Deck 7: Pure Competition

Question 1

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

A) Monopolistic competition
B) Pure competition
C) Pure monopoly
D) Oligopoly

Answer 1

C

Question 2

Which is a feature of a purely competitive market?

A) There are price differences 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.

Answer 2

D

Question 3

Mutual interdependence would tend to limit control over price in which market model?

A) Monopolistic competition
B) Pure competition
C) Pure monopoly
D) Oligopoly

Answer 3

D

Question 4

Which is a reason why there is no advertising by individual firms under pure competition?

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 5

Purely competitive firms are assumed to:

A) advertise.
B) be price takers.
C) sell where marginal cost is minimized.
D) confront demand curves that are perfectly inelastic.

Question 6

There would be a unique product for which there are few close substitutes under which market model?

A) Monopolistic competition
B) Pure competition
C) Pure monopoly
D) Oligopoly

Question 7

In a purely competitive industry,each firm:

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

Question 8

The market model with the largest number of firms is:

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

Question 9

The steel and automobile industries would be examples of which market model?

A) Monopolistic competition
B) Pure competition
C) Pure monopoly
D) Oligopoly

Question 10

Which characteristic would best be associated with pure competition?

A) Few sellers
B) Price taker
C) Nonprice competition
D) Product differentiation

Question 11

Which is true under conditions of pure competition?

A) There are differentiated products.
B) The market demand curve is perfectly elastic.
C) No single firm can influence the market price by changing its output.
D) Firms that cannot make pure or economic profits go bankrupt.

Question 12

The retail trade for clothing would be an example of which market model?

A) Monopolistic competition
B) Pure competition
C) Pure monopoly
D) Oligopoly

Question 13

Which market model has the least number of firms?

A) Monopolistic competition
B) Pure competition
C) Pure monopoly
D) Oligopoly

Question 14

Price is constant or "given" to the 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 supply.
D) product differentiation is reinforced by extensive advertising.

Question 15

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

A) Monopolistic competition
B) Pure competition
C) Pure monopoly
D) Oligopoly

Question 16

There is no control over price by firms in:

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

Question 17

The production of agricultural products such as wheat or corn would best be described by which market model?

A) Monopolistic competition
B) Pure competition
C) Pure monopoly
D) Oligopoly

Question 18

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

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

Question 19

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

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 20

Under which market model are the conditions of entry into the market easiest?

A) Pure competition
B) Pure monopoly
C) Monopolistic competition
D) Oligopoly

Question 21

Refer to the above table.The marginal revenue from the third unit of output is:

A) $40.
B) $50.
C) $120.
D) $160.
The change in total revenue is $40,which,when divided by a one-unit increase in output,gives marginal revenue of $40.

Question 22

A single firm in pure competition in the short run has a:

A) vertical supply curve.
B) vertical demand curve.
C) horizontal supply curve.
D) horizontal demand curve.

Question 23

Refer to the above graph for a firm in pure competition.Line B represents:

A) total revenue.
B) marginal revenue.
C) average total cost.
D) average fixed cost.

Question 24

Given the table below,what is the short-run profit-maximizing level of output for the firm?

A) 2 units
B) 3 units
C) 4 units
D) 5 units
At output level of four units,total revenue exceeds total cost by $7.This is the maximum difference between total revenue and total cost,which means profit is maximized.

Question 25

Assume the price of a product sold by a purely competitive firm is $5.Given the data in the accompanying table,at what output is total profit highest in the short run?

A) 20
B) 30
C) 40
D) 50
At an output level of 40,total revenue is $5 * 40 = $200 and total cost is $125,so profit is $75.This is maximum profit of the output levels shown.

Question 26

In pure competition,the marginal revenue of a firm always equals:

A) product price.
B) total revenue.
C) average total cost.
D) marginal cost.

Question 27

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

Question 28

Sam owns a firm that produces tomatoes in a purely competitive market.The firm's demand curve is:

A) a vertical line.
B) a horizontal line.
C) upsloping to the right.
D) downsloping to the right.

Question 29

If the demand curve facing a firm is perfectly elastic,then:

A) its marginal revenue will equal price.
B) its marginal revenue schedule will decrease at an increasing rate.
C) its marginal revenue schedule decreases twice as fast as the demand curve.
D) it can increase its total revenue by lowering the price of its product.

Question 30

Answer the question based on the table below. At what point on the table 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
At Q = 15,total costs are $25 + $50 = $75 and total revenues are 15 * $5 = $75.This gives a profit of 0,which is a normal profit but not an economic profit.

Question 31

If a firm is a price taker,then the demand curve for the firm's product is:

A) equal to the total revenue curve.
B) perfectly inelastic.
C) perfectly elastic.
D) unit elastic.

Question 32

Average revenue is:

A) total revenue minus total cost.
B) marginal revenue minus marginal cost.
C) marginal revenue divided by the quantity of output.
D) total revenue divided by the quantity of output.

Question 33

In pure competition,marginal revenue is:

A) equal to total revenue.
B) equal to product price.
C) less than product price.
D) greater than product price.

Question 34

In a typical graph for a purely competitive firm,the intersection of the total cost and total revenue curves would be:

A) a point of maximum economic profit.
B) a point of minimum economic loss.
C) a point where MR = MC.
D) a break-even point.

Question 35

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.

Question 36

Refer to the above graph for a firm in pure competition.Line B is horizontal because:

A) total revenue is greater than marginal revenue.
B) marginal revenue is greater than total revenue.
C) the firm has a perfectly inelastic demand curve.
D) the firm has a perfectly elastic demand curve.

Question 37

Refer to the above table.The equilibrium price of the product is:

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

Question 38

In pure competition,the average revenue of a firm always equals:

A) marginal cost.
B) average total cost.
C) marginal revenue.
D) total revenue.

Question 39

Total revenue for producing eight units of output is $48.Total revenue for producing nine units of output is $63.Given this information,the:

A) average revenue for producing nine units is $1.
B) average revenue for producing nine units is $15.
C) marginal revenue for producing the ninth unit is $1.
D) marginal revenue for producing the ninth unit is $15.

Question 40

Refer to the above graph for a firm in pure competition.Line A represents:

A) total revenue.
B) average revenue.
C) average total cost.
D) average fixed cost.

Question 41

A purely competitive firm's output is currently such that its marginal cost is $4 and marginal revenue is $5.Assuming profit maximization,the firm should:

A) cut its price and raise its output.
B) raise its price and cut output.
C) leave price unchanged and raise output.
D) leave price unchanged and cut output.

Question 42

Which 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.

Question 43

The MR = MC profit maximization rule applies:

A) to firms in all types of industries.
B) only when the firm is a "price taker."
C) only to monopolies.
D) only to purely competitive firms.

Question 44

A firm sells a product in a purely competitive market.The marginal cost of the product at the current output of 1000 units is $2.50.The minimum possible average variable cost is $2.00.The market price of the product is $2.50.To maximize profit or minimize losses,the firm should:

A) continue producing 1000 units.
B) produce less than 1000 units.
C) produce more than 1000 units.
D) shut down.

Question 45

T-Shirt Enterprises is selling in a purely competitive market.Its output is 300 units,which sell for $1 each.At this level of output,marginal cost is $1 and average variable cost is $1.50.The firm should:

A) produce zero units of output.
B) decrease output to 250 units.
C) continue to produce 300 units.
D) increase output to 350 units.

Question 46

A firm sells a product in a purely competitive market.The marginal cost of the product at the current output is $4.00 and the market price is $4.50.What should the firm do?

A) Shut down if the minimum possible average variable cost is $3.00.
B) Decrease output if the minimum possible average variable cost is $3.00.
C) Increase output if the minimum possible average variable cost is $3.75.
D) Decrease output if the minimum possible average variable cost is $3.75.

Question 47

Refer to the above graph.The level of output at which this firm will shut down is:

A) 0A.
B) 0B.
C) 0C.
D) 0K.

Question 48

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.

Question 49

A firm sells a product in a purely competitive market.The marginal cost of the product at the current output is $3.00 and the market price is $2.50.What should the firm do?

A) Shut down if the minimum possible average variable cost is $2.00.
B) Increase output if the minimum possible average variable cost is $2.00.
C) Increase output if the minimum possible average variable cost is $2.50.
D) Decrease output if the minimum possible average variable cost is $2.00.

Question 50

Refer to the above graph.The level of output at which this firm is maximizing an economic profit is:

A) 0A.
B) 0B.
C) 0C.
D) 0K.

Question 51

Refer to the above table.When the firm produces three units of output,it makes an economic:

A) profit of $3.
B) loss of $3.
C) profit of $9.
D) loss of $9.
At three units of output,total revenue is $120,whereas total cost is $117.This leaves a $3 profit.

Question 52

Which is necessarily true for a purely competitive firm in short-run equilibrium?

A) Marginal revenue less marginal cost equals zero.
B) Price less average total cost equals zero.
C) Total revenue less total cost equals zero.
D) Marginal revenue is zero.

Question 53

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 minimum possible average variable cost is $1.00.The market price of the product is $1.25.To maximize profit or minimize losses,the firm should:

A) continue producing 500 units.
B) produce less than 500 units.
C) produce more than 500 units.
D) shut down.

Question 54

Refer to the above data.If the firm's minimum average variable cost is $10,the firm's profit-maximizing level of output would be:

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

Question 55

A firm sells a product in a purely competitive market.The marginal cost of the product at the current output is $5.00 and the market price is $5.00.What should the firm do?

A) Shut down if the minimum possible average variable cost is $5.25.
B) Shut down if the minimum possible average variable cost is $4.75.
C) Increase output if the minimum possible average variable cost is $5.25.
D) Decrease output if the minimum possible average variable cost is $4.75.

Question 56

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 minimum possible average variable cost is $3.00.The market price of the product is $4.00.To maximize profit or minimize losses,the firm should:

A) continue producing 800 units.
B) produce less than 800 units.
C) produce more than 800 units.
D) shut down.

Question 57

Refer to the above graph.The level of output at which this firm will produce is:

A) 0A.
B) 0B.
C) 0C.
D) 0K.

Question 58

Refer to the above data.At the profit-maximizing output,the firm's total revenue is:

A) $48.
B) $38.
C) $80.
D) $64.
Profit maximization occurs at MC = MR,which is three units in this case.At three units of output,total revenue is 3 * $16 = $48.

Question 59

Refer to the above data.This firm is selling its output in a(n):

A) imperfectly competitive market.
B) monopolistic market.
C) purely competitive market.
D) oligopolistic market.

Question 60

Refer to the above table.The marginal cost of the third unit of output is:

A) $20.
B) $23.
C) $24.
D) $25.
The change in cost when producing the third unit of output is $117 - $94 = $23.

Question 61

A purely competitive firm is producing at the point where its marginal cost equals the price of its product.If the firm increases its output,then total revenue will:

A) increase and profits will increase.
B) decrease and profits will increase.
C) increase and profits will decrease.
D) decrease and profits will decrease.

Question 62

Refer to the above graph.At what level of output will the firm shut down?

A) 0A
B) 0B
C) 0C
D) 0K

Question 63

The table below shows cost data for a firm that is selling in a purely competitive market. Refer to the above cost chart.The lowest output level on this firm's short-run supply curve is:

A) 10.
B) 12.
C) 16.
D) 20.

Question 64

The table below shows cost data for a firm that is selling in a purely competitive market. Refer to the above table.If the market price for the firm's product is $70,the competitive firm will:

A) produce one unit.
B) produce two units.
C) produce three units.
D) shut down.

Question 65

When a firm produces less output,it can reduce:

A) its fixed costs but not its variable costs.
B) its variable costs but not its fixed costs.
C) average fixed cost.
D) marginal revenue.

Question 66

A firm should increase the quantity of output as long as its:

A) marginal revenue is greater than its marginal cost.
B) marginal cost is greater than its marginal revenue.
C) average revenue is greater than its average total cost.
D) average revenue is greater than its average variable cost.

Question 67

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.

Question 68

The individual firm's short-run supply curve is the part of its:

A) average total cost curve that is upsloping.
B) average variable cost curve that is upsloping.
C) marginal cost curve lying above its average variable cost curve.
D) marginal cost curve lying above its average total cost curve.

Question 69

Refer to the above graph.It shows a profit-maximizing,purely competitive firm operating in the short run.Which area in the graph represents the amount the firm can save by continuing to produce in the short run rather than closing down immediately?

A) 0beg
B) 0cdg
C) acdf
D) abef

Question 70

A firm should always continue to operate at a loss in the short run if:

A) the firm will show a profit.
B) the owner enjoys helping her customers.
C) it can cover its variable costs and some of its fixed costs.
D) the firm cannot produce any other products more profitably.

Question 71

Refer to the above graph.The profit-maximizing level of output for the firm is:

A) 0A.
B) 0B.
C) 0C.
D) 0K.

Question 72

A purely competitive firm is in short-run equilibrium and its MC exceeds its ATC.It can be concluded that:

A) firms will leave the industry in the long run.
B) the firm is realizing an economic profit.
C) the firm is realizing a loss.
D) this is an increasing-cost industry.

Question 73

Refer to the above graph.It shows a profit-maximizing,purely competitive firm operating in the short run.Which area in the graph represents the amount of economic loss for the firm?

A) 0beg
B) bcde
C) acdf
D) abef

Question 74

The table below shows cost data for a firm that is selling in a purely competitive market. Refer to the above table.If the market price for the firm's product is $180,the competitive firm will produce:

A) 6 units at an economic profit of $100.
B) 6 units at an economic profit of $120.
C) 7 units at an economic profit of $238.
D) 7 units at an economic profit of $278.
The firm's profit-maximizing output is 7,where MC = MR.At that output,total revenue is $180 * 7 = $1260 and total cost is $146 * 7 = $1022,so profit is $238.

Question 75

The Campus Crustacean Company receives $2 per box for its crawfish and is selling 1600 boxes to maximize its profits.What is the per-unit profit on a box of crawfish at the profit-maximizing level of output if the variable cost is $1 per box and fixed costs are $1200?

A) $0.25
B) $0.50
C) $1.00
D) $1.25
Total revenue is 1600 * $2 = $3200.Total costs are $1200 + (1600 * $1)= $2800,so profit is $400.Profit per unit is $400/1600 = $0.25.

Question 76

Based on the graph above,the firm is earning:

A) zero normal profits.
B) zero economic profits.
C) zero accounting profits.
D) We can say nothing about this firm's profit or loss situation.

Question 77

In the short run the individual competitive firm's supply curve is the segment of the:

A) average variable cost curve lying below the marginal cost curve.
B) marginal cost curve lying above the average variable cost curve.
C) marginal revenue curve lying below the demand curve.
D) marginal cost curve lying between the average total cost and average variable cost curves.

Question 78

The table below shows cost data for a firm that is selling in a purely competitive market. Refer to the above table.If the market price for the firm's product is $50,the competitive firm will:

A) produce one unit.
B) produce two units.
C) produce three units.
D) shut down.

Question 79

The table below shows cost data for a firm that is selling in a purely competitive market. Refer to the above cost chart.Which output level will the firm never produce?

A) 10
B) 12
C) 16
D) 20

Question 80

The table below shows cost data for a firm that is selling in a purely competitive market. Refer to the above cost chart.If the marginal revenue is $6,what output should the firm produce?

A) 10
B) 12
C) 14
D) 20