MBF Connect - Chapter 10 and 11 Homework

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 market structures produces only a standardized product?

A purely competitive market

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 firm would be most likely to exit an industry first if demand were to decline?

An unproductive firm with high costs

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

Why will firms choose not to enter an industry when marginal revenue, marginal cost, price, and average total cost are equal?

Existing firms are earning only normal profits

If there are losses in the long run, what adjustments will take place?

Firms will exit the industry until losses are eliminated.

If there are losses in the long run, what adjustments will take place? Multiple choice question.

Firms will exit the industry until losses are eliminated.

Even if resource prices and technology are the same for all firms, which are the first to leave the industry when demand declines?

Firms with less-productive labor forces or higher transportation costs Less-skillfully managed firms that tend to incur higher 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

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.

In a purely competitive market, price per unit to a buyer equals:

average revenue to a seller

Which of the following describes consumer surplus?

It is the difference between the maximum price that consumers are willing to pay for a product and the market price for that product.

In a purely competitive market, firms maximize profits by producing at a quantity at which price is equal to which factor?

Marginal cost

Economic profit will fall to zero and firms will choose not to enter an industry when price is equal to which of the following factors?

Marginal cost Minimum average total 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

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 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 type of market produces the most efficient use of society's resources?

Pure competition

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 inputs

Which of the following occur only in the long-run?

The expansion or contraction of plant capacity The entry and exit of firms

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.

Which of the following is an example of creative destruction?

The replacement of compact discs by MP3s and streaming services

Which of the following are true about the profit-maximizing rule of MR = MC?

The rule can be restated as P = MC when applied to a purely competitive firm because product price and MR are equal. The rule applies only if producing is preferable to shutting down. The rule is an accurate guide to profit maximization for all firms regardless of their market structure.

As firms exit the industry in the long run, market price rises and the losses for the remaining firms begin to subside. Firms will continue to exit until which of the following happens?

There are no economic losses.

Which statement about obstacles to selling in a purely competitive market is true?

There are no significant obstacles to selling.

Which of the following are true of purely competitive firms?

They do not exert control over product price. They produce a small fraction of total supply. They are price takers.

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?

Confronted with the market price of its product, a purely competitive producer will ask which three questions?

What economic profit or loss will we realize if we produce this product? If we produce this product, in what amount? Should we produce this product?

When are society's resources allocated efficiently in a purely competitive market?

When firms produce where price is equal to marginal cost (MC).

Competitive market economies generate ______.

productive efficiency allocative efficiency

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 competitive

If demand for the good decreases creating economic losses, firms will exit the industry in the long run. As firms exit in the long run, industry supply will ______ and market price will ______.

decrease; rise

pure ______ involves a very large number of firms

competition

The green shaded area in this figure represents

consumer surplus

The green shaded area in this figure represents:

consumer surplus

In a purely competitive market, price per unit to the purchaser is synonymous with ____ per unit or ____ revenue to a seller.

cost / marginal

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

The dominant position of wagons, ships, and barges was undermined by the railroad system, which in turn was undermined by trucks and later airplanes. This best exemplifies ______.

creative destruction

An unfavorable shift or ______ in demand will upset the original industry equilibrium and produce ______.

decrease; losses

An unfavorable shift or ______ in demand will upset the original industry equilibrium and produce _____

decreases ; losses

Firms that operate in a purely competitive industry:

do not differentiate their products

Economists maintain that new firms are attracted into an industry due to:

economic profits

Each purely competitive firm's demand curve is perfectly _____ at the equilibrium price.

elastic

Each purely competitive firm's demand curve is perfectly _______at the equilibrium price.

elastic

In purely competitive industries, firms can freely:

enter and exit

In pure competition, a firm should produce if price is ______.

equal to or greater than minimum average variable cost

In pure competition, productive efficiency is attained when price _____ minimum average total cost

equals

In pure competition, productive efficiency is attained when price _____ minimum average total cost.

equals

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: Because of the law of diminishing returns, marginal costs eventually fall as more units of output are produced.

false

True or false: Firms within pure competition are likely to earn economic profit in the long run.

false

True or false: In pure competition, consumers benefit from productive efficiency by paying the highest price possible.

false

True or false: Quantity supplied increases as price decreases, and economic profit is usually higher at lower product prices and output.

false

A firm would not stop producing if the loss is less than its ______ costs.

fixed

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

In purely competitive markets, an individual firm lacks control over which factor?

product price

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.

horizontal; downward sloping

Productive efficiency requires that goods be produced ___.

in the least costly way

The quantity of a product supplied by a firm in pure competition should _____ as long as price rises.

increase

Because of the law of diminishing returns, marginal costs ______ at a(n) ______ rate at higher levels of output.

increasing and increasing

If price is initially less than minimum average total cost, resulting losses will cause firms to leave the industry eventually resulting in _____.

industry contraction that decreases supply until price rises again to equal minimum average total cost (ATC)

If market price initially exceeds minimum average total costs, the resulting economic profit will attract new firms to the industry which will eventually result in _____.

industry expansion that increases supply until price equals minimum average total cost (ATC)

In the long run, pure competition forces all firms to achieve productive efficiency. In other words, firms must use the ______ production methods available.

least-cost

The entry and the exit of firms in an industry are considered to be ____ -run adjustments.

long

Consumers benefit from productive efficiency by paying the ______ product price possible under the prevailing technology and cost conditions, causing firms to earn only ______ profit.

lowest; a normal

In purely competitive markets, long-run equilibrium can be disrupted by a change in consumer demand. Over time, though, producers will reallocate resources so that price equals ______ and allocative efficiency is restored.

marginal cost

A firm would not produce a unit of output where ______.

marginal cost exceeds marginal revenue

The long run, every purely competitive firm tends to operate at its ______.

minimum ATC

In the long run, a purely competitive firm will only earn a ______ profit.

normal

When long-run equilibrium is reached, firms will earn a(n) ______ profit.

normal

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 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

price

There is no incentive for firms to enter or exit the industry in the long run when ______.

price equals minimum average total cost firms earn a normal profit MR = MC

In pure competition, society's resources are allocated efficiently when profit-motivated firms produce output to the point where ______.

price or marginal revenue (MR) and marginal cost (MC) are equal

In the long run, purely competitive firms will not survive if they do not use a least-cost production method because ______.

pure competition forces firms to produce at the minimum average total cost (ATC) and to charge a price that is consistent with that cost

The market demand curve for a purely competitive industry:

slopes downward

A purely competitive market leads to the efficient use of:

society's scarce resources

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 _____

taker

Firms within pure competition are considered to be price

takers

Firms within pure competition are considered to be price ____

takers

After all long-run adjustments are completed in a perfectly competitive market, output will occur at each firm's minimum average ______.

total cost where product price is equal to marginal revenue

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

If price is below a firm's minimum average _____ cost, the firm will not operate.

variable

A firm should always stop producing if its average ______ cost is ______ price.

variable; greater than

Which of the following are conditions necessary to have pure competition?

very large number of firms or sellers standardized product free entry and exit