Question 1

A purely competitive firm does not try to sell more of its product by lowering its price below the market price because

Accepted Answer

A)  its competitors would not permit it. 
B)  it can sell all it wants to at the market price. 
C)  this would be considered unethical price chiseling. 
D)  its demand curve is inelastic, so total revenue will decline. 
A)  its competitors would not permit it. 
B)  it can sell all it wants to at the market price. 
C)  this would be considered unethical price chiseling. 
D)  its demand curve is inelastic, so total revenue will decline.

Question 2

A purely competitive firm can be identified by the fact that

Accepted Answer

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. 
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.

Question 3

Which of the following is not a basic market model?

Accepted Answer

A)  pure competition 
B)  free enterprise 
C)  oligopoly 
D)  monopoly 
A)  pure competition 
B)  free enterprise 
C)  oligopoly 
D)  monopoly

Question 4

Which of the following is not a necessary characteristic of a purely competitive industry?

Accepted Answer

A)  The industry or market demand is highly elastic. 
B)  Firms can easily enter or leave the industry. 
C)  There are so many small firms that no one firm can influence the 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. 
B)  Firms can easily enter or leave the industry. 
C)  There are so many small firms that no one firm can influence the market price. 
D)  Consumers see no difference between the product of one firm and that of another.

Question 5

The resource cost falls in a purely competitive industry. This change will result in a(n)

Accepted Answer

A)  increase in marginal cost for firms in the industry and an increase in the industry supply curve. 
B)  decrease in marginal cost for firms in the industry and a decrease in the industry supply curve. 
C)  decrease in marginal cost for firms in the industry and an increase in the industry supply curve. 
D)  increase in marginal cost at each output level for firms in the industry and an increase in the industry supply curve. 
A)  increase in marginal cost for firms in the industry and an increase in the industry supply curve. 
B)  decrease in marginal cost for firms in the industry and a decrease in the industry supply curve. 
C)  decrease in marginal cost for firms in the industry and an increase in the industry supply curve. 
D)  increase in marginal cost at each output level for firms in the industry and an increase in the industry supply curve.

Question 6

The Ajax Manufacturing Company is selling in a purely competitive market. Its output is 100 units, which sell at $4 each. At this level of output, total cost is $600, total fixed cost is $100, and marginal cost is $4. The firm should

Accepted Answer

A)  reduce output to about 80 units. 
B)  expand its production. 
C)  continue to produce 100 units. 
D)  produce zero units of output. 
A)  reduce output to about 80 units. 
B)  expand its production. 
C)  continue to produce 100 units. 
D)  produce zero units of output.

Question 7

An industry comprising a very large number of sellers producing a standardized product is known as

Accepted Answer

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

Question 8

If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue

Accepted Answer

A)  may be either greater or less than $5. 
B)  will also be $5. 
C)  will be less than $5. 
D)  will be greater than $5. 
A)  may be either greater or less than $5. 
B)  will also be $5. 
C)  will be less than $5. 
D)  will be greater than $5.

Question 9

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 800 units is $3.50. The average variable cost is $3.00. The market price of the product is $4.00. To maximize profits or minimize losses, the firm should

Accepted Answer

A)  continue producing 800 units. 
B)  continue production, but produce less than 800 units. 
C)  increase production to more than 800 units. 
D)  shut down. 
A)  continue producing 800 units. 
B)  continue production, but produce less than 800 units. 
C)  increase production to more than 800 units. 
D)  shut down.

Question 10

Unit price and average revenue are the same or equal in

Accepted Answer

A)  pure competition only. 
B)  pure monopoly only. 
C)  monopolistic competition only. 
D)  all market structures. 
A)  pure competition only. 
B)  pure monopoly only. 
C)  monopolistic competition only. 
D)  all market structures.

Question 11

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

Question 12

In a purely competitive industry, competition centers more on advertising and sales promotion than on price.

Accepted Answer

A) True 
 B)False

Question 13

In a purely competitive industry, each firm

Accepted Answer

A)  determines its own price. 
B)  produces a differentiated product. 
C)  can easily enter or exit the industry. 
D)  engages in various forms of nonprice competition. 
A)  determines its own price. 
B)  produces a differentiated product. 
C)  can easily enter or exit the industry. 
D)  engages in various forms of nonprice competition.

Question 14

The short-run supply curve for a purely competitive industry can be found by

Accepted Answer

A)  multiplying the AVC curve of the representative firm by the number of firms in the industry. 
B)  adding horizontally the AVC curves of all firms. 
C)  summing horizontally the segments of the MC curves lying above the AVC curve for all firms. 
D)  adding horizontally the immediate market period supply curves of each firm. 
A)  multiplying the AVC curve of the representative firm by the number of firms in the industry. 
B)  adding horizontally the AVC curves of all firms. 
C)  summing horizontally the segments of the MC curves lying above the AVC curve for all firms. 
D)  adding horizontally the immediate market period supply curves of each firm.

Question 15

The marginal revenue curve of a purely competitive firm

Accepted Answer

A)  lies below the firm's demand curve. 
B)  is downsloping because price must be reduced to sell more output. 
C)  is horizontal at the market price. 
D)  has all of these characteristics. 
A)  lies below the firm's demand curve. 
B)  is downsloping because price must be reduced to sell more output. 
C)  is horizontal at the market price. 
D)  has all of these characteristics.

Question 16

In pure competition, the demand for the product of a single firm is perfectly

Accepted Answer

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. 
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.

Question 17

In the short run, fixed costs for a profitable competitive firm are

Accepted Answer

A)  zero. 
B)  negative. 
C)  important determinants of the output level. 
D)  irrelevant in determining the optimal level of output. 
A)  zero. 
B)  negative. 
C)  important determinants of the output level. 
D)  irrelevant in determining the optimal level of output.

Question 18

(Last Word) Fixed costs for a firm are analogous to

Accepted Answer

A)  the dirt that fills up the financial hole. 
B)  digging a deeper financial hole by producing when prices are too low. 
C)  the cost of the shovel needed to fill the financial hole. 
D)  starting out in a hole that represents economic losses if the firm produces nothing. 
A)  the dirt that fills up the financial hole. 
B)  digging a deeper financial hole by producing when prices are too low. 
C)  the cost of the shovel needed to fill the financial hole. 
D)  starting out in a hole that represents economic losses if the firm produces nothing.

Question 19

For a purely competitive seller, price equals

Accepted Answer

A)  average revenue. 
B)  marginal revenue. 
C)  total revenue divided by output. 
D)  all of these. 
A)  average revenue. 
B)  marginal revenue. 
C)  total revenue divided by output. 
D)  all of these.

Question 20

In a graph for a firm in pure competition with the quantity of output measured on the horizontal axis, the total revenue curve is

Accepted Answer

A)  downward-sloping. 
B)  horizontal. 
C)  vertical. 
D)  upward-sloping. 
A)  downward-sloping. 
B)  horizontal. 
C)  vertical. 
D)  upward-sloping.

Exam 10: Pure Competition in the Short Run

A purely competitive firm does not try to sell more of its product by lowering its price below the market price because

A purely competitive firm can be identified by the fact that

Which of the following is not a basic market model?

Which of the following is not a necessary characteristic of a purely competitive industry?

The resource cost falls in a purely competitive industry. This change will result in a(n)

The Ajax Manufacturing Company is selling in a purely competitive market. Its output is 100 units, which sell at $4 each. At this level of output, total cost is $600, total fixed cost is $100, and marginal cost is $4. The firm should

An industry comprising a very large number of sellers producing a standardized product is known as

If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 800 units is $3.50. The average variable cost is $3.00. The market price of the product is $4.00. To maximize profits or minimize losses, the firm should

Unit price and average revenue are the same or equal in

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

In a purely competitive industry, competition centers more on advertising and sales promotion than on price.

In a purely competitive industry, each firm

The short-run supply curve for a purely competitive industry can be found by

The marginal revenue curve of a purely competitive firm

In pure competition, the demand for the product of a single firm is perfectly

In the short run, fixed costs for a profitable competitive firm are

(Last Word) Fixed costs for a firm are analogous to

For a purely competitive seller, price equals

In a graph for a firm in pure competition with the quantity of output measured on the horizontal axis, the total revenue curve is

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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