McGraw-Hill Ryerson

Chapter 10. Pure Competition


1. For which market model is there a very large number of firms?
A. monopolistic competition
B. oligopoly
C. pure monopoly
D. pure competition



2. In which of the following market models is the individual seller of a product a price taker?
A. pure competition
B. pure monopoly
C. monopolistic competition
D. oligopoly



3. Which of the following industries comes closest to being purely competitive?
A. wheat
B. shoes
C. electricity
D. automobile



4. In a purely competitive industry,
A. each existing firm will engage in various forms of nonprice competition
B. new firms are free to enter and existing firms are able to leave the industry very easily
C. individual firms have a price policy
D. each firm produces a differentiated (nonstandardized) product



5. The demand schedule or curve confronted by the individual purely competitive firm is
A. perfectly inelastic
B. inelastic but not perfectly inelastic
C. perfectly elastic
D. elastic but not perfectly elastic



6. Total revenue for producing 10 units of output is $6. Total revenue for producing 11 units of output is $8. Given this information, the
A. average revenue for producing 11 units is $2.
B. average revenue for producing 11 units is $8.
C. marginal revenue for producing the 11th unit is $2.
D. marginal revenue for producing the 11th unit is $8.



7. In pure competition, product price is
A. greater than marginal revenue
B. equal to marginal revenue
C. equal to total revenue
D. greater than total revenue



8. The individual firm's short-run supply curve is that part of its marginal-cost curve lying above its
A. average total-cost curve
B. average variable-cost curve
C. average fixed-cost curve
D. average revenue curve



9. Which statement is true of a purely competitive industry in short-run equilibrium?
A. Price is equal to average total cost.
B. Total quantity demanded is equal to total quantity supplied.
C. Profits in the industry are equal to zero.
D. Output is equal to the output at which average total cost is a minimum.



10. Suppose that when 2000 units of output are produced, the marginal cost of the 2001st unit is $5. This amount is equal to the minimum of average total cost, and marginal cost is rising. If the optimal level of output in the short run is 2500 units, then at that level,
A. marginal cost is greater than $5 and marginal cost is less than average total cost
B. marginal cost is greater than $5 and marginal cost is greater than average total cost
C. marginal cost is less than $5 and marginal cost is greater than average total cost
D. marginal cost is equal to $5 and marginal cost is equal to average total cost



11. The Zebra, Inc., is selling in a purely competitive market. Its output is 250 units, which sell for $2 each. At this level of output, marginal cost is $2 and average variable cost is $2.25. The firm should
A. produce zero units of output
B. decrease output to 200 units
C. continue to produce 250 units
D. increase output to maximize profits



12.
R-1 23a

If the firm is producing at output level 0n, the rectangular area fecb is

A. total variable cost
B. total fixed costs
C. total revenue
D. total economic profit



13.
R-1 23a

At the profit-maximizing output, average fixed cost is

A. ab
B. ac
C. na
D. nb



14.
R-1 23a

At the profit-maximizing output, the total variable costs are equal to the area

A. 0fbn
B. 0ecn
C. 0gan
D. gfba



15.
R-1 23a

The demand curve for this firm is equal to

A. MR, and the supply curve is the portion of the MC curve where output is greater than level n
B. MR, and the supply curve is the portion of the MC curve where output is greater than level k
C. MR, and the supply curve is the portion of the MC curve where output is greater than level h
D. MR, and the supply curve is the portion of the ATC curve where output is greater than level k



16.
The following is cost data for a firm that is selling in a purely competitive market.
R-2 23b

If the market price for the firm's product is $140, the competitive firm will produce

A. 5 units at an economic loss of $150
B. 6 units and break even
C. 7 units and break even
D. 8 units at an economic profit of $74



17.
The following is cost data for a firm that is selling in a purely competitive market.
R-2 23b

If the market price for the firm's product is $290, the competitive firm will produce

A. 7 units at an economic profit of $238
B. 8 units at an economic profit of $592
C. 9 units at an economic profit of $1071
D. 10 units at an economic profit of $1700



18.
The following is cost data for a firm that is selling in a purely competitive market.
R-2 23b

If the product price is $179, the per unit economic profit at the profit-maximizing output is

A. $15
B. $23
C. $33
D. $39



19.
The following is cost data for a firm that is selling in a purely competitive market.
R-2 23b

The total fixed costs are

A. $100
B. $200
C. $300
D. $400



20.
The following is cost data for a firm that is selling in a purely competitive market.
R-2 23b

The long-run equilibrium price will be

A. $140
B. $180
C. $230
D. $290



21. Assume that the market for wheat is purely competitive. Currently, firms growing wheat are experiencing economic losses. In the long run, we can expect this market's
A. supply curve to increase
B. demand curve to increase
C. supply curve to decrease
D. demand curve to decrease



22. The long-run supply curve under pure competition will be
A. downsloping in an increasing-cost industry and upsloping in a decreasing-cost industry
B. horizontal in a constant-cost industry and upsloping in a decreasing-cost industry
C. horizontal in a constant-cost industry and upsloping in an increasing-cost industry
D. upsloping in an increasing-cost industry and vertical in a constant-cost industry



23. The long-run supply curve in a constant-cost industry will be
A. perfectly elastic
B. perfectly inelastic
C. unit elastic
D. income elastic



24. In a decreasing-cost industry, the long-run
A. demand curve would be perfectly inelastic
B. demand curve would be perfectly elastic
C. supply curve would be upsloping
D. supply curve would be downsloping



25. Increasing-cost industries find that their costs rise as a consequence of an increased demand for the product because of
A. the diseconomies of scale
B. diminishing returns
C. higher resource prices
D. a decreased supply of the product



26. When a purely competitive industry is in long-run equilibrium, which statement is true?
A. Firms in the industry are earning normal profits.
B. Price and long-run average total cost are not equal to each other.
C. Marginal cost is at its minimum level.
D. Marginal cost is equal to total revenue.



27. It is contended that which of the following triple identities results in the most efficient use of resources?
A. P = MC = minimum ATC
B. P = AR = MR
C. P = MR = minimum MC
D. TR = MC = MR



28. An economy is producing the goods most wanted by society when, for each and every good, its
A. price and average cost are equal
B. price and marginal cost are equal
C. marginal revenue and marginal cost are equal
D. price and marginal revenue are equal



29. The marginal costs and prices of a purely competitive market system accurately measure
A. both spillover costs and spillover benefits
B. spillover costs but not spillover benefits
C. spillover benefits but not spillover costs
D. neither spillover costs nor spillover benefits



30. In an economy where markets are purely competitive and there is no government sector,
A. public goods will be underproduced
B. scarce resources will be underallocated in all markets
C. goods which entail spillover costs will be underproduced
D. goods which entail spillover benefits will not be produced at all




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