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Pure Competition Short Run
Macroeconomics (BECN150)
Humber College
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Chapter 08 - Pure Competition in the Short Run Chapter 08 Pure Competition in the Short Run Multiple Choice Questions 1. Which market model assumes the least number of firms in an industry? A. Monopolistic competition B. Pure competition C. Pure monopoly D. Oligopoly 2. In which market model would there be a unique product for which there are no close substitutes? A. Monopolistic competition B. Pure competition C. Pure monopoly D. Oligopoly 3. There would be some control over price within rather narrow limits in which market model? A. Monopolistic competition B. Pure competition C. Pure monopoly D. Oligopoly 4. Mutual interdependence would tend to limit control over price in which market model? A. Monopolistic competition B. Pure competition C. Pure monopoly D. Oligopoly 8-1 Chapter 08 - Pure Competition in the Short Run 5. In which two market models would advertising be used most often? A. Pure competition and monopolistic competition B. Pure competition and pure monopoly C. Monopolistic competition and oligopoly D. Pure monopoly and oligopoly 6. Under which market model are the conditions of entry into the market easiest? A. Pure competition B. Pure monopoly C. Monopolistic competition D. Oligopoly 7. Under which market model are the conditions of entry the most difficult? A. Monopolistic competition B. Pure competition C. Pure monopoly D. Oligopoly 8. Local electric or gas utility companies mostly operate in which market model? A. Monopolistic competition B. Pure competition C. Pure monopoly D. Oligopoly 9. The fast-food restaurant industry would be an example of which market model? A. Monopolistic competition B. Pure competition C. Pure monopoly D. Oligopoly 8-2 Chapter 08 - Pure Competition in the Short Run 15. If a firm has at least some control over the price of its product, then the firm cannot be in which market model: A. Oligopoly B. Pure monopoly C. Pure competition D. Monopolistic competition 16. In a purely competitive industry, each firm: A. Determines its own price B. Produces a differentiated product C. Can easily enter or exit the industry D. Engages in various forms of nonprice competition 17. Which is a feature of a purely competitive market? A. Price differences between firms producing the same product B. Significant barriers to entry into the industry C. The industry's demand curve is perfectly elastic D. Products are standardized or homogeneous 18. Which is true under conditions of pure competition? A. There are differentiated products B. The market demand curve is perfectly elastic C. No single firm can influence the market price by changing its output D. Firms that cannot make pure or economic profits go bankrupt 19. Which is a reason why there is no advertising by individual firms under pure competition? A. Firms produce a homogeneous product B. The quantity of the product demanded is very large C. The market demand curve cannot be increased D. Firms do not make long-run profits 8-4 Chapter 08 - Pure Competition in the Short Run 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. There are no good substitutes for the firm's product C. Each seller supplies a negligible fraction of total demand and supply D. Product differentiation is reinforced by extensive advertising 21. Which is not a required characteristic of a purely competitive industry? A. Industry demand is highly elastic B. Firms can enter or leave the industry C. There are so many firms that none can influence market price D. Consumers have no reason to prefer one firm's product to another because products are homogeneous 22. A purely competitive firm does not try to sell more of its product by lowering its price below the market price because: 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 23. A purely competitive firm can be identified by the fact that: A. There are other firms in the industry producing close substitutes B. It is making only normal profits in the short run C. Its average revenue equals marginal revenue D. It experiences diminishing marginal returns 24. The demand curve faced by a purely competitive firm: A. Has unitary elasticity B. Yields constant total revenues even when price changes C. Is identical to the market demand curve D. Is the same as its marginal revenue curve 8-5 Chapter 08 - Pure Competition in the Short Run 30. In a graph for a firm in pure competition with the quantity of output measured on the horizontal axis, the total revenue curve is: A. Downward-sloping B. Horizontal C. Vertical D. Upward-sloping 31. The total revenue of a purely competitive firm from 8 units of output is $48. Based on this information, total revenue for 9 units of output must be: A. $52 B. $54 C. $58 D. $60 32. A purely competitive firm currently producing 20 units of output earns marginal revenues of $12 from each extra unit of output it sells. If it sells 30 units, then its total revenues would be: A. $120 B. $240 C. $360 D. Indeterminate based on the given information 8-7 Chapter 08 - Pure Competition in the Short Run 33. Assume the price of a product sold by a purely competitive firm is $5. Given the data in the accompanying table, at what output level is total profit highest in the short run? A. 20 B. 30 C. 40 D. 50 34. In the standard model of pure competition, a profit-maximizing entrepreneur will shut down in the short run if: 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 costs 35. Given the table below, what is the short-run profit-maximizing level of output for the firm? A. 2 units B. 3 units C. 4 units D. 5 units 8-8 Chapter 08 - Pure Competition in the Short Run 39. Refer to the above graph for a purely competitive firm in the short run. What minimum output level should the firm produce just for it to break even? A. A B. B C. C D. Greater than C 40. Refer to the above graph for a purely competitive firm in the short run. If the firm increases its output level from B to C, then its total profits will be: A. Negative and decreasing B. Negative and increasing C. Positive and increasing D. Positive and decreasing The table shows the total costs for a purely competitive firm. 41. Refer to the above table. If the firm shuts down in the short run, the total cost will be: A. $1,350 B. $2,500 C. $2,700 D. $3,100 8-10 Chapter 08 - Pure Competition in the Short Run 42. Refer to the above table. If the product sells for $1,200 a unit, the firm's profit-maximizing output is: A. 2 B. 3 C. 4 D. 5 43. 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? A. Q = 5 B. Q = 10 C. Q = 15 D. Q = 20 44. Let us suppose Harry's, a local supplier of chili and pizza, has the following revenue and cost structure: 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 8-11 Chapter 08 - Pure Competition in the Short Run Use the table below to answer the question for a purely competitive firm. 48. Refer to the above table. The equilibrium price of the product is: A. $40 B. $80 C. $120 D. $160 49. Refer to the above table. The marginal revenue from the third unit of output is: A. $40 B. $50 C. $120 D. $160 50. Refer to the above table. When the firm produces 3 units of output, it makes an economic: A. Profit of $3 B. Loss of $3 C. Profit of $9 D. Loss of $9 51. A profit-maximizing firm in the short run will expand output: A. Until marginal cost begins to rise B. Until total revenue equals total cost C. Until marginal cost equals average variable cost D. As long as marginal revenue is greater than marginal cost 8-13 Chapter 08 - Pure Competition in the Short Run 52. Farmer Jones is producing wheat, and must accept the market price of $6 per bushel. At this time, her average total costs and her marginal costs both equal $8 per bushel. Her average variable costs are $5 per bushel. In choosing her optimal output, farmer Jones should: A. Increase output B. Increase selling price C. Produce zero output and close down D. Reduce output but continue production 53. Which is true for a purely competitive firm in short-run equilibrium? A. The firm is making only normal profits B. The firm's marginal cost is greater than its marginal revenue C. The firm's marginal revenue is equal to its marginal cost D. A decrease in output would lead to a rise in profits 54. Which is necessarily true for a purely competitive firm in short-run equilibrium? 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 55. A purely competitive firm's output is currently such that its marginal cost is $4 and marginal revenue is $5. Assuming profit maximization, the firm should: A. Cut its price and raise its output B. Raise its price and cut output C. Leave price unchanged and raise output D. Leave price unchanged and cut output 8-14 Chapter 08 - Pure Competition in the Short Run 60. A firm sells a product in a purely competitive market. The marginal cost of the product at the current output is $5 and the market price is $5. What should the firm do? A. Shut down if the minimum possible average variable cost is $5 B. Shut down if the minimum possible average variable cost is $4 C. Increase output if the minimum possible average variable cost is $5 D. Decrease output if the minimum possible average variable cost is $4 61. A firm sells a product in a purely competitive market. The marginal cost of the product at the current output is $3 and the market price is $2. What should the firm do? A. Shut down if the minimum possible average variable cost is $2 B. Increase output if the minimum possible average variable cost is $2 C. Increase output if the minimum possible average variable cost is $2 D. Decrease output if the minimum possible average variable cost is $2 62. A firm sells a product in a purely competitive market. The marginal cost of the product at the current output is $4 and the market price is $4. What should the firm do? A. Shut down if the minimum possible average variable cost is $3 B. Decrease output if the minimum possible average variable cost is $3 C. Increase output if the minimum possible average variable cost is $3 D. Decrease output if the minimum possible average variable cost is $3 63. T-Shirt Enterprises is selling in a purely competitive market. It is producing 3000 units, selling them for $2 each. At this level of output, the average total cost is 2 and the average variable cost is $2. Based on these data, the firm should: A. Shut down in the short run B. Decrease output to 2500 units C. Continue to produce 3000 units D. Increase output to 3500 units 8-16 Chapter 08 - Pure Competition in the Short Run 64. Refer to the above graph. To maximize profits, the firm should produce the quantity: A. 0A B. 0B C. 0C D. 0K 65. Refer to the above graph. The firm should shut down if the quantity of output that it could sell falls below: A. 0A B. 0B C. 0C D. 0K The table shows cost data for a firm that is selling in a purely competitive market. 8-17 Chapter 08 - Pure Competition in the Short Run 69. Refer to the above table. If the market price for the firm's product is $80, the firm will: A. Produce 4 units B. Produce 5 units C. Produce 6 units D. Shut down 70. Refer to the above table. If the market price for the firm's product is $180, the competitive firm will produce: A. 5 units and earn economic profits of $100 B. 6 units and earn economic profits of $120 C. 7 units and earn economic profits of $238 D. 8 units and earn economic profits of $278 71. Refer to the above table. If the product price is $290, the per-unit economic profit at the profit-maximizing output is: A. $0 B. $76 C. $119 D. $152 8-19
Pure Competition Short Run
Course: Macroeconomics (BECN150)
University: Humber College
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