Question 1

Which of the following is not a basic market model?

Accepted Answer

A)   pure competition
B)   free enterprise
C)   oligopoly
D)   monopolyE) A) and B)
F) B) and D)

Question 2

An industry comprising a very large number of sellers producing a standardized product is known as

Accepted Answer

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

Question 3

Which of the following is not a necessary characteristic of a purely competitive industry?

Accepted Answer

A)   The industry or market demand is highly elastic.
B)   Firms can easily enter or leave the industry.
C)   There are so many small firms that no one firm can influence the market price.
D)   Consumers see no difference between the product of one firm and that of another.E) A) and D)
F) A) and C)

Question 4

In the short run, fixed costs for a profitable competitive firm are

Accepted Answer

A)   zero.
B)   negative.
C)   important determinants of the output level.
D)   irrelevant in determining the optimal level of output.E) All of the above
F) C) and D)

Question 5

An industry comprising a small number of firms, each of which considers the potential reactions of its rivals in making price-output decisions, is called

Accepted Answer

A)   monopolistic competition.
B)   oligopoly.
C)   pure monopoly.
D)   pure competition.E) A) and B)
F) B) and D)

Question 6

For a purely competitive seller, price equals

Accepted Answer

A)   average revenue.
B)   marginal revenue.
C)   total revenue divided by output.
D)   all of these.E) A) and C)
F) B) and D)

Question 7

The Ajax Manufacturing Company is selling in a purely competitive market. Its output is 100 units, which sell at $4 each. At this level of output, total cost is $600, total fixed cost is $100, and marginal cost is $4. The firm should

Accepted Answer

A)   reduce output to about 80 units.
B)   expand its production.
C)   continue to produce 100 units.
D)   produce zero units of output.E) None of the above
F) B) and C)

Question 8

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

Accepted Answer

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

Question 9

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) None of the above

Question 10

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

Accepted Answer

A)   continue producing 800 units.
B)   continue production, but produce less than 800 units.
C)   increase production to more than 800 units.
D)   shut down.E) None of the above
F) B) and D)

Question 11

The short-run supply curve for a purely competitive industry can be found by

Accepted Answer

A)   multiplying the AVC curve of the representative firm by the number of firms in the industry.
B)   adding horizontally the AVC curves of all firms.
C)   summing horizontally the segments of the MC curves lying above the AVC curve for all firms.
D)   adding horizontally the immediate market period supply curves of each firm.E) All of the above
F) A) and B)

Question 12

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

Question 13

In a graph for a firm in pure competition with the quantity of output measured on the horizontal axis, the total revenue curve is

Accepted Answer

A)   downward-sloping.
B)   horizontal.
C)   vertical.
D)   upward-sloping.E) A) and B)
F) A) and C)

Question 14

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 B)

Question 15

The marginal revenue curve of a purely competitive firm

Accepted Answer

A)   lies below the firm's demand curve.
B)   is downsloping because price must be reduced to sell more output.
C)   is horizontal at the market price.
D)   has all of these characteristics.E) C) and D)
F) All of the above

Question 16

The resource cost falls 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 at each output level for firms in the industry and an increase in the industry supply curve.E) A) and D)
F) All of the above

Question 17

In a purely competitive industry, competition centers more on advertising and sales promotion than on price.

Accepted Answer

A) True 
 B)False

Question 18

In pure competition, the demand for the product of a single firm is perfectly

Accepted Answer

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.E) None of the above
F) C) and D)

Question 19

A purely competitive firm can be identified by the fact that

Accepted Answer

A)   there are other firms in the industry producing similar products.
B)   it is making only normal profits in the short run.
C)   its average revenue equals its marginal revenue.
D)   it experiences diminishing marginal returns.E) A) and B)
F) All of the above

Question 20

(Last Word)  Fixed costs for a firm are analogous to

Accepted Answer

A)   the dirt that fills up the financial hole.
B)   digging a deeper financial hole by producing when prices are too low.
C)   the cost of the shovel needed to fill the financial hole.
D)   starting out in a hole that represents economic losses if the firm produces nothing.E) A) and C)
F) B) and C)

Exam 10: Pure Competition in the Short Run

In a purely competitive industry, each firm

Correct AnswerverifiedShow Answer

Which of the following is not a basic market model?

Correct AnswerverifiedShow Answer

In pure competition, the demand for the product of a single firm is perfectly

Correct AnswerverifiedShow Answer

A purely competitive firm can be identified by the fact that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the short run, fixed costs for a profitable competitive firm are

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

Which of the following is not a necessary characteristic of a purely competitive industry?

Correct AnswerverifiedShow Answer

An industry comprising a small number of firms, each of which considers the potential reactions of its rivals in making price-output decisions, is called

Correct AnswerverifiedShow Answer

Unit price and average revenue are the same or equal in

Correct AnswerverifiedShow Answer

In a graph for a firm in pure competition with the quantity of output measured on the horizontal axis, the total revenue curve is

Correct AnswerverifiedShow Answer

The short-run supply curve for a purely competitive industry can be found by

Correct AnswerverifiedShow Answer

(Last Word) Fixed costs for a firm are analogous to

Correct AnswerverifiedShow Answer

The resource cost falls in a purely competitive industry. This change will result in a(n)

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

For a purely competitive seller, price equals

Correct AnswerverifiedShow Answer

In a purely competitive industry, competition centers more on advertising and sales promotion than on price.

Correct AnswerverifiedShow Answer

An industry comprising a very large number of sellers producing a standardized product is known as

Correct AnswerverifiedShow Answer

The Ajax Manufacturing Company is selling in a purely competitive market. Its output is 100 units, which sell at $4 each. At this level of output, total cost is $600, total fixed cost is $100, and marginal cost is $4. The firm should

Correct AnswerverifiedShow Answer

The marginal revenue curve of a purely competitive firm

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified