Question 1

A purely competitive seller is

Accepted Answer

A)  both a "price maker" and a "price taker."
B)  neither a "price maker" nor a "price taker."
C)  a "price taker."
D)  a "price maker."E) B) and C)
F) All of the above

Question 2

In the standard model of pure competition in the short run, a profit-maximizing firm will produce the output quantity where the gap between

Accepted Answer

A)  marginal revenue and marginal cost is the largest, with revenue higher than cost.
B)  average revenue and average cost is the largest, with revenue higher than cost.
C)  total revenue and total cost is the largest, with revenue higher than cost.
D)  average revenue and average variable cost is the largest.E) None of the above
F) B) and C)

Question 3

The MR = MC rule applies

Accepted Answer

A)  to firms in all types of industries.
B)  only when the firm is a "price taker."
C)  only to monopolies.
D)  only to purely competitive firms.E) C) and D)
F) A) and B)

Question 4

Marginal revenue is the

Accepted Answer

A)  change in product price associated with the sale of one more unit of output.
B)  change in average revenue associated with the sale of one more unit of output.
C)  difference between product price and average total cost.
D)  change in total revenue associated with the sale of one more unit of output.E) A) and B)
F) A) and C)

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

If a firm is confronted with economic losses in the short run, it will decide whether or not to produce by comparing

Accepted Answer

A)  marginal revenue and marginal cost.
B)  price and average variable cost.
C)  total revenue and total cost.
D)  total revenue and total fixed cost.E) A) and B)
F) A) and C)

Question 7

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

Accepted Answer

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

Question 8

DASH Airlines is considering the addition of a flight from Red Cloud to David City.The total cost of the flight would be $1,100, of which $800 are fixed costs already incurred.Expected revenues from the flight are $600.DASH should

Accepted Answer

A)  not add this flight, because only flights that cover their full costs are profitable.
B)  not add this flight, because it is not profitable at the margin.
C)  add this flight, because marginal revenue exceeds marginal costs and total revenue exceeds total variable cost.
D)  not add this flight, because total costs exceed total revenue.E) C) and D)
F) B) and D)

Question 9

Which idea is inconsistent with pure competition?

Accepted Answer

A)  price-taking behavior
B)  product differentiation
C)  freedom of entry or exit for firms
D)  a large number of buyers and sellersE) B) and C)
F) A) and B)

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

(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) B) and C)
F) A) and C)

Question 12

In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis.For a purely competitive firm, marginal revenue graphs as a

Accepted Answer

A)  straight, upsloping line.
B)  straight line, parallel to the vertical axis.
C)  straight line, parallel to the horizontal axis.
D)  straight, downsloping line.E) All of the above
F) B) and C)

Question 13

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

Question 14

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

Accepted Answer

A)  2.
B)  3.
C)  4.
D)  5.E) B) and D)
F) A) and B)

Question 15

The principle that a firm should produce up to the point where the marginal revenue from the sale of an extra unit of output is equal to the marginal cost of producing it is known as the

Accepted Answer

A)  output-maximizing rule.
B)  profit-maximizing rule.
C)  shut-down rule.
D)  break-even rule.E) A) and B)
F) C) and D)

Question 16

A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing)  output by equating

Accepted Answer

A)  price and average total cost.
B)  price and average fixed cost.
C)  marginal revenue and marginal cost.
D)  price and marginal revenue.E) None of the above
F) A) and B)

Question 17

A perfectly elastic demand curve implies that the firm

Accepted Answer

A)  must lower price to sell more output.
B)  can sell as much output as it chooses at the existing price.
C)  realizes an increase in total revenue that is less than product price when it sells an extra unit.
D)  is selling a differentiated (heterogeneous)  product.E) B) and C)
F) A) and D)

Question 18

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

Question 19

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) A) and D)

Question 20

The fact that a purely competitive firm's total revenue curve is linear and upsloping to the right implies that

Accepted Answer

A)  product price increases as output increases.
B)  product price decreases as output increases.
C)  product price is constant at all levels of output.
D)  marginal revenue declines as more output is produced.E) A) and C)
F) C) and D)

Exam 10: Pure Competition in the Short Run

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

In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis.For a purely competitive firm, marginal revenue graphs as a

Correct AnswerverifiedShow Answer

Marginal revenue is the

Correct AnswerverifiedShow Answer

In the standard model of pure competition in the short run, a profit-maximizing firm will produce the output quantity where the gap between

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which idea is inconsistent with pure competition?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

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

If a firm is confronted with economic losses in the short run, it will decide whether or not to produce by comparing

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

The MR = MC rule applies

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A purely competitive seller is

Correct AnswerverifiedShow Answer

The principle that a firm should produce up to the point where the marginal revenue from the sale of an extra unit of output is equal to the marginal cost of producing it is known as the

Correct AnswerverifiedShow Answer

The fact that a purely competitive firm's total revenue curve is linear and upsloping to the right implies that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

DASH Airlines is considering the addition of a flight from Red Cloud to David City.The total cost of the flight would be $1,100, of which $800 are fixed costs already incurred.Expected revenues from the flight are $600.DASH should

Correct AnswerverifiedShow Answer

A perfectly elastic demand curve implies that the firm

Correct AnswerverifiedShow Answer

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