Question 1

Assume that labor is a variable input.The average wage of workers increases 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 for firms in the industry and a decrease in the industry supply curve.E) A) and D)
F) All of the above

Question 2

The accompanying table gives cost data for a firm that is selling in a purely competitive market.If the market price for the firm's product is $28, the competitive firm will

Accepted Answer

A)  produce 4 units at a loss of $17.40.
B)  produce 7 units at a loss of $14.00.
C)  shut down in the short run.
D)  produce 6 units at a loss of $23.80.E) C) and D)
F) A) and B)

Question 3

If the demand curve faced by an individual firm is downward-sloping, the firm cannot be

Accepted Answer

A)  a monopoly firm.
B)  a purely competitive firm.
C)  an oligopolistic firm.
D)  a monopolistically competitive firm.E) B) and D)
F) A) and B)

Question 4

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.E) C) and D)
F) A) and B)

Question 5

Average revenue is conceptually equivalent to the

Accepted Answer

A)  unit price of the product.
B)  average cost of the product.
C)  marginal cost of the product.
D)  marginal revenue of the product.E) A) and B)
F) A) and C)

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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; downslopingE) A) and C)
F) All of the above

Question 8

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.E) All of the above
F) A) and C)

Question 9

A firm sells a product in a purely competitive market.The marginal cost of the product at the current output of 200 units is $4.00.The average variable cost is $3.50.The market price of the product is $3.00.To maximize profits or minimize losses, the firm should

Accepted Answer

A)  continue to produce 200 units.
B)  continue production, but produce less than 200 units.
C)  increase production to more than 200 units.
D)  shut down.E) All of the above
F) A) and B)

Question 10

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.E) A) and D)
F) A) and C)

Question 11

If a purely competitive firm is producing a level of output greater than its profit-maximizing output, then its profits must be negative.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is not a characteristic of pure competition?

Accepted Answer

A)  pricing strategies by firms
B)  a standardized product
C)  no barriers to entry
D)  a larger number of sellersE) A) and D)
F) A) and C)

Question 13

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

Accepted Answer

A)  Marginal revenue minus marginal cost equals zero.
B)  Price minus average total cost equals zero.
C)  Total revenue minus total cost equals zero.
D)  Marginal revenue is zero.E) None of the above
F) C) and D)

Question 14

The prices of raw materials increase in a purely competitive industry.This change will result in a(n)

Accepted Answer

A)  decrease (downward shift)  in the average total cost curve for firms in the industry.
B)  decrease (downward shift)  in the marginal revenue curve for firms in the industry.
C)  increase (upward shift)  in the marginal cost curve for firms in the industry.
D)  increase (rightward shift)  in the short-run supply curve for firms in the industry.E) A) and B)
F) B) and C)

Question 15

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.E) B) and D)
F) A) and C)

Question 16

In which of the following market structures is there clear-cut mutual interdependence with respect to price-output policies?

Accepted Answer

A)  pure monopoly
B)  oligopoly
C)  monopolistic competition
D)  pure competitionE) All of the above
F) A) and B)

Question 17

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.E) A) and B)
F) None of the above

Question 18

Oligopoly firms may produce either standardized or differentiated products.

Accepted Answer

A) True 
 B)False

Question 19

Assume a purely competitive firm is selling 200 units of output at $3 each.At this output, its total fixed cost is $100 and its total variable cost is $350.This firm

Accepted Answer

A)  is maximizing its profit.
B)  is making a profit, but not necessarily the maximum profit.
C)  is incurring losses.
D)  should shut down in the short run.E) B) and D)
F) None of the above

Question 20

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.E) All of the above
F) A) and C)

Exam 10: Pure Competition in the Short Run

The accompanying table gives cost data for a firm that is selling in a purely competitive market.If the market price for the firm's product is $28, the competitive firm will

Correct AnswerverifiedShow Answer

Assume a purely competitive firm is selling 200 units of output at $3 each.At this output, its total fixed cost is $100 and its total variable cost is $350.This firm

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Oligopoly firms may produce either standardized or differentiated products.

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If the demand curve faced by an individual firm is downward-sloping, the firm cannot be

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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

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A firm sells a product in a purely competitive market.The marginal cost of the product at the current output of 200 units is $4.00.The average variable cost is $3.50.The market price of the product is $3.00.To maximize profits or minimize losses, the firm should

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Assume that labor is a variable input.The average wage of workers increases in a purely competitive industry.This change will result in a(n)

Correct AnswerverifiedShow Answer

If a purely competitive firm is producing a level of output greater than its profit-maximizing output, then its profits must be negative.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In a purely competitive industry, each firm

Correct AnswerverifiedShow Answer

Which of the following is not a characteristic of pure competition?

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Unit price and average revenue are the same or equal in

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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

Correct AnswerverifiedShow Answer

The prices of raw materials increase in a purely competitive industry.This change will result in a(n)

Correct AnswerverifiedShow Answer

Average revenue is conceptually equivalent to the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In which of the following market structures is there clear-cut mutual interdependence with respect to price-output policies?

Correct AnswerverifiedShow Answer

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

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

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