Question 1

An industry comprising a small number of firms, each of which considers the potential reactions of its rivals in making price-output decisions, is called

Accepted Answer

A)  monopolistic competition.
B)  oligopoly.
C)  pure monopoly.
D)  pure competition.

Question 2

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

Accepted Answer

A)  minimize your losses by producing where P = MC.
B)  maximize your profits by producing where P = MC.
C)  close down because, by producing, your losses will exceed your total fixed costs.
D)  close down because total revenue exceeds total variable cost.

Question 3

Price is taken to be a "given" by an individual firm selling in a purely competitive market because

Accepted Answer

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.

Question 4

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

Accepted Answer

A)  straight, upsloping line.
B)  straight line, parallel to the vertical axis.
C)  straight line, parallel to the horizontal axis.
D)  straight, downsloping line.

Question 5

Marginal revenue is the addition to total revenue resulting from the sale of one more unit of output.

Accepted Answer

A) True 
 B)False

Question 6

A purely competitive firm will be willing to produce even at a loss in the short run, as long as

Accepted Answer

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.

Question 7

There would be some control over price within rather narrow limits in which market model?

Accepted Answer

A)  monopolistic competition
B)  pure competition
C)  pure monopoly
D)  oligopoly

Question 8

In pure competition, each extra unit of output that a firm sells will yield a marginal revenue that is

Accepted Answer

A)  equal to the price.
B)  less than the price.
C)  greater than the price.
D)  equal to the average cost.

Question 9

In which two market models would advertising be used most often?

Accepted Answer

A)  pure competition and monopolistic competition
B)  pure competition and pure monopoly
C)  monopolistic competition and oligopoly
D)  pure monopoly and oligopoly

Question 10

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

Accepted Answer

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.

Question 11

Which of the following is true for a purely competitive firm in short-run equilibrium?

Accepted Answer

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.

Question 12

In the standard model of pure competition, a profit-maximizing firm will shut down in the short run if

Accepted Answer

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.

Question 13

The basic difference between pure competition and monopolistic competition is in the number of firms in the industry.

Accepted Answer

A) True 
 B)False

Question 14

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 12th pound of pork would be

Accepted Answer

A)  $36.
B)  $3.
C)  12 lb.
D)  1 lb.

Question 15

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

Accepted Answer

A)  new firms will enter this industry.
B)  the firm should produce the MC = MR output and realize an economic profit.
C)  some firms should shut down in the short run.
D)  the firm should expand its plant.

Question 16

In pure competition, a competitive firm's supply curve is that section of its marginal cost curve above ATC, and at any price below the average cost, the firm will produce nothing.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A)  realize a profit of $4 per unit of output.
B)  maximize its profit by producing in the short run.
C)  minimize its losses by producing in the short run.
D)  shut down in the short run.

Question 18

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?

Accepted Answer

A)  Price must be at least equal to average total cost.
B)  Price times quantity produced must be equal to or greater than total variable cost for some level of output or the firm will close down in the short run.
C)  Price may be equal to, greater than, or less than average total cost.
D)  Price must be equal to or greater than minimum average variable cost for the firm to continue producing.

Question 19

A profit-maximizing firm in the short run will expand output

Accepted Answer

A)  until marginal cost begins to rise.
B)  until total revenue equals total cost.
C)  as long as marginal revenue is less than marginal cost.
D)  as long as marginal revenue is greater than marginal cost.

Question 20

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

Accepted Answer

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.

Exam 10: Pure Competition in the Short Run

A profit-maximizing firm in the short run will expand output

Correct AnswerverifiedShow Answer

There would be some control over price within rather narrow limits in which market model?

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In the standard model of pure competition, a profit-maximizing firm will shut down in the short run if

Correct AnswerverifiedShow Answer

Marginal revenue is the addition to total revenue resulting from the sale of one more unit of output.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A purely competitive firm will be willing to produce even at a loss in the short run, as long as

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In pure competition, a competitive firm's supply curve is that section of its marginal cost curve above ATC, and at any price below the average cost, the firm will produce nothing.

Correct AnswerverifiedShow Answer

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 12th pound of pork would be

Correct AnswerverifiedShow Answer

In pure competition, each extra unit of output that a firm sells will yield a marginal revenue that is

Correct AnswerverifiedShow Answer

In which two market models would advertising be used most often?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Which of the following is true for a purely competitive firm in short-run equilibrium?

Correct AnswerverifiedShow Answer

Price is taken to be a "given" by an individual firm selling in a purely competitive market because

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An industry comprising a small number of firms, each of which considers the potential reactions of its rivals in making price-output decisions, is called

Correct AnswerverifiedShow Answer

The basic difference between pure competition and monopolistic competition is in the number of firms in the industry.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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