Question 1

The agricultural market for corn can be characterized as a purely competitive industry. How will an increase in the cost of fertilizer that is sold to corn farmers affect the short-run costs and output for a farm in the industry? How will this affect the profit of the individual farm?

Accepted Answer

Fertilizer is a variable cost, so total ...

Question 2

Refer to the data in the accompanying table. If the firm's minimum average variable cost is $10, at the profit-maximizing level of output, the firm's total revenue is

Accepted Answer

A)  $32.
B)  $48.
C)  $80.
D)  $64.E) None of the above
F) A) and D)

Question 3

Which characteristic would best be associated with pure competition?

Accepted Answer

A)  few sellers
B)  price takers
C)  nonprice competition
D)  product differentiationE) All of the above
F) A) and C)

Question 4

At P ₄ in the accompanying diagram, this firm will

Accepted Answer

A)  shut down in the short run.
B)  produce 30 units and incur a loss.
C)  produce 30 units and earn only a normal profit.
D)  produce 10 units and earn only a normal profit.E) C) and D)
F) A) and D)

Question 5

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 3,200 units is $7.40. The minimum possible average variable cost is $4.90. The market price of the product is $8.20. To maximize profits or minimize losses, the firm should

Accepted Answer

A)  continue producing 3,200 units..
B)  continue production, but reduce output..
C)  increase production..
D)  shut down..E) A) and B)
F) None of the above

Question 6

In which market model are the conditions of entry the most difficult?

Accepted Answer

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

Question 7

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 C)
F) A) and B)

Question 8

Refer to the accompanying graph. If the market price for the product falls, then which of the curves would shift?

Accepted Answer

A)  MC
B)  ATC
C)  AVC
D)  DE) None of the above
F) C) and D)

Question 9

Refer to the accompanying graph for a purely competitive firm. When the firm is in equilibrium in the short run, the amount of economic profit per unit is

Accepted Answer

A)  EH.
B)  DE.
C)  DH.
D)  DB.E) None of the above
F) A) and B)

Question 10

Which of the following is not a valid generalization concerning the relationship between price and costs for a purely competitive seller in the short run?

Accepted Answer

A)  Price must be at least equal to average total cost.
B)  Price times quantity produced must be equal to or greater than total variable cost for some level of output or the firm will close down in the short run.
C)  Price may be equal to, greater than, or less than average total cost.
D)  Price must be equal to or greater than minimum average variable cost for the firm to continue producing.E) All of the above
F) A) and D)

Question 11

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

Question 12

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 13

The accompanying table applies to a purely competitive industry composed of 100 identical firms. If each of the 100 firms in the industry is maximizing its profit and earning only a normal profit, each must have an average total cost of

Accepted Answer

A)  $2.
B)  $3.
C)  $4.
D)  $5.E) None of the above
F) C) and D)

Question 14

The accompanying table shows cost data for a firm that is selling in a purely competitive market. If the market price for the firm's product is $140, the firm will produce

Accepted Answer

A)  5 units and earn economic profits of $700.
B)  7 units and earn economic profits of $40.
C)  6 units and earn economic profits of $0.
D)  8 units and earn economic profits of $90.E) B) and C)
F) None of the above

Question 15

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 firmsE) None of the above
F) A) and D)

Question 16

Which of the following is a reason why individual firms under pure competition would not find it gainful to advertise their product?

Accepted Answer

A)  Firms produce a homogeneous product.
B)  The quantity of the product demanded is very large.
C)  The market demand curve cannot be increased.
D)  Firms do not make long-run profits.E) A) and B)
F) A) and C)

Question 17

The table gives data for a purely competitive firm. The market price of the product in the short run is

Accepted Answer

A)  $80.
B)  $120.
C)  $40.
D)  $160.E) A) and D)
F) B) and D)

Question 18

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

Question 19

If a purely competitive firm is maximizing economic profit,

Accepted Answer

A)  it is necessarily maximizing per-unit profit.
B)  it may or may not be maximizing per-unit profit.
C)  then per-unit profit will be minimized.
D)  it is necessarily overallocating resources to its product.E) All of the above
F) B) and C)

Question 20

A purely competitive firm should produce in the short run if its total revenue is sufficient to cover its

Accepted Answer

A)  total variable costs.
B)  total costs.
C)  total fixed costs.
D)  marginal costs.E) A) and C)
F) A) and D)

Exam 10: Pure Competition in the Short Run

Which of the following is a reason why individual firms under pure competition would not find it gainful to advertise their product?

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A purely competitive firm should produce in the short run if its total revenue is sufficient to cover its

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

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Which characteristic would best be associated with pure competition?

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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 3,200 units is $7.40. The minimum possible average variable cost is $4.90. The market price of the product is $8.20. To maximize profits or minimize losses, the firm should

Correct AnswerverifiedShow Answer

Refer to the accompanying graph for a purely competitive firm. When the firm is in equilibrium in the short run, the amount of economic profit per unit is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The accompanying table applies to a purely competitive industry composed of 100 identical firms. If each of the 100 firms in the industry is maximizing its profit and earning only a normal profit, each must have an average total cost of

Correct AnswerverifiedShow Answer

Which of the following is not a valid generalization concerning the relationship between price and costs for a purely competitive seller in the short run?

Correct AnswerverifiedShow Answer

If a purely competitive firm is maximizing economic profit,

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At P ₄ in the accompanying diagram, this firm will

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Refer to the accompanying graph. If the market price for the product falls, then which of the curves would shift?

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The table gives data for a purely competitive firm. The market price of the product in the short run is

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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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In which market model are the conditions of entry the most difficult?

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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?

Correct AnswerverifiedShow Answer

The accompanying table shows cost data for a firm that is selling in a purely competitive market. If the market price for the firm's product is $140, the firm will produce

Correct AnswerverifiedShow Answer

The agricultural market for corn can be characterized as a purely competitive industry. How will an increase in the cost of fertilizer that is sold to corn farmers affect the short-run costs and output for a farm in the industry? How will this affect the profit of the individual farm?

Correct AnswerverifiedFertilizer is a variable cost, so total ...View AnswerShow Answer

Refer to the data in the accompanying table. If the firm's minimum average variable cost is $10, at the profit-maximizing level of output, the firm's total revenue is

Correct AnswerverifiedShow Answer

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Fertilizer is a variable cost, so total ...
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