Question 1

In the standard model of pure competition in the short run, a profit-maximizing firm will produce the output quantity where the gap between

Accepted Answer

A)   marginal revenue and marginal cost is the largest, with revenue higher than cost.
B)   average revenue and average cost is the largest, with revenue higher than cost.
C)   total revenue and total cost is the largest, with revenue higher than cost.
D)   average revenue and average variable cost is the largest.

Question 2

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.

Question 3

The demand curve faced by a purely competitive firm

Accepted Answer

A)   has unitary elasticity.
B)   yields constant total revenues even when price changes.
C)   is identical to the market demand curve.
D)   is the same as its marginal revenue curve.

Question 4

As long as its total revenues are greater than its total costs, a firm will earn positive economic profits.

Accepted Answer

A) True 
 B)False

Question 5

On a per-unit basis, economic profit can be determined as the difference between

Accepted Answer

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

Question 6

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 competition

Question 7

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.

Question 8

When a firm is maximizing profit, it will necessarily be

Accepted Answer

A)   maximizing profit per unit of output.
B)   maximizing the difference between total revenue and total cost.
C)   minimizing total cost.
D)   maximizing total revenue.

Question 9

In pure competition, the industry demand curve is infinitely price elastic.

Accepted Answer

A) True 
 B)False

Question 10

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 1,000 units is $2.50. The minimum possible average variable cost is $2.00. The market price of the product is $2.50. To maximize profits or minimize losses, the firm should

Accepted Answer

A)   continue producing 1,000 units.
B)   continue production, but produce less than 1,000 units.
C)   increase production to more than 1,000 units.
D)   shut down.

Question 11

Price is taken to be a "given" by an individual firm selling in a purely competitive market because

Accepted Answer

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 the total market.
D)   product differentiation is reinforced by extensive advertising.

Question 12

Economists would describe the U.S. automobile industry as

Accepted Answer

A)   purely competitive.
B)   an oligopoly.
C)   monopolistically competitive.
D)   a pure monopoly.

Question 13

In the standard model of pure competition, a profit-maximizing firm will shut down in the short run if price is below

Accepted Answer

A)   marginal cost.
B)   average cost.
C)   average fixed cost.
D)   average variable cost.

Question 14

A competitive firm will produce in the short run so long as its price exceeds its average fixed cost.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following industries most closely approximates pure competition?

Accepted Answer

A)   agriculture
B)   farm implements
C)   clothing
D)   steel

Question 16

A profit-maximizing firm in the short run will expand output

Accepted Answer

A)   until marginal cost begins to rise.
B)   until total revenue equals total cost.
C)   as long as marginal revenue is less than marginal cost.
D)   as long as marginal revenue is greater than marginal cost.

Question 17

Which of the following changes will not affect the market supply or the market demand in a purely competitive industry?

Accepted Answer

A)   a change in fixed costs
B)   a change in the number of buyers
C)   a change in marginal costs
D)   a change in the number of firms

Question 18

In the short run, fixed costs are important in determining a competitive firm's optimal level of output.

Accepted Answer

A) True 
 B)False

Question 19

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.

Question 20

Total Revenue $3,000 Per Week Total Variable Cost $2,000 Per Week Total Fixed Cost $2,000 Per Week Let us suppose Harry's, a local supplier of chili and pizza, has the revenue and cost structure shown here.

Accepted Answer

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.

Exam 10: Pure Competition in the Short Run

As long as its total revenues are greater than its total costs, a firm will earn positive economic profits.

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A profit-maximizing firm in the short run will expand output

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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)

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Price is taken to be a "given" by an individual firm selling in a purely competitive market because

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In pure competition, the industry demand curve is infinitely price elastic.

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

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In the standard model of pure competition, a profit-maximizing firm will shut down in the short run if price is below

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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 1,000 units is $2.50. The minimum possible average variable cost is $2.00. The market price of the product is $2.50. To maximize profits or minimize losses, the firm should

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Total Revenue $3,000 Per Week Total Variable Cost $2,000 Per Week Total Fixed Cost $2,000 Per Week Let us suppose Harry's, a local supplier of chili and pizza, has the revenue and cost structure shown here.

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Which of the following changes will not affect the market supply or the market demand in a purely competitive industry?

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On a per-unit basis, economic profit can be determined as the difference between

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In the short run, fixed costs are important in determining a competitive firm's optimal level of output.

Correct AnswerverifiedShow Answer

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

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When a firm is maximizing profit, it will necessarily be

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A competitive firm will produce in the short run so long as its price exceeds its average fixed cost.

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Economists would describe the U.S. automobile industry as

Correct AnswerverifiedShow Answer

Which of the following industries most closely approximates pure competition?

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In the standard model of pure competition in the short run, a profit-maximizing firm will produce the output quantity where the gap between

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The demand curve faced by a purely competitive firm

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

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