Deck 10: Pure Competition in the Short Run

Question 1

If there are many firms in an industry, then it must be a purely competitive market.

Answer 1

False

Question 2

Price and marginal revenue are identical for an individual purely competitive seller.

Answer 2

True

Question 3

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

Answer 3

True

Question 4

For a purely competitive firm, the demand curve facing it is the same as its marginal revenue curve.

Question 5

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

Question 6

For an individual firm in pure competition, the firm's average revenue and marginal revenue at any output level are both equal to the product's price.

Question 7

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

Question 8

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

Question 9

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

Question 10

The short-run supply curve slopes upward because producers must be compensated for rising marginal costs.

Question 11

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

Question 12

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

Question 13

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

Question 14

The demand curve for a purely competitive industry is perfectly elastic, but the demand curves faced by individual firms in such an industry are downsloping.

Question 15

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

Question 16

Marginal revenue is the addition to total revenue resulting from the sale of one more unit of output.

Question 17

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.

Question 18

Firms in a monopolistically competitive industry have no reason to engage in nonprice competition because their products are uniquely different from other sellers in the market.

Question 19

Although individual purely competitive firms can influence the price of their product, these firms as a group cannot influence market price.

Question 20

In maximizing profit, a firm will always produce that output where total revenues are at a maximum.

Question 21

The total revenue of a purely competitive firm from selling 50 units of output is $300. Based on this information, total revenue for 60 units of output must be

A)$360.
B)$306.
C)$350.
D)$1,800.

Question 22

A purely competitive firm currently producing 30 units of output earns marginal revenues of $12 from each extra unit of output it sells. If it sells 30 units, then its total revenues would be

A)$360.
B)$240.
C)$120.
D)indeterminate based on the information given.

Question 23

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

Question 24

The table shows the total costs for a purely competitive firm. If the product sells for $800 a unit, the firm's short run profit-maximizing (or loss-minimizing)output is

A)4.
B)1.
C)2.
D)5.

Question 25

Let us suppose Harry's, a local supplier of chili and pizza, has the revenue and cost structure shown here.

A)Harry's should shut down 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 stay open in the short run but shut down in the long run.

Question 26

As long as an additional unit of output yields a marginal revenue larger than its marginal cost, it will be adding to total profits of the firm.

Question 27

Suppose that Joe sells pork in a purely competitive market. The market price of pork is $3 per pound. Joe's marginal revenue from selling the 12th pound of pork would be

A)$3.
B)$36.
C)12 lbs.
D)$12.

Question 28

If a purely competitive firm is producing a level of output where the marginal revenue is less than the marginal cost, then its profits must be negative.

Question 29

Given the data in the table, at what quantity would a purely competitive firm cover all of its costs and earn only normal profits?

A)Q = 5
B)Q = 15
C)Q = 10
D)Q = 20

Question 30

An industry comprising 50 firms, each with about 2 percent of the total market for a differentiated product, is an example of

A)monopolistic competition.
B)oligopoly.
C)pure monopoly.
D)pure competition.

Question 31

Assume the price of a product sold by a purely competitive firm is $3. Given the data in the accompanying table, at what output level is total profit highest in the short run?

A)35.
B)30.
C)25.
D)40.

Question 32

Assume the XYZ Corporation is producing 35 units of output. It is selling this output in a purely competitive market at $20 per unit. Its total fixed costs are $150 and its average variable cost is $12 at 35 units of output. This corporation

A)should close down in the short run.
B)is maximizing its profits.
C)is realizing an economic profit of $280.
D)is realizing an economic Profit of $130.

Question 33

Given the accompanying table, what is the short-run profit-maximizing level of output for the firm?

A)3.
B)1.
C)2.
D)4.

Question 34

In the short run, a competitive firm will not produce unless price is at least equal to average total costs.

Question 35

The table gives data for a purely competitive, profit-maximizing firm. Based on this information, in the short run how much is this firm earning in economic profit (or losing, as reflected by negative numbers)?

A)$30.
B)$58.
C)$78.
D)$50.

Question 36

The total revenue of a purely competitive firm from selling 200 units of output is $1,000. Based on this information, the unit price of the output must be

A)$5.
B)$1,200.
C)$200,000.
D)$800.

Question 37

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

A)$80.
B)$120.
C)$40.
D)$160.

Question 38

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.

Question 39

If MR > MC for a competitive firm, it should reduce its level of output in order to make MR equal to MC.

Question 40

The table shows the total costs for a purely competitive firm. If the product sells for $1,200 a unit, the firm's profit-maximizing output is

A)4.
B)2.
C)3.
D)5.

Question 41

The table gives data for a purely competitive firm. When the firm produces 3 units of output, it makes an economic

A)profit of $45.
B)profit of $21.
C)profit of $18.
D)loss of $24.

Question 42

Refer to the data in the accompanying table. If the firm's minimum average variable cost is $11, the firm's profit-maximizing level of output would be

A)0.
B)5.
C)4.
D)3.

Question 43

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

A)pure monopoly
B)oligopoly
C)monopolistic competition
D)pure competition

Question 44

Economists would describe the U.S. automobile industry as

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

Question 45

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 $42, the competitive firm should produce

A)12 units at an economic profit of $84.
B)10 units at an economic profit of $10.
C)10 units at an economic profit of $104.
D)12 units at an economic profit of $188.

Question 46

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output is $4.00 and the market price is $4.50. What should the firm do?

A)shut down if the minimum possible average variable cost is below $4.50
B)decrease output if the minimum possible average variable cost is below $4.50
C)increase output if the minimum possible average variable cost is below $4.50
D)increase output if the minimum possible average variable cost is above $4.50

Question 47

The accompanying table shows cost data for a firm that is selling in a purely competitive market. If the price of the product is $3, what output level will the firm produce?

A)12
B)14
C)0
D)16

Question 48

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 $12, the competitive firm should produce

A)4 units at an economic loss of $109.
B)4 units at an economic profit of 31.75.
C)8 units at an economic loss of $48.80.
D)zero units at an economic loss of $100.

Question 49

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

A)continue producing 3,200 units..
B)continue production, but reduce output..
C)increase production..
D)shut down..

Question 50

The accompanying table shows cost data for a firm that is selling in a purely competitive market. If the product price is $180, the per-unit economic profit at the profit-maximizing output is

A)$0
B)$238
C)$34
D)$73

Question 51

Refer to the data in the accompanying table. If the firm's minimum average variable cost is $12, and total fixed costs equal zero, the firm's economic profit (or loss)is

A)$4.
B)$18.
C)−$11.
D)$1.

Question 52

Refer to the data in the accompanying table. If the firm's minimum average variable cost is $11, at the profit-maximizing level of output, the firm's total revenue is

A)$48.
B)$80.
C)$32.
D)$64.

Question 53

Assume for a competitive firm that MC = AVC at $22, MC = ATC at $30, and MC = MR at $35. This firm will

A)realize a profit of $13 per unit of output.
B)minimize its losses by producing in the short run.
C)maximize its profit by producing in the short run.
D)shut down in the short run.

Question 54

The accompanying table gives cost data for a firm that is selling in a purely competitive market. If there were 1,000 identical firms in this industry and total, or market, demand is as shown in the second table, equilibrium price will be

A)$32.
B)$42.
C)$36.
D)$20.

Question 55

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 2,400 units is $5.50. The minimum possible average variable cost is $2.60. The market price of the product is $4.70. To maximize profits or minimize losses, the firm should

A)continue production, but reduce output..
B)shut down..
C)increase production..
D)continue producing 2,400 units..

Question 56

Which of the following industries most closely approximates pure competition?

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

Question 57

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

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.

Question 58

Farmer Jones is producing wheat and must accept the market price of $6.00 per bushel. At this time, her average total costs and her marginal costs both equal $5.00 per bushel. Her minimum average variable costs are $3.50 per bushel. In order to maximize profits or minimize losses in the short run, farmer Jones should

A)increase selling price.
B)produce zero output and shut down.
C)continue producing, but reduce output.
D)increase output.

Question 59

The table gives data for a purely competitive firm. The marginal revenue from the third unit of output is

A)105.
B)24.
C)35.
D)-12.

Question 60

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 $60, the firm will

A)shut down.
B)produce 3 units.
C)produce 2 units.
D)produce 5 units.

Question 61

Which of the following is not a basic market model?

A)pure competition
B)free enterprise
C)oligopoly
D)monopoly

Question 62

In which of the following industry structures is the entry of new firms the most difficult?

A)pure monopoly
B)oligopoly
C)monopolistic competition
D)pure competition

Question 63

Mutual interdependence would tend to limit control over price in which market model?

A)monopolistic competition
B)pure competition
C)pure monopoly
D)oligopoly

Question 64

The soft drink and automobile industries would be examples of which market model?

A)monopolistic competition
B)pure competition
C)pure monopoly
D)oligopoly

Question 65

The fast-food restaurant industry in a large city would be an example of which market model?

A)monopolistic competition
B)pure competition
C)pure monopoly
D)oligopoly

Question 66

An industry comprising 40 firms, each with about 2-3 percent of the total market for a differentiated product, is an example of

A)monopolistic competition.
B)oligopoly.
C)pure monopoly.
D)pure competition.

Question 67

There would be some control over price within rather narrow limits in which market model?

A)monopolistic competition
B)pure competition
C)pure monopoly
D)oligopoly

Question 68

Which market model assumes the least number of firms in an industry?

A)monopolistic competition
B)pure competition
C)pure monopoly
D)oligopoly

Question 69

Economists use the term imperfect competition to describe

A)all industries that produce standardized products.
B)any industry in which there is no nonprice competition.
C)a pure monopoly only.
D)those markets that are not purely competitive.

Question 70

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

A)monopolistic competition.
B)oligopoly.
C)pure monopoly.
D)pure competition.

Question 71

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

A)monopolistic competition
B)pure competition
C)pure monopoly
D)oligopoly

Question 72

The market for agricultural products such as wheat or corn would best be described by which market model?

A)monopolistic competition
B)pure competition
C)pure monopoly
D)oligopoly

Question 73

In which market model would there be a unique product for which there are no close substitutes?

A)monopolistic competition
B)pure competition
C)pure monopoly
D)oligopoly

Question 74

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

A)monopolistic competition
B)pure competition
C)pure monopoly
D)oligopoly

Question 75

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

A)monopolistic competition.
B)oligopoly.
C)pure monopoly.
D)pure competition.

Question 76

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

A)monopolistic competition.
B)oligopoly.
C)pure monopoly.
D)pure competition.

Question 77

Which of the following statements applies to a purely competitive producer?

A)It will not advertise its product.
B)In long-run equilibrium, it will earn an economic profit.
C)Its product will have a brand name that elicits customer loyalty.
D)Its product is slightly different from those of its competitors.

Question 78

An industry comprising four firms, each with about 25 percent of the total market for a product, is an example of

A)monopolistic competition.
B)oligopoly.
C)pure monopoly.
D)pure competition.

Question 79

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

A)pure competition
B)pure monopoly
C)monopolistic competition
D)oligopoly

Question 80

In which two market models would advertising be used most often?

A)pure competition and monopolistic competition
B)pure competition and pure monopoly
C)monopolistic competition and oligopoly
D)pure monopoly and oligopoly