Question 1

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

Accepted Answer

A)   considerable nonprice competition
B)   no barriers to the entry or exit of firms
C)   a standardized or homogeneous product
D)   a large number of buyers and sellersE) None of the above
F) All of the above

Question 2

If a profit-seeking competitive firm is producing its profit-maximizing output and its total fixed costs fall by 25 percent, the firm should

Accepted Answer

A)   use more labor and less capital to produce a larger output.
B)   not change its output.
C)   reduce its output.
D)   increase its output.E) B) and C)
F) A) and D)

Question 3

If the firm produces an output level below its break-even point, then the firm will earn negative economic profits.

Accepted Answer

A) True 
 B)False

Question 4

The term imperfect competition refers to every market structure besides pure competition.

Accepted Answer

A) True 
 B)False

Question 5

In pure competition, a competitive firm's supply curve is that section of its marginal cost curve above ATC, and at any price below the average cost, the firm will produce nothing.

Accepted Answer

A) True 
 B)False

Question 6

In the short run, a competitive firm will always choose to shut down if product price is less than the lowest attainable average total cost.

Accepted Answer

A) True 
 B)False  False

Question 7

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 D)
F) B) and C)

Question 8

In pure competition, price is determined where the industry

Accepted Answer

A)   demand and supply curves intersect.
B)   total cost is less than total revenue.
C)   demand intersects the individual firm's marginal cost curve.
D)   average total cost equals total variable cost.E) All of the above
F) A) and C)

Question 9

If a purely competitive firm is producing at the P = MC output and realizing an economic profit, at that output

Accepted Answer

A)   marginal revenue is less than price.
B)   marginal revenue exceeds ATC.
C)   ATC is being minimized.
D)   total revenue equals total cost.E) A) and B)
F) A) and C)

Question 10

Oligopoly firms may produce either standardized or differentiated products.

Accepted Answer

A) True 
 B)False

Question 11

The basic difference between pure competition and monopolistic competition is in the number of firms in the industry.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

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

Question 13

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) C) and D)
F) B) and D) D

Question 14

Average revenue and marginal revenue are equal at each output level in

Accepted Answer

A)   pure competition.
B)   monopolistic competition.
C)   monopoly.
D)   oligopoly.E) None of the above
F) All of the above

Question 15

(Consider This)  An otherwise unprofitable motel located on a largely abandoned roadway might be able to stay open for several years by

Accepted Answer

A)   increasing its nightly room rates.
B)   reducing or eliminating its annual maintenance expenses.
C)   charging room rates that exceed marginal revenue.
D)   eliminating its fixed costs, including its opportunity costs.E) A) and D)
F) A) and C)

Question 16

A purely competitive firm is currently in short-run equilibrium and its MC exceeds its ATC at its current output level. It can be concluded that

Accepted Answer

A)   firms will leave the industry in the long run.
B)   the firm is realizing an economic profit.
C)   the firm is suffering an economic loss.
D)   the firm will shut down in the short run.E) A) and B)
F) None of the above

Question 17

An industry comprising 40 firms, none of which has more than 3 percent of the total market for a differentiated product, is an example of

Accepted Answer

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

Question 18

Local electric or gas utility companies mostly operate in which market structure?

Accepted Answer

A)   monopolistic competition
B)   pure competition
C)   pure monopoly
D)   oligopolyE) B) and D)
F) A) and C)

Question 19

The MR = MC rule can be restated for a purely competitive seller as P = MC because

Accepted Answer

A)   each additional unit of output adds exactly its price to total revenue.
B)   the firm's average revenue curve is downsloping.
C)   the market demand curve is downsloping.
D)   the firm's marginal revenue and total revenue curves will coincide.E) B) and D)
F) All of the above

Question 20

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) C) and D)
F) A) and B)

Exam 10: Pure Competition in the Short Run

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

Correct AnswerverifiedShow Answer

If a profit-seeking competitive firm is producing its profit-maximizing output and its total fixed costs fall by 25 percent, the firm should

Correct AnswerverifiedShow Answer

If the firm produces an output level below its break-even point, then the firm will earn negative economic profits.

Correct AnswerverifiedShow Answer

The term imperfect competition refers to every market structure besides pure competition.

Correct AnswerverifiedShow Answer

In pure competition, a competitive firm's supply curve is that section of its marginal cost curve above ATC, and at any price below the average cost, the firm will produce nothing.

Correct AnswerverifiedShow Answer

In the short run, a competitive firm will always choose to shut down if product price is less than the lowest attainable average total cost.

Correct AnswerverifiedFalse

Average revenue is conceptually equivalent to the

Correct AnswerverifiedShow Answer

In pure competition, price is determined where the industry

Correct AnswerverifiedShow Answer

If a purely competitive firm is producing at the P = MC output and realizing an economic profit, at that output

Correct AnswerverifiedShow Answer

Oligopoly firms may produce either standardized or differentiated products.

Correct AnswerverifiedShow Answer

The basic difference between pure competition and monopolistic competition is in the number of firms in the industry.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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 AnswerverifiedD

Average revenue and marginal revenue are equal at each output level in

Correct AnswerverifiedShow Answer

(Consider This) An otherwise unprofitable motel located on a largely abandoned roadway might be able to stay open for several years by

Correct AnswerverifiedShow Answer

A purely competitive firm is currently in short-run equilibrium and its MC exceeds its ATC at its current output level. It can be concluded that

Correct AnswerverifiedShow Answer

An industry comprising 40 firms, none of which has more than 3 percent of the total market for a differentiated product, is an example of

Correct AnswerverifiedA

Local electric or gas utility companies mostly operate in which market structure?

Correct AnswerverifiedShow Answer

The MR = MC rule can be restated for a purely competitive seller as P = MC because

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

Correct AnswerverifiedShow Answer

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False

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D

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A

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