Question 1

In the standard model of pure competition, a profit-maximizing firm will shut down in the short run if

Accepted Answer

A)  marginal cost is greater than average revenue.
B)  average cost is greater than average revenue.
C)  average fixed cost is greater than average revenue.
D)  total revenue is less than total variable cost.

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

The accompanying table gives cost data for a firm that is selling in a purely competitive market. Given the $75 product price, at its optimal output, the firm will

Accepted Answer

A)  realize a $25 economic profit.
B)  realize a $30 economic profit.
C)  incur a $25 loss.
D)  realize a $30 loss.

Question 4

Which point in the accompanying graph is the break-even point for the firm?

Accepted Answer

A)  A
B)  B
C)  C
D)  D

Question 5

The prices of raw materials increase in a purely competitive industry. This change will result in a(n)

Accepted Answer

A)  decrease (downward shift) in the average total cost curve for firms in the industry.
B)  decrease (downward shift) in the marginal revenue curve for firms in the industry.
C)  increase (upward shift) in the marginal cost curve for firms in the industry.
D)  increase (rightward shift) in the short-run supply curve for firms in the industry.

Question 6

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

Accepted Answer

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

Question 7

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, each must have a marginal cost of

Accepted Answer

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

Question 8

In contrast to American firms, Japanese firms frequently make lifetime employment commitments to their workers and agree not to lay them off when product demand is weak. Other things being equal, we would expect Japanese firms to

Accepted Answer

A)  face more elastic product demand curves than American firms.
B)  have relatively greater variable costs than American firms.
C)  discontinue production at higher product prices than would American firms.
D)  continue to produce in the short run at lower prices than would American firms.

Question 9

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 $80, the firm will

Accepted Answer

A)  produce 4 units.
B)  produce 5 units.
C)  produce 6 units.
D)  shut down.

Question 10

In the short run, a purely competitive firm will earn a normal profit when

Accepted Answer

A)  P = AVC.
B)  P > MC.
C)  that firm's MR = market equilibrium price.
D)  P = ATC.

Question 11

The provided graph gives short-run data for a firm. If the product price is P ₂, the firm will

Accepted Answer

A)  close down to avoid a loss.
B)  produce Q₂ units and make an economic profit.
C)  produce Q₅ units and break even.
D)  produce Q₂ units and suffer a loss.

Question 12

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.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

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.

Question 15

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.

Question 16

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

Accepted Answer

A)  $4.
B)  $18.
C)  −$11.
D)  $1.

Question 17

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 $180, the firm will produce

Accepted Answer

A)  5 units and earn economic profits of $900.
B)  6 units and earn economic profits of $800.
C)  7 units and earn economic profits of $238.
D)  8 units and earn economic profits of $278.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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,

Accepted Answer

A)  marginal revenue will graph as an upsloping line.
B)  the demand curve will lie above the marginal revenue curve.
C)  the marginal revenue curve will lie above the demand curve.
D)  the demand and marginal revenue curves will coincide.

Question 20

A purely competitive firm's short-run supply curve is

Accepted Answer

A)  perfectly elastic at the minimum average total cost.
B)  upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve.
C)  upsloping and equal to the portion of the marginal cost curve that lies above the average total cost curve.
D)  upsloping only when the industry has constant costs.

Exam 10: Pure Competition in the Short Run

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

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

In the standard model of pure competition, a profit-maximizing firm will shut down in the short run if

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A purely competitive firm's short-run supply curve is

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 $180, the firm will produce

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, each must have a marginal cost of

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the short run, a purely competitive firm will earn a normal profit when

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In contrast to American firms, Japanese firms frequently make lifetime employment commitments to their workers and agree not to lay them off when product demand is weak. Other things being equal, we would expect Japanese firms to

Correct AnswerverifiedShow Answer

Which point in the accompanying graph is the break-even point for the firm?

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

The accompanying table gives cost data for a firm that is selling in a purely competitive market. Given the $75 product price, at its optimal output, the firm will

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,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An otherwise unprofitable motel located on a largely abandoned roadway might be able to stay open for several years by

Correct AnswerverifiedShow Answer

The provided graph gives short-run data for a firm. If the product price is P ₂, the firm will

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 $80, the firm will

Correct AnswerverifiedShow Answer

The prices of raw materials increase in a purely competitive industry. This change will result in a(n)

Correct AnswerverifiedShow Answer

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