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  Old Dominion University - ECON 202s Chapter 08 Pure Competition in the Short Run      Multiple Choice Questions   1

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Old Dominion University - ECON 202s

Chapter 08

Pure Competition in the Short Run

    

Multiple Choice Questions
 

1. Economists would describe the U.S. automobile industry as: 
A. purely competitive.
B. an oligopoly.
C. monopolistically competitive.
D. a pure monopoly.

 

2. 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

 

 3. Which of the following industries most closely approximates pure competition? 
A. agriculture
B. farm implements
C. clothing
D. steel

 

4. Economists use the term imperfect competition to describe: 
A. all industries which produce standardized products.
B. any industry in which there is no nonprice competition.
C. a pure monopoly only.
D. those markets which are not purely competitive.

 

5. 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

 

 

 6. An industry comprised of 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.

 

7. An industry comprised of 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.

8. An industry comprised of a very large number of sellers producing a standardized product is known as: 
A. monopolistic competition.
B. oligopoly.
C. pure monopoly.
D. pure competition.

9. An industry comprised of 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.

 10. 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.
D. Its product is slightly different from those of its competitors.

 

11. A purely competitive seller is: 
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."

 12. Which of the following is not a characteristic of pure competition? 
A. price strategies by firms
B. a standardized product
C. no barriers to entry
D. a larger number of sellers

 

13. Which of the following is not a basic characteristic of pure competition? 
A. considerable nonprice competition
B. no barriers to the entry or exit of firms
C. a standardized or homogeneous product
D. a large number of buyers and sellers

14. The demand schedule or curve confronted by the individual purely competitive firm is: 
A. relatively elastic, that is, the elasticity coefficient is greater than unity.
B. perfectly elastic.
C. relatively inelastic, that is, the elasticity coefficient is less than unity.
D. perfectly inelastic.

 15. Which of the following is characteristic of a purely competitive seller's demand curve? 
A. Price and marginal revenue are equal at all levels of output.
B. Average revenue is less than price.
C. Its elasticity coefficient is 1 at all levels of output.
D. It is the same as the market demand curve.

 

In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis.

 

16. Refer to the above information. For a purely competitive firm, total revenue graphs as a: 
A. straight, upsloping line.
B. straight line, parallel to the vertical axis.
C. straight line, parallel to the horizontal axis.
D. straight, downsloping line.

 

17. Refer to the above information. For a purely competitive firm, marginal revenue graphs as a: 
A. straight, upsloping line.
B. straight line, parallel to the vertical axis.
C. straight line, parallel to the horizontal axis.
D. straight, downsloping line.

 

18. Refer to the above information. For a purely competitive firm: 
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.

 

 19. If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue: 
A. may be either greater or less than $5.
B. will also be $5.
C. will be less than $5.
D. will be greater than $5.

 

20. Price is constant or given to the individual firm selling in a purely competitive market because: 
A. the firm's demand curve is downsloping.
B. of product differentiation reinforced by extensive advertising.
C. each seller supplies a negligible fraction of total supply.
D. there are no good substitutes for its product.

 

21. For a purely competitive seller, price equals: 
A. average revenue.
B. marginal revenue.
C. total revenue divided by output.
D. all of these.

 

 

22. For a purely competitive firm total revenue: 
A. is price times quantity sold.
B. increases by a constant absolute amount as output expands.
C. graphs as a straight upsloping line from the origin.
D. has all of these characteristics.

 

23. The marginal revenue curve of a purely competitive firm: 
A. lies below the firm's demand curve.
B. is downsloping because price must be reduced to sell more output.
C. is horizontal at the market price.
D. has all of these characteristics.

 24. The demand curve in a purely competitive industry is _____, while the demand curve to a single firm in that industry is _____. 
A. perfectly inelastic, perfectly elastic
B. downsloping, perfectly elastic
C. downsloping, perfectly inelastic
D. perfectly elastic, downsloping

 

25. A perfectly elastic demand curve implies that the firm: 
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 which is less than product price when it sells an extra unit.
D. is selling a differentiated (heterogeneous) product.

 

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

27. Which of the following statements is correct? 
A. The demand curve for a purely competitive firm is perfectly elastic, but the demand curve for a purely competitive industry is downsloping.
B. The demand curve for a purely competitive firm is downsloping, but the demand curve for a purely competitive industry is perfectly elastic.
C. The demand curves are downsloping for both a purely competitive firm and a purely competitive industry.
D. The demand curves are perfectly elastic for both a purely competitive firm and a purely competitive industry.

 

 

 

 

28. Refer to the above diagram, which pertains to a purely competitive firm. Curve A represents: 
A. total revenue and marginal revenue.
B. marginal revenue only.
C. total revenue and average revenue.
D. total revenue only.

29. Refer to the above diagram, which pertains to a purely competitive firm. Curve C represents: 
A. total revenue and marginal revenue.
B. marginal revenue only.
C. total revenue and average revenue.
D. average revenue and marginal revenue.

 30. Marginal revenue is the: 
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.

 

31. Firms seek to maximize: 
A. per unit profit.
B. total revenue.
C. total profit.
D. market share.

 

 

32. A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating: 
A. price and average total cost.
B. price and average fixed cost.
C. marginal revenue and marginal cost.
D. price and marginal revenue.

 

 

 33. In the short run a purely competitive firm that seeks to maximize profit will produce: 
A. where the demand and the ATC curves intersect.
B. where total revenue exceeds total cost by the maximum amount.
C. that output where economic profits are zero.
D. at any point where the total revenue and total cost curves intersect.

 

 

  

34. Refer to the above short-run data. The profit-maximizing output for this firm is: 
A. above 440 units.
B. 440 units.
C. 320 units.
D. 100 units.

 

35. Refer to the above short-run data. Which of the following is correct? 
A. This firm will maximize its profit at 440 units of output.
B. Any level of output between 100 and 440 units will yield an economic profit.
C. This firm's marginal revenue rises with output.
D. Any level of output less than 100 units or greater than 440 units is profitable.

 

 36. A competitive firm will maximize profits at that output at which: 
A. total revenue exceeds total cost by the greatest amount.
B. total revenue and total cost are equal.
C. price exceeds average total cost by the largest amount.
D. the difference between marginal revenue and price is at a maximum.

 

 

  

 

37. Curve (1) in the above diagram is a purely competitive firm's: 
A. total cost curve.
B. total revenue curve.
C. marginal revenue curve.
D. total economic profit curve.

38. Curve (2) in the above diagram is a purely competitive firm's: 
A. total cost curve.
B. total revenue curve.
C. marginal revenue curve.
D. total economic profit curve.

 39. Curve (3) in the above diagram is a purely competitive firm's: 
A. total cost curve.
B. total revenue curve.
C. marginal revenue curve.
D. total economic profit curve.

 

40. Curve (4) in the above diagram is a purely competitive firm's: 
A. total cost curve.
B. total revenue curve.
C. marginal revenue curve.
D. total profit curve.

 41. Refer to the above diagram. Other things equal, an increase of product price would be shown as: 
A. an increase in the steepness of curve (3), an upward shift in curve (2), and upward shift in curve (1).
B. a decrease in the steepness of curve (3), a downward shift in curve (2), and an upward shift in curve (1).
C. a downward shift in curve (4) and an upward shift in curve (1), with no changes in lines (2) and (3).
D. an upward shift in line (2) only.

 

42. The firm represented by the above diagram would maximize its profit where: 
A. curves (2) and (1) intersect.
B. curve (1) touches the horizontal axis for the second time.
C. the vertical distance between curves (3) and (4) is the greatest.
D. curves (3) and (4) intersect.

 

43. A firm reaches a break-even point (normal profit position) where: 
A. marginal revenue cuts the horizontal axis.
B. marginal cost intersects the average variable cost curve.
C. total revenue equals total variable cost.
D. total revenue and total cost are equal.

 

44. The MR = MC rule applies: 
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.

 

45. When a firm is maximizing profit it will necessarily be: 
A. maximizing profit per unit of output.
B. maximizing the difference between total revenue and total cost.
C. minimizing total cost.
D. maximizing total revenue.

 

46. The MR = MC rule can be restated for a purely competitive seller as P = MC because: 
A. each additional unit of output adds exactly its price to total revenue.
B. the firm's average revenue curve is downsloping.
C. the market demand curve is downsloping.
D. the firm's marginal revenue and total revenue curves will coincide.

47. In the short run the individual competitive firm's supply curve is that segment of the: 
A. average variable cost curve lying below the marginal cost curve.
B. marginal cost curve lying above the average variable cost curve.
C. marginal revenue curve lying below the demand curve.
D. marginal cost curve lying between the average total cost and average variable cost curves.

 48. 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? 
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.

 

49. Assume the XYZ Corporation is producing 20 units of output. It is selling this output in a purely competitive market at $10 per unit. Its total fixed costs are $100 and its average variable cost is $3 at 20 units of output. This corporation: 
A. should close down in the short run.
B. is maximizing its profits.
C. is realizing a loss of $60.
D. is realizing an economic profit of $40.

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

51. Suppose you find that the price of your product is less than minimum AVC. You should: 
A. minimize your losses by producing where P = MC.
B. maximize your profits by producing where P = MC.
C. close down because, by producing, your losses will exceed your total fixed costs.
D. close down because total revenue exceeds total variable cost.

 52. If a purely competitive firm shuts down in the short run: 
A. its loss will be zero.
B. it will realize a loss equal to its total variable costs.
C. it will realize a loss equal to its total fixed costs.
D. it will realize a loss equal to its explicit costs.

 

53. A purely competitive firm should produce in the short run if its total revenue is sufficient to cover its: 
A. total variable costs.
B. total costs.
C. total fixed costs.
D. marginal costs.

Answer the question on the basis of the following data confronting a firm:
  

54. Refer to the above data. This firm is selling its output in a(n): 
A. monopolistically competitive market.
B. monopolistic market.
C. purely competitive market.
D. oligopolistic market.

55. Refer to the above data. If the firm's minimum average variable cost is $10, the firm's profit-maximizing level of output would be: 
A. 2.
B. 3.
C. 4.
D. 5.

56. Refer to the above data. At the profit-maximizing output the firm's total revenue is: 
A. $48.
B. $32.
C. $80.
D. $64.

57. Refer to the above data. Assuming total fixed costs equal to zero, the firm's: 
A. economic profit is $12.
B. economic profit is $16.
C. loss is $14.
D. economic profit is $3.

 

58. In the short run a purely competitive firm will always make an economic profit if: 
A. P = ATC.
B. P > AVC.
C. P = MC.
D. P > ATC.

59. Suppose that at 500 units of output marginal revenue is equal to marginal cost. The firm is selling its output at $5 per unit and average total cost at 500 units of output is $6. On the basis of this information we: 
A. can say that the firm should close down in the short run.
B. can say that the firm can produce and realize an economic profit in the short run.
C. cannot determine whether the firm should produce or shut down in the short run.
D. can assume the firm is not using the most efficient technology.

60. If a firm is confronted with economic losses in the short run, it will decide whether or not to produce by comparing: 
A. marginal revenue and marginal cost.
B. price and minimum average variable cost.
C. total revenue and total cost.
D. total revenue and total fixed cost.

 61. 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: 
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.

 

62. The lowest point on a purely competitive firm's short-run supply curve corresponds to: 
A. the minimum point on its ATC curve.
B. the minimum point on its AVC curve.
C. the minimum point on its AFC curve.
D. the minimum point on its MC curve.

 

  

 63. Refer to the above diagram for a purely competitive producer. The lowest price at which the firm should produce (as opposed to shutting down) is: 
A. P₁.
B. P₂.
C. P₃.
D. P₄.

64. Refer to the above diagram for a purely competitive producer. The firm will produce at a loss at all prices: 
A. above P₁.
B. above P₃.
C. above P₄.
D. between P₂ and P₃.

 65. Refer to the above diagram for a purely competitive producer. If product price is P₃: 
A. the firm will maximize profit at point d.
B. the firm will earn an economic profit.
C. economic profits will be zero.
D. new firms will enter this industry.

 

66. Refer to the above diagram for a purely competitive producer. The firm's short-run supply curve is: 
A. the abcd segment and above on the MC curve.
B. the bcd segment and above on the MC curve.
C. the cd segment and above on the MC curve.
D. not shown.

67. The short-run supply curve of a purely competitive producer is based primarily on its: 
A. AVC curve.
B. ATC curve.
C. AFC curve.
D. MC curve.

68. On a per unit basis economic profit can be determined as the difference between: 
A. marginal revenue and product price.
B. product price and average total cost.
C. marginal revenue and marginal cost.
D. average fixed cost and product price.

 

 69. In the short run a purely competitive seller will shut down if: 
A. it cannot produce at an economic profit.
B. price is less than average variable cost at all outputs.
C. price is less than average fixed cost at all outputs.
D. there is no point at which marginal revenue and marginal cost are equal.

 

  

70. Refer to the above diagram. To maximize profit or minimize losses this firm will produce: 
A. K units at price C.
B. D units at price J.
C. E units at price A.
D. E units at price B.

71. Refer to the above diagram. At the profit-maximizing output, total revenue will be: 
A. 0AHE.
B. 0BGE.
C. 0CFE.
D. ABGE.

 72. Refer to the above diagram. At the profit-maximizing output, total fixed cost is equal to: 
A. 0AHE.
B. 0BGE.
C. 0CFE.
D. BCFG.

 

73. Refer to the above diagram. At the profit-maximizing output, total variable cost is equal to: 
A. 0AHE.
B. 0CFE.
C. 0BGE.
D. ABGH.

74. Refer to the above diagram. At the profit-maximizing output, the firm will realize: 
A. a loss equal to BCFG.
B. a loss equal to ACFH.
C. an economic profit of ACFH.
D. an economic profit of ABGH.

75. If a purely competitive firm is producing at some level less than the profit-maximizing output, then: 
A. price is necessarily greater than average total cost.
B. fixed costs are large relative to variable costs.
C. price exceeds marginal revenue.
D. marginal revenue exceeds marginal cost.

Answer the question on the basis of the following cost data for a firm that is selling in a purely competitive market:

 

 76. Refer to the above data. If the market price for the firm's product is $12, the competitive firm will produce: 
A. 4 units at a loss of $109.
B. 4 units at an economic profit of $31.75.
C. 8 units at a loss of $48.80.
D. zero units at a loss of $100.

 

77. Refer to the above data. If the market price for the firm's product is $32, the competitive firm will produce: 
A. 8 units at an economic profit of $16.
B. 6 units at an economic profit of $7.98.
C. 10 units at an economic profit of $4.
D. 7 units at an economic profit of $41.50.

78. Refer to the above data. If the market price for the firm's product is $28, the competitive firm will: 
A. produce 4 units at a loss of $17.40.
B. produce 7 units at a loss of $14.00.
C. shut down in the short run.
D. produce 6 units at a loss of $23.80.

 

 

80. Refer to the above data. If there were 1,000 identical firms in this industry and total or market demand is as shown below, equilibrium price will be:
  
A. $32.
B. $42.
C. $36.
D. $20.

 81. If at the MC = MR output, AVC exceeds price: 
A. New firms will enter this industry.
B. The firm should produce the MC = MR output and realize an economic profit.
C. Some firms should shut down in the short run.
D. The firm should expand its plant.

 

  

 

82. Refer to the above diagram. The profit-maximizing output: 
A. is n.
B. is k.
C. is h.
D. cannot be determined from the information given.

83. Refer to the above diagram. At the profit-maximizing output, total profit is: 
A. efbc.
B. fgab.
C. egac.
D. 0fbn.

84. Refer to the above diagram. The short-run supply curve for this firm is the: 
A. entire MC curve.
B. segment of the AVC curve lying to the right of the MC curve.
C. segment of the MC curve lying to the right of output level k.
D. segment of the MC curve lying to the right of output level h.

85. Refer to the above diagram. This firm is selling its product in a(n): 
A. purely competitive market.
B. oligopoly market.
C. monopolistically competitive market.
D. monopolistic market.

86. In the short run, a purely competitive seller will shut down if product price: 
A. equals average revenue.
B. is greater than MC.
C. is less than AVC.
D. is less than ATC.

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

88. 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: 
A. not add this flight because only flights which 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.

 

89. 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: 
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.

 

90. Assume for a competitive firm that MC = AVC at $12, MC = ATC at $20, and MC = MR at $16. This firm will: 
A. realize a profit of $4 per unit of output.
B. maximize its profit by producing in the short run.
C. minimize its losses by producing in the short run.
D. shut down in the short run.

 

 91. 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: 
A. output-maximizing rule.
B. profit-maximizing rule.
C. shut-down rule.
D. break-even rule.

 

92. If a purely competitive firm is producing at the P = MC output and realizing an economic profit, at that output: 
A. marginal revenue is less than price.
B. marginal revenue exceeds ATC.
C. ATC is being minimized.
D. total revenue equals total cost.

 

93. If a profit-seeking competitive firm is producing its profit-maximizing output and its total fixed costs fall by 25 percent, the firm should: 
A. use more labor and less capital to produce a larger output.
B. not change its output.
C. reduce its output.
D. increase its output.

  

 

94. Refer to the above diagram. At P₂, this firm will: 
A. produce 44 units and realize an economic profit.
B. produce 44 units and earn only a normal profit.
C. produce 68 units and earn only a normal profit.
D. shut down in the short run.

 

95. Refer to the above diagram. At P₁, this firm will produce: 
A. 47 units and break even.
B. 47 units and realize an economic profit.
C. 66 units and earn only a normal profit.
D. 24 units and earn only a normal profit.

 

96. Refer to the above diagram. At P₄, this firm will: 
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.

 

 

 97. Refer to the above diagram. At P₃, this firm will: 
A. produce 14 units and realize an economic profit.
B. produce 62 units and earn only a normal profit.
C. produce 40 units and incur a loss.
D. shut down in the short run.

 

98. 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: 
A. reduce output to about 80 units.
B. expand its production.
C. continue to produce 100 units.
D. produce zero units of output.

 99. If a purely competitive firm is maximizing economic profit: 
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.

 

 Answer the question on the basis of the following cost data for a purely competitive seller:
 

 100. Refer to the above data. If product price is $60, the firm will: 
A. shut down.
B. produce 4 units and realize a $120 economic profit.
C. produce 6 units and realize a $100 economic profit.
D. produce 3 units and incur a $40 loss.

101. Refer to the above data. If product price is $45, the firm will: 
A. shut down.
B. produce 4 units and realize a $120 economic profit.
C. produce 5 units and realize a $15 economic profit.
D. produce 6 units and realize a $100 economic profit.

102. Refer to the above data. If product price is $25, the firm will: 
A. shut down and incur a $90 loss.
B. shut down and incur a $50 loss.
C. produce 3 units and incur a $65 loss.
D. produce 4 units and realize a $10 economic profit.

 

103. Assume a purely competitive firm is selling 200 units of output at $3 each. At this output its total fixed cost is $100 and its total variable cost is $350. This firm: 
A. is maximizing its profit.
B. is making a profit, but not necessarily the maximum profit.
C. is incurring losses.
D. should shut down in the short run.

  

 

104. Refer to the above diagram. This firm will earn only a normal profit if product price is: 
A. P₁.
B. P₂.
C. P₃.
D. P₄.

105. Refer to the above diagram. The firm will realize an economic profit if price is: 
A. P₁.
B. P₂.
C. P₃.
D. P₄.

106. Refer to the above diagram. The firm will produce at a loss if price is: 
A. less than P₁.
B. P₂.
C. P₃.
D. P₄.

 

107. Refer to the above diagram. The firm will shut down at any price less than: 
A. P₁.
B. P₂.
C. P₃.
D. P₄.

108. Refer to the above diagram. The firm's supply curve is the segment of the: 
A. MC curve above its intersection with the AVC curve.
B. MC curve above its intersection with the ATC curve.
C. AVC curve above its intersection with the MC curve.
D. ATC curve above its intersection with the MC curve.

Answer the question on the basis of the following cost data for a firm that is selling in a purely competitive market.
 

109. Refer to the above data. The marginal cost column reflects: 
A. the law of diminishing returns.
B. the law of diminishing marginal utility.
C. diseconomies of scale.
D. economies of scale.

110. Refer to the above data. At 6 units of output, total fixed cost is ____ and total cost is ____ 
A. $25; $50.
B. $50; $300.
C. $100; $200.
D. $150; $300.

 

111. Refer to the above data. At 3 units of output, total variable cost is ____ and total cost is ____ 
A. $20; $70.
B. $60; $210.
C. $20; $210.
D. $60; $350.

112. Refer to the above data. We can infer that, at zero output, this firm's total fixed, total variable, and total costs are: 
A. zero, zero, and zero, respectively.
B. zero, $25, and $175, respectively.
C. $150, $25, and $175, respectively.
D. $150, zero, and $150, respectively.

113. Refer to the above data. If the market price for this firm's product is $87, it will produce: 
A. 9 units at an economic profit of zero.
B. 6 units at a loss of $90.
C. 9 units at an economic profit of $281.97.
D. 8 units at an economic profit of $130.72.

114. Refer to the above data. If the market price for this firm's product is $68.10, it will produce: 
A. 8 units at an economic profit of zero.
B. 6 units at a loss of $90.
C. 9 units at an economic profit of $281.97.
D. 8 units at an economic profit of $130.72.

115. Refer to the above data. If the market price for this firm's product is $35, it will produce: 
A. 6 units at a loss of $150.
B. 6 units at a loss of $90.
C. 9 units at an economic profit of $281.97.
D. 8 units at an economic profit of $130.72.

116. Refer to the above data. If the market price for this firm's product is $24, it will produce: 
A. 4 units at a loss of $150.
B. 6 units at a loss of $90.
C. 3 units at an economic profit of zero.
D. 4 units at a loss of $138.

117. Refer to the above data. If the market price for this firm's product is $15, it will produce: 
A. 0 units at a loss of $150.
B. 3 units at a loss of $168.
C. 3 units at an economic profit of zero.
D. 4 units at a loss of $138.

 118. A purely competitive seller should produce (rather than shut down) in the short run: 
A. only if total revenue exceeds total cost.
B. only if total cost exceeds total revenue.
C. if total revenue exceeds total cost or if total cost exceeds total revenue by some amount less than total fixed cost.
D. if total cost exceeds total revenue by some amount greater than total fixed cost.

 

Answer the question on the basis of the following cost data for a purely competitive seller:
 

119. The above data are for: 
A. the long run.
B. the short run.
C. both the short run and the long run.
D. the intermediate market period only.

120. Refer to the above data. At 5 units of output average fixed cost, average variable cost, and average total cost are: 
A. $10, $60, and $70 respectively.
B. $50, $40, and $90 respectively.
C. $10, $70, and $80 respectively.
D. $5, $25, and $30 respectively.

121. Refer to the above data. The marginal cost of the fifth unit of output is: 
A. $80.
B. $90.
C. $50.
D. $20.

122. Refer to the above data. If product price is $75, the firm will produce: 
A. 3 units of output.
B. 4 units of output.
C. 5 units of output.
D. 6 units of output.

123. Refer to the above data. Given the $75 product price, at its optimal output the firm will: 
A. realize a $25 economic profit.
B. realize a $30 economic profit.
C. incur a $25 loss.
D. realize a $30 loss.

124. In the short run, a purely competitive firm will earn a normal profit when: 
A. P = AVC.
B. P > MC.
C. that firm's MR = market equilibrium price.
D. P = ATC.

The following table applies to a purely competitive industry composed of 100 identical firms.
 

125. Refer to the above table. The equilibrium price in this purely competitive market is: 
A. $5.
B. $4.
C. $3.
D. $2.

126. Refer to the above table. At the equilibrium price, each of the 100 firms in this industry will produce: 
A. 600,000 units of output.
B. 60,000 units of output.
C. 6,000 units of output.
D. 600 units of output.

127. Refer to the above table. For each of the 100 firms in this industry, marginal revenue and total revenue will be: 
A. $4 and $400, respectively.
B. $3 and $30,000, respectively.
C. $4 and $20,000, respectively.
D. $3 and $18,000, respectively.

 

128. Refer to the above table. If each of the 100 firms in the industry is maximizing its profit, each must have a marginal cost of: 
A. $5.
B. $4.
C. $3.
D. $2.

129. Refer to the above table. If each of the 100 firms in the industry is maximizing its profit and earning only a normal profit, each must have a total cost of: 
A. $18,000.
B. $20,000.
C. $22,000.
D. $14,000.

130. Refer to the above table. 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: 
A. $2.
B. $3.
C. $4.
D. $5.

131. (Consider This) An unprofitable motel will stay open in the short-run if: 
A. price (average nightly room rate) exceeds average variable cost.
B. marginal revenue exceeds marginal cost.
C. price (average nightly room rate) exceeds average fixed cost.
D. marginal revenue exceeds price.

132. (Consider This) An otherwise unprofitable motel located on a largely abandoned roadway might be able to stay open for several years by: 
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.

133. (Last Word) Fixed costs for a firm are analogous to: 
A. the dirt that fills up the financial hole.
B. digging a deeper financial hole by producing when prices are too low.
C. the cost of the shovel needed to fill the financial hole.
D. starting out in a hole that represents economic losses if the firm produces nothing.

134. (Last Word) Oil wells and seasonal resorts will often shut down temporarily because: 
A. prices for their output temporarily fall below their average variable costs of production.
B. fixed costs temporarily rise, making production unprofitable.
C. variable costs for pumping oil and operating resorts fluctuate significantly.
D. government regulations require seasonal shutdowns for maintenance purposes.

135. (Last Word) Temporary shutdowns of firms are most widespread when: 
A. total fixed costs are rising across the economy.
B. the economy experiences recession.
C. firms have the ability to set prices for their output.
D. wage levels are falling.

True / False Questions
 

136. Oligopoly firms may produce either standardized or differentiated products. 
 137. The term imperfect competition refers to every market structure besides pure competition. 
 

138. 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. 
 

139. Although individual purely competitive firms can influence the price of their product, these firms as a group cannot influence market price. 
 140. In a purely competitive industry competition centers more on advertising and sales promotion than on price. 
 

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

 

142. 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. 
 

 

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

144. In maximizing profit a firm will always produce that output where total revenues are at a maximum. 
145. 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. 
146. A competitive firm will produce in the short run so long as its price exceeds its average fixed cost. 
 

 

147. Refer to the above diagram. This firm will maximize profits by producing output D. 
 

 

148. Refer to the above diagram. At the profit-maximizing output total revenue will be 0GLD. 
 

149. Refer to the above diagram. At output C production will result in an economic profit. 
 

150. Refer to the above diagram. At any price below R the firm will shut down in the short run. 
151. Refer to the above diagram. If demand fell to the level of FNJ, there would be no output at which the firm could realize an economic profit. 
152. Refer to the above diagram. If the firm produced D units of output at price G, it would earn a normal profit. 
 

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