run supply curve for a purely competitive industry can be found by a.) multiplying the AVC curve of the representative firm by the number of firms in the industry. b.) adding horizontally the AVC curves of all firms. c.) summing horizontally the segments of the MC curves lying above the AVC curve for all firms. d.) adding horizontally the immediate market period supply curves of each firm.
c.) summing horizontally the segments of the MC curves lying above the AVC curve for all firms.
In the short run, a purely competitive firm will always make an economic profit if a.) P = ATC. b.) P > AVC. c.) P = MC. d.) P > ATC.
d.) P > ATC.
According to the accompanying diagram, at the profit-maximizing output, the firm will realize a.) a loss equal to BCFG. b.) a loss equal to ACFH. c.) an economic profit of ACFH. d.) an economic profit of ABGH.
d.) an economic profit of ABGH.
Farmer Jones is producing wheat and must accept the market price of $6.00 per bushel. At this time, her average total costs and her marginal costs both equal $8.00 per bushel. Her minimum average variable costs are $5.00 per bushel. In order to maximize profits or minimize losses in the short run, farmer Jones should a.) increase output. b.) increase selling price. c.) produce zero output and shut down. d.) continue producing, but reduce output.
d.) continue producing, but reduce output.
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 a.) should close down in the short run. b.) is maximizing its profits. c.) is realizing an economic loss of $60. d.) is realizing an economic Profit of $40.
d.) is realizing an economic Profit of $40.
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.
d.) is the same as its marginal revenue curve.
If a purely competitive firm is producing at some output level less than the profit-maximizing output, then a.) price is necessarily greater than average total cost. b.) fixed costs are large relative to variable costs. c.) price exceeds marginal revenue. d.) marginal revenue exceeds marginal cost.
d.) marginal revenue exceeds marginal cost.
Mutual interdependence would tend to limit control over price in which market model? a.) monopolistic competition b.) pure competition c.) pure monopoly d.) oligopoly
d.) oligopoly
The soft drink and automobile industries would be examples of which market model? a.) monopolistic competition b.) pure competition c.) pure monopoly d.) oligopoly
d.) oligopoly
Refer to the provided graph for a purely competitive firm in the short run. If the firm increases its output level from B to C, then its total profits will be a.) negative and decreasing. b.) negative and increasing. c.) positive and increasing. d.) positive and decreasing.
d.) positive and decreasing.
An industry comprising a very large number of sellers producing a standardized product is known as a.) monopolistic competition. b.) oligopoly. c.) pure monopoly. d.) pure competition.
d.) pure competition.
In the provided diagram, the short-run supply curve for this firm is the a.) entire MC curve. b.) segment of the AVC curve lying to the right of the MC curve. c.) segment of the MC curve lying to the right of output level k. d.) segment of the MC curve lying to the right of output level h.
d.) segment of the MC curve lying to the right of output level h.
Economists use the term imperfect competition to describe a.) all industries that produce standardized products. b.) any industry in which there is no nonprice competition. c.) a pure monopoly only. d.) those markets that are not purely competitive.
d.) those markets that are not purely competitive.
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.
d.) upward-sloping.
The accompanying table gives cost data for a firm that is selling in a purely competitive market. If the market price for the firm's product is $12, the competitive firm should produce a.) 4 units at an economic loss of $109. b.) 4 units at an economic profit of 31.75. c.) 8 units at an economic loss of $48.80. d.) zero units at an economic loss of $100.
d.) zero units at an economic loss of $100.