Question 1

Refer to the accompanying graph for a purely competitive firm. When the firm is in equilibrium in the short run, the amount of economic profit per unit is

Accepted Answer

A) EH. 
B) DE. 
C) DH. 
D) DB. 
A) EH. 
B) DE. 
C) DH. 
D) DB.

Question 2

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

Accepted Answer

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. 
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.

Question 3

A competitive firm faces fixed costs even if it produces zero output. If it starts producing and selling some output, which of the following would happen?

Accepted Answer

A) The firm's total costs would increase, and its losses may become larger. 
B) The firm would earn revenues and will therefore earn positive profits. 
C) The firm's total costs would decrease, allowing it to possibly earn profits. 
D) The firm would earn revenues that are greater than its costs. 
A) The firm's total costs would increase, and its losses may become larger. 
B) The firm would earn revenues and will therefore earn positive profits. 
C) The firm's total costs would decrease, allowing it to possibly earn profits. 
D) The firm would earn revenues that are greater than its costs.

Question 4

A competitive firm will produce in the short run so long as its price exceeds its average fixed cost.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) $2. 
B) $3. 
C) $4. 
D) $5. 
A) $2. 
B) $3. 
C) $4. 
D) $5.

Question 6

In which market model are the conditions of entry the most difficult?

Accepted Answer

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

Question 7

If a purely competitive firm is maximizing economic profit,

Accepted Answer

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. 
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.

Question 8

Refer to the accompanying graph. If the market price for the product falls, then which of the curves would shift?

Accepted Answer

A) MC 
B) ATC 
C) AVC 
D) D 
A) MC 
B) ATC 
C) AVC 
D) D

Question 9

The agricultural market for corn can be characterized as a purely competitive industry. How will an increase in the cost of fertilizer that is sold to corn farmers affect the short-run costs and output for a farm in the industry? How will this affect the profit of the individual farm?

Accepted Answer

Fertilizer is a variable cost, so total

Question 10

The table gives data for a purely competitive firm. The market price of the product in the short run is

Accepted Answer

A) $80. 
B) $120. 
C) $40. 
D) $160. 
A) $80. 
B) $120. 
C) $40. 
D) $160.

Question 11

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

Accepted Answer

A) total variable costs. 
B) total costs. 
C) total fixed costs. 
D) marginal costs. 
A) total variable costs. 
B) total costs. 
C) total fixed costs. 
D) marginal costs.

Question 12

Refer to the data in the accompanying table. If the firm's minimum average variable cost is $10, at the profit-maximizing level of output, the firm's total revenue is

Accepted Answer

A) $32. 
B) $48. 
C) $80. 
D) $64. 
A) $32. 
B) $48. 
C) $80. 
D) $64.

Question 13

Which characteristic would best be associated with pure competition?

Accepted Answer

A) few sellers 
B) price takers 
C) nonprice competition 
D) product differentiation 
A) few sellers 
B) price takers 
C) nonprice competition 
D) product differentiation

Question 14

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. 
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 15

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 $140, the firm will produce

Accepted Answer

A) 5 units and earn economic profits of $700. 
B) 7 units and earn economic profits of $40. 
C) 6 units and earn economic profits of $0. 
D) 8 units and earn economic profits of $90. 
A) 5 units and earn economic profits of $700. 
B) 7 units and earn economic profits of $40. 
C) 6 units and earn economic profits of $0. 
D) 8 units and earn economic profits of $90.

Question 16

Which of the following is a reason why individual firms under pure competition would not find it gainful to advertise their product?

Accepted Answer

A) Firms produce a homogeneous product. 
B) The quantity of the product demanded is very large. 
C) The market demand curve cannot be increased. 
D) Firms do not make long-run profits. 
A) Firms produce a homogeneous product. 
B) The quantity of the product demanded is very large. 
C) The market demand curve cannot be increased. 
D) Firms do not make long-run profits.

Question 17

At P ₄ in the accompanying diagram, this firm will

Accepted Answer

A) shut down in the short run. 
B) produce 30 units and incur a loss. 
C) produce 30 units and earn only a normal profit. 
D) produce 10 units and earn only a normal profit. 
A) shut down in the short run. 
B) produce 30 units and incur a loss. 
C) produce 30 units and earn only a normal profit. 
D) produce 10 units and earn only a normal profit.

Question 18

Which of the following changes will not affect the market supply or the market demand in a purely competitive industry?

Accepted Answer

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 
B) a change in the number of buyers 
C) a change in marginal costs 
D) a change in the number of firms

Question 19

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 3,200 units is $7.40. The minimum possible average variable cost is $4.90. The market price of the product is $8.20. To maximize profits or minimize losses, the firm should

Accepted Answer

A) continue producing 3,200 units.. 
B) continue production, but reduce output.. 
C) increase production.. 
D) shut down.. 
A) continue producing 3,200 units.. 
B) continue production, but reduce output.. 
C) increase production.. 
D) shut down..

Question 20

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

Accepted Answer

A) P = ATC. 
B) P > AVC. 
C) P = MC. 
D) P > ATC. 
A) P = ATC. 
B) P > AVC. 
C) P = MC. 
D) P > ATC.

Exam 10: Pure Competition in the Short Run

Refer to the accompanying graph for a purely competitive firm. When the firm is in equilibrium in the short run, the amount of economic profit per unit is

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 competitive firm faces fixed costs even if it produces zero output. If it starts producing and selling some output, which of the following would happen?

A competitive firm will produce in the short run so long as its price exceeds its average fixed cost.

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

In which market model are the conditions of entry the most difficult?

If a purely competitive firm is maximizing economic profit,

Refer to the accompanying graph. If the market price for the product falls, then which of the curves would shift?

The agricultural market for corn can be characterized as a purely competitive industry. How will an increase in the cost of fertilizer that is sold to corn farmers affect the short-run costs and output for a farm in the industry? How will this affect the profit of the individual farm?

The table gives data for a purely competitive firm. The market price of the product in the short run is

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

Refer to the data in the accompanying table. If the firm's minimum average variable cost is $10, at the profit-maximizing level of output, the firm's total revenue is

Which characteristic would best be associated with pure competition?

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?

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 $140, the firm will produce

Which of the following is a reason why individual firms under pure competition would not find it gainful to advertise their product?

At P ₄ in the accompanying diagram, this firm will

Which of the following changes will not affect the market supply or the market demand in a purely competitive industry?

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 3,200 units is $7.40. The minimum possible average variable cost is $4.90. The market price of the product is $8.20. To maximize profits or minimize losses, the firm should

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

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, RD, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

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Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

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