Question 1

In a purely competitive industry,each firm:

Accepted Answer

A)   is a price maker.
B)   produces a differentiated product.
C)   can easily enter or exit the industry.
D)   engages in forms of nonprice competition.

Question 2

Resources are efficiently allocated when production occurs at that output at which:

Accepted Answer

A)   P equals MR.
B)   P equals AVC.
C)   P exceeds MR.
D)   P equals MC.

Question 3

Refer to the above graph.The profit-maximizing level of output for the firm is:

Accepted Answer

A)   0A.
B)   0B.
C)   0C.
D)   0K.

Question 4

The table below shows cost data for a firm that is selling in a purely competitive market.  Refer to the above cost chart.The lowest output level on this firm's short-run supply curve is:

Accepted Answer

A)   10.
B)   12.
C)   16.
D)   20.

Question 5

Answer the question based on the table below.  At what point on the table would a purely competitive firm cover all of its costs and earn only normal profits?

Accepted Answer

A)   Q = 5
B)   Q = 10
C)   Q = 15
D)   Q = 20At Q = 15,total costs are $25 + $50 = $75 and total revenues are 15 * $5 = $75.This gives a profit of 0,which is a normal profit but not an economic profit.

Question 6

The short-run supply curve for a competitive firm is the:

Accepted Answer

A)   entire MC curve.
B)   segment of the MC curve lying below the AVC curve.
C)   segment of the MC curve lying above the AVC curve.
D)   segment of the AVC curve lying to the right of the MC curve.

Question 7

Refer to the above graph for a firm in pure competition.Line B represents:

Accepted Answer

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

Question 8

In pure competition,price is determined where the industry:

Accepted Answer

A)   demand and supply curves intersect.
B)   total cost is greater than total revenue.
C)   demand intersects the firm's marginal cost curve.
D)   average total cost equals total variable costs.

Question 9

In short-run equilibrium,a competitive firm cannot earn economic profits.

Accepted Answer

A) True 
 B)False

Question 10

A single firm in pure competition in the short run has a:

Accepted Answer

A)   vertical supply curve.
B)   vertical demand curve.
C)   horizontal supply curve.
D)   horizontal demand curve.

Question 11

2. B)  Average fixed cost is P1P3 at output Q1. C)  The firm will produce an output of Q1 when price is P1. D)  At price P1,the firm will close down." class="answers-bank-image d-inline" rel="preload" > Refer to the above diagram.All data are for the short run.Which of the following statements is correct?

Accepted Answer

A)   Production is profitable only when price is at P2.
B)   Average fixed cost is P1P3 at output Q1.
C)   The firm will produce an output of Q1 when price is P1.
D)   At price P1,the firm will close down.

Question 12

Pure competition produces a socially optimal allocation of resources in the long run because:

Accepted Answer

A)   marginal cost equals marginal revenue.
B)   marginal cost equals average total cost.
C)   marginal revenue equals price.
D)   marginal cost equals price.

Question 13

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

Accepted Answer

A)   Marginal revenue less marginal cost equals zero.
B)   Price less average total cost equals zero.
C)   Total revenue less total cost equals zero.
D)   Marginal revenue is zero.

Question 14

T-Shirt Enterprises is selling in a purely competitive market.Its output is 300 units,which sell for $1 each.At this level of output,marginal cost is $1 and average variable cost is $1.50.The firm should:

Accepted Answer

A)   produce zero units of output.
B)   decrease output to 250 units.
C)   continue to produce 300 units.
D)   increase output to 350 units.

Question 15

Let us suppose Harry's,a local supplier of chili and pizza,has the following revenue and cost structure:

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

Question 16

The long-run supply curve for a competitive,decreasing-cost industry is downward sloping.

Accepted Answer

A) True 
 B)False

Question 17

Which is true of normal profits?

Accepted Answer

A)   They are necessary to keep a firm in the industry in the long run.
B)   They are zero under pure competition in the long run.
C)   They are excluded from a firm's costs of production.
D)   They are greater than the opportunity cost to the firm.

Question 18

A purely competitive firm is producing at the point where its marginal cost equals the price of its product.If the firm increases its output,then total revenue will:

Accepted Answer

A)   increase and profits will increase.
B)   decrease and profits will increase.
C)   increase and profits will decrease.
D)   decrease and profits will decrease.

Question 19

The table below shows cost data for a firm that is selling in a purely competitive market.  Refer to the above table.If the market price for the firm's product is $50,the competitive firm will:

Accepted Answer

A)   produce one unit.
B)   produce two units.
C)   produce three units.
D)   shut down.

Question 20

Average revenue is:

Accepted Answer

A)   total revenue minus total cost.
B)   marginal revenue minus marginal cost.
C)   marginal revenue divided by the quantity of output.
D)   total revenue divided by the quantity of output.

Exam 7: Pure Competition

In a purely competitive industry,each firm:

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

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The table below shows cost data for a firm that is selling in a purely competitive market. Refer to the above table.If the market price for the firm's product is $50,the competitive firm will:

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In pure competition,price is determined where the industry:

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Let us suppose Harry's,a local supplier of chili and pizza,has the following revenue and cost structure:

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Refer to the above graph.The profit-maximizing level of output for the firm is:

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Average revenue is:

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Answer the question based on the table below. At what point on the table would a purely competitive firm cover all of its costs and earn only normal profits?

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Refer to the above graph for a firm in pure competition.Line B represents:

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Which is true of normal profits?

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The long-run supply curve for a competitive,decreasing-cost industry is downward sloping.

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A single firm in pure competition in the short run has a:

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The short-run supply curve for a competitive firm is the:

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Pure competition produces a socially optimal allocation of resources in the long run because:

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Refer to the above diagram.All data are for the short run.Which of the following statements is correct?

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The table below shows cost data for a firm that is selling in a purely competitive market. Refer to the above cost chart.The lowest output level on this firm's short-run supply curve is:

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Resources are efficiently allocated when production occurs at that output at which:

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T-Shirt Enterprises is selling in a purely competitive market.Its output is 300 units,which sell for $1 each.At this level of output,marginal cost is $1 and average variable cost is $1.50.The firm should:

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In short-run equilibrium,a competitive firm cannot earn economic profits.

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A purely competitive firm is producing at the point where its marginal cost equals the price of its product.If the firm increases its output,then total revenue will:

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