Question 1

Firms seek to maximize

Accepted Answer

A)  per unit profit. 
B)  total revenue. 
C)  total profit. 
D)  market share. 
A)  per unit profit. 
B)  total revenue. 
C)  total profit. 
D)  market share.

Question 2

The demand curve for a purely competitive industry is perfectly elastic, but the demand curves faced by individual firms in such an industry are downsloping.

Accepted Answer

A) True 
 B)False

Question 3

If the market demand for the product increases, in the short run a purely competitive firm

Accepted Answer

A)  will not change its output quantity because there are so many firms that the individual firm will not be affected by the change. 
B)  will earn higher profits or experience smaller losses as a result of the change in the market. 
C)  will experience no change in costs as it steps up production in response to the change in the market. 
D)  can employ more inputs and increase the size of its plant, to respond to the change in the market. 
A)  will not change its output quantity because there are so many firms that the individual firm will not be affected by the change. 
B)  will earn higher profits or experience smaller losses as a result of the change in the market. 
C)  will experience no change in costs as it steps up production in response to the change in the market. 
D)  can employ more inputs and increase the size of its plant, to respond to the change in the market.

Question 4

The demand curve in a purely competitive industry is , while the demand curve to a single firm in that industry is .

Accepted Answer

A)  perfectly inelastic; perfectly elastic 
B)  downsloping; perfectly elastic 
C)  downsloping; perfectly inelastic 
D)  perfectly elastic; downsloping 
A)  perfectly inelastic; perfectly elastic 
B)  downsloping; perfectly elastic 
C)  downsloping; perfectly inelastic 
D)  perfectly elastic; downsloping

Question 5

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 average variable costs are $5 per bushel. In order to maximize profits or minimize losses in the short run, farmer Jones should

Accepted Answer

A)  increase output. 
B)  increase selling price. 
C)  produce zero output and close down. 
D)  continue producing, but reduce output. 
A)  increase output. 
B)  increase selling price. 
C)  produce zero output and close down. 
D)  continue producing, but reduce output.

Question 6

For a purely competitive firm, the demand curve facing it is the same as its marginal revenue curve.

Accepted Answer

A) True 
 B)False

Question 7

T-Shirt Enterprises is selling in a purely competitive market. It is producing 3,000 units, selling them for $2.00 each. At this level of output, the average total cost is 2.50 and the average variable cost is $2.20. Based on these data, the firm should

Accepted Answer

A)  shut down in the short run. 
B)  decrease output to 2,500 units. 
C)  continue to produce 3,000 units. 
D)  increase output to 3,500 units. 
A)  shut down in the short run. 
B)  decrease output to 2,500 units. 
C)  continue to produce 3,000 units. 
D)  increase output to 3,500 units.

Question 8

Price is constant to the individual firm selling in a purely competitive market because

Accepted Answer

A)  the firm's demand curve is downsloping. 
B)  of product differentiation reinforced by extensive advertising. 
C)  each seller supplies a negligible fraction of total supply. 
D)  marginal costs are constant. 
A)  the firm's demand curve is downsloping. 
B)  of product differentiation reinforced by extensive advertising. 
C)  each seller supplies a negligible fraction of total supply. 
D)  marginal costs are constant.

Question 9

If a purely competitive firm shuts down in the short run,

Accepted Answer

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. 
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.

Question 10

In the short run, a purely competitive seller will shut down if

Accepted Answer

A)  it cannot produce at an economic profit. 
B)  price is less than average variable cost at all outputs. 
C)  price is less than average fixed cost at all outputs. 
D)  there is no point at which marginal revenue and marginal cost are equal. 
A)  it cannot produce at an economic profit. 
B)  price is less than average variable cost at all outputs. 
C)  price is less than average fixed cost at all outputs. 
D)  there is no point at which marginal revenue and marginal cost are equal.

Question 11

Which of the following is a feature of a purely competitive market?

Accepted Answer

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. 
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.

Question 12

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,

Accepted Answer

A)  marginal revenue will graph as an upsloping line. 
B)  the demand curve will lie above the marginal revenue curve. 
C)  the marginal revenue curve will lie above the demand curve. 
D)  the demand and marginal revenue curves will coincide. 
A)  marginal revenue will graph as an upsloping line. 
B)  the demand curve will lie above the marginal revenue curve. 
C)  the marginal revenue curve will lie above the demand curve. 
D)  the demand and marginal revenue curves will coincide.

Question 13

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

Accepted Answer

A)  $8. 
B)  $42. 
C)  $288. 
D)  $54. 
A)  $8. 
B)  $42. 
C)  $288. 
D)  $54.

Question 14

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

Accepted Answer

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. 
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.

Question 15

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

Accepted Answer

A)  should close down in the short run. 
B)  is maximizing its profits. 
C)  is realizing a loss of $60. 
D)  is realizing an economic profit of $40. 
A)  should close down in the short run. 
B)  is maximizing its profits. 
C)  is realizing a loss of $60. 
D)  is realizing an economic profit of $40.

Question 16

In contrast to American firms, Japanese firms frequently make lifetime employment commitments to their workers and agree not to lay them off when product demand is weak. Other things being equal, we would expect Japanese firms to

Accepted Answer

A)  face more elastic product demand curves than American firms. 
B)  have relatively greater variable costs than American firms. 
C)  discontinue production at higher product prices than would American firms. 
D)  continue to produce in the short run at lower prices than would American firms. 
A)  face more elastic product demand curves than American firms. 
B)  have relatively greater variable costs than American firms. 
C)  discontinue production at higher product prices than would American firms. 
D)  continue to produce in the short run at lower prices than would American firms.

Question 17

For a purely competitive firm, total revenue

Accepted Answer

A)  is price times quantity sold. 
B)  increases by a constant absolute amount as output expands. 
C)  graphs as a straight upsloping line from the origin. 
D)  has all of these characteristics. 
A)  is price times quantity sold. 
B)  increases by a constant absolute amount as output expands. 
C)  graphs as a straight upsloping line from the origin. 
D)  has all of these characteristics.

Question 18

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 19

Competitive firms are price takers largely because of intensive advertising by their competitors.

Accepted Answer

A) True 
 B)False

Question 20

The short-run supply curve for a competitive firm is the

Accepted Answer

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. 
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.

Exam 10: Pure Competition in the Short Run

Firms seek to maximize

The demand curve for a purely competitive industry is perfectly elastic, but the demand curves faced by individual firms in such an industry are downsloping.

If the market demand for the product increases, in the short run a purely competitive firm

The demand curve in a purely competitive industry is , while the demand curve to a single firm in that industry is .

For a purely competitive firm, the demand curve facing it is the same as its marginal revenue curve.

T-Shirt Enterprises is selling in a purely competitive market. It is producing 3,000 units, selling them for $2.00 each. At this level of output, the average total cost is 2.50 and the average variable cost is $2.20. Based on these data, the firm should

Price is constant to the individual firm selling in a purely competitive market because

If a purely competitive firm shuts down in the short run,

In the short run, a purely competitive seller will shut down if

Which of the following is a feature of a purely competitive market?

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,

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 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

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

In contrast to American firms, Japanese firms frequently make lifetime employment commitments to their workers and agree not to lay them off when product demand is weak. Other things being equal, we would expect Japanese firms to

For a purely competitive firm, total revenue

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

Competitive firms are price takers largely because of intensive advertising by their competitors.

The short-run supply curve for a competitive firm is the

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role 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

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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