Study Guide 2 of 3

Refer to the above graph. This pure competitive firm will not produce unless price is at least: A. $2 B. $5 C. $7 D. $10

B. $5

Refer to the above 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

A. A

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

Given the diagram above, which level of output should the entrepreneur choose? A. Either X1 or X3 since the profit level will be the same B. X3 since any increase in output will reduce profits C. X1 since any decrease in output will reduce profits D. X2 since at this level the difference between MR and MC is maximized

B. X3 since any increase in output will reduce profits

Refer to the above graph. At what price will the firm make an economic profit? A. $2 B. $5 C. $7 D. $10

C. $7

Refer to the above graph. The firm will earn maximum total profits if it produces and sells quantity: A. 0A B. 0B C. 0C D. 0K

C. 0C

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 total market D. Product differentiation is reinforced by extensive advertising

C. Each seller supplies a negligible fraction of total market

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

Use the table below to answer the question for a purely competitive firm. Refer to the above table. The marginal revenue from the third unit of output is: A. $40 B. $50 C. $120 D. $160

A. $40

Use the table below to answer the question for a purely competitive firm. Refer to the above table. The market price of the product in the short run is: A. $40 B. $80 C. $120 D. $160

A. $40

In pure competition, price is determined where the industry: A. Demand and supply curves intersect B. Total cost is greater 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

In pure competition, each extra unit of output that a firm sells will yield a marginal revenue that is: A. Equal to the price B. Less than the price C. Greater than the price D. Equal to the average cost

A. Equal to the price

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

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 enter or leave the industry C. There are so many firms that none can influence 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 purely competitive firm will be willing to produce even at a loss in the short run, as long as: A. The loss is smaller than its total variable costs B. The loss is smaller than its marginal costs C. The loss is smaller than its total fixed costs D. Price exceeds marginal costs

A. The loss is smaller than its total variable costs

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 twelfth pound would be: A. $36 B. $3 C. 12 lbs. D. 1 lb.

B. $3

Given the above graph, the competitive firm's supply curve is the: A. MC curve above F B. MC curve above G C. MC curve above H D. MC curve above J

B. MC curve above G

Which idea is inconsistent with pure competition? A. Price-taking behavior B. Product differentiation C. Freedom of entry or exit for firms D. A large number of buyers and sellers

B. Product differentiation

A purely competitive firm currently producing 20 units of output earns marginal revenues of $12 from each extra unit of output it sells. If it sells 30 units, then its total revenues would be: A. $120 B. $240 C. $360 D. Indeterminate based on the given information

C. $360

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

Let us suppose Harry's, a local supplier of chili and pizza, has the following revenue and cost structure: A. Harry's should stay open in the long run B. Harry's should shut down in the short run C. Harry's should stay open in the short run D. Harry's should shut down in the short run but reopen in the long run

C. Harry's should stay open in the short run

The wage rate increases in a purely competitive industry. This change will result in a(n): A. Decrease in average total cost for a firm in the industry B. Decrease in average variable cost for a firm in the industry C. Increase in the marginal cost curve for a firm in the industry D. Increase in short-run supply curve for a firm in the industry

C. Increase in the marginal cost curve for a firm 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

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

Consider the purely competitive firm pictured above. 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

Refer to the above graph. It shows short-run cost curves for a competitive firm. At what minimum price would the firm be willing to product some output in the short run? A. P1 B. P2 C. P3 D. P4

C. P3

Refer to the above graph. Which of the output levels is the profit-maximizing output level for this firm? A. Q1 B. Q2 C. Q3 D. Q4

C. Q3

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

Which of the following is true for a purely competitive firm in short-run equilibrium? A. The firm is making only normal profits B. The firm's marginal cost is greater than its marginal revenue C. The firm's marginal revenue is equal to its marginal cost D. A decrease in output would lead to a rise in profits

C. The firm's marginal revenue is equal to its marginal cost

Refer to the above graph. At what price will the firm make just a normal profit? A. $2 B. $5 C. $7 D. $10

D. $10

Refer to the above graph. At the profit-maximizing level of output, the firm earns profits given by the area: A. 0AHE B. ACFH C. BCFG D. ABGH

D. ABGH

A profit-maximizing firm in the short run will expand output: A. Until marginal cost begins to rise B. Until total revenue equals total cost C. Until marginal cost equals average variable cost D. As long as marginal revenue is greater than marginal cost

D. As long as marginal revenue is greater than marginal cost

In the standard model of pure competition, a profit-maximizing firm will shut down in the short run if price is below: A. Marginal cost B. Average cost C. Average fixed cost D. Average variable cost

D. Average variable cost

As president and owner of the Sour Grapes Lemonade Company, you know that you face: To maximize your financial well-being, you should: A. Continue to operate in the short run because rent is less than sales B. Shut down because variable costs exceed fixed costs C. Shut down because the company is losing money D. Continue operating in the short run

D. Continue operating in the short run

Which is a feature of a purely competitive market? A. Price differences between firms producing the same product B. 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

Answer the question based on the table below. At what quantity would a purely competitive firm cover all of its costs and earn only normal profits? A. Q = 5 B. Q = 10 C. Q = 15 D. Q = 20

D. Q = 20

In the standard model of pure competition, a profit-maximizing firm will shut down in the short run if: A. Marginal cost is greater than average revenue B. Average cost is greater than average revenue C. Average fixed cost is greater than average revenue D. Total revenue is less than total variable cost

D. Total revenue is less than total variable cost

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

Refer to the above 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

Do not know