Question 1

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 2

A purely competitive firm currently producing 20 units of output earns marginal revenues of $12 from each extra unit of output it sells. If it sells 30 units, then its total revenues would be

Accepted Answer

A)  $120. 
B)  $240. 
C)  $360. 
D)  indeterminate based on the given information.

Question 3

Suppose that at 500 units of output, marginal revenue is equal to marginal cost. The firm is selling its output at $5 per unit, and average total cost at 500 units of output is $6. On the basis of this information, we

Accepted Answer

A)  can say that the firm should close down in the short run. 
B)  can say that the firm can produce and realize an economic profit in the short run. 
C)  cannot determine whether the firm should produce or shut down in the short run. 
D)  can assume the firm is not using the most efficient technology.

Question 4

A perfectly elastic demand curve implies that the firm

Accepted Answer

A)  must lower price to sell more output. 
B)  can sell as much output as it chooses at the existing price. 
C)  realizes an increase in total revenue that is less than product price when it sells an extra unit. 
D)  is selling a differentiated (heterogeneous) product.

Question 5

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.

Question 6

Which market model assumes the least number of firms in an industry?

Accepted Answer

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

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 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, marginal 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 9

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 10

The lowest point on a purely competitive firm's short-run supply curve corresponds to

Accepted Answer

A)  the minimum point on its ATC curve. 
B)  the minimum point on its AVC curve. 
C)  the minimum point on its AFC curve. 
D)  the minimum point on its MC curve.

Question 11

Price and marginal revenue are identical for an individual purely competitive seller.

Accepted Answer

A) True 
 B)False

Question 12

(Last Word) Temporary shutdowns of firms are most widespread when

Accepted Answer

A)  total fixed costs are rising across the economy. 
B)  the economy experiences recession. 
C)  firms have the ability to set prices for their output. 
D)  wage levels are falling.

Question 13

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

Accepted Answer

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

Question 14

The short-run supply curve slopes upward because producers must be compensated for rising marginal costs.

Accepted Answer

A) True 
 B)False

Question 15

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 16

The fast-food restaurant industry in a large city would be an example of which market model?

Accepted Answer

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

Question 17

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.

Question 18

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 19

The principle that a firm should produce up to the point where the marginal revenue from the sale of an extra unit of output is equal to the marginal cost of producing it is known as the

Accepted Answer

A)  output-maximizing rule. 
B)  profit-maximizing rule. 
C)  shut-down rule. 
D)  break-even rule.

Question 20

Which characteristic would best be associated with pure competition?

Accepted Answer

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

Exam 10: Pure Competition in the Short Run

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

A purely competitive firm currently producing 20 units of output earns marginal revenues of $12 from each extra unit of output it sells. If it sells 30 units, then its total revenues would be

Suppose that at 500 units of output, marginal revenue is equal to marginal cost. The firm is selling its output at $5 per unit, and average total cost at 500 units of output is $6. On the basis of this information, we

A perfectly elastic demand curve implies that the firm

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?

Which market model assumes the least number of firms in an industry?

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

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, marginal revenue graphs as a

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

The lowest point on a purely competitive firm's short-run supply curve corresponds to

Price and marginal revenue are identical for an individual purely competitive seller.

(Last Word) Temporary shutdowns of firms are most widespread when

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

The short-run supply curve slopes upward because producers must be compensated for rising marginal costs.

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

The fast-food restaurant industry in a large city would be an example of which market model?

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

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

The principle that a firm should produce up to the point where the marginal revenue from the sale of an extra unit of output is equal to the marginal cost of producing it is known as the

Which characteristic would best be associated with pure competition?