Question 1

Why can't an individual firm raise its price by reducing output or lower its price to increase sales volume in a purely competitive market?

Accepted Answer

Because the individual firm's output is ...

Question 2

As long as an additional unit of output yields a marginal revenue larger than its marginal cost, it will be adding to total profits of the firm.

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. If product price is $60, the firm will

Accepted Answer

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.E) A) and B)
F) None of the above

Question 4

Local electric or gas utility companies mostly operate in which market structure?

Accepted Answer

A)  monopolistic competition
B)  pure competition
C)  pure monopoly
D)  oligopolyE) A) and C)
F) None of the above

Question 5

The table gives data for a purely competitive, profit-maximizing firm. Based on this information, in the short run how much is this firm earning in economic profit (or losing, as reflected by negative numbers) ?

Accepted Answer

A)  $30.
B)  $58.
C)  $78.
D)  $50.E) None of the above
F) A) and D)

Question 6

The accompanying table gives cost data for a firm that is selling in a purely competitive market. If the market price for this firm's product is $15, it will produce

Accepted Answer

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.E) A) and B)
F) A) and C)

Question 7

The accompanying table gives cost data for a firm that is selling in a purely competitive market. If the market price for the firm's product is $12, the competitive firm should produce

Accepted Answer

A)  4 units at an economic loss of $109.
B)  4 units at an economic profit of 31.75.
C)  8 units at an economic loss of $48.80.
D)  zero units at an economic loss of $100.E) All of the above
F) None of the above

Question 8

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

Question 9

Refer to the accompanying graph for a purely competitive firm. When the firm is in equilibrium in the short run, its average fixed cost is

Accepted Answer

A)  EH.
B)  DE.
C)  DH.
D)  DB.E) A) and B)
F) All of the above

Question 10

The fallacy of composition states that

Accepted Answer

A)  because economic systems are composed of so many diverse economic units, economic laws are necessarily inexact.
B)  the anticipation of a particular event can affect the composition of that event when it occurs.
C)  what is true for the individual must necessarily be true for the group.
D)  because event A precedes event B, A is necessarily the cause of B.E) B) and D)
F) A) and D)

Question 11

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) None of the above
F) A) and B)

Question 12

Given the data in the table, at what quantity would a purely competitive firm cover all of its costs and earn only normal profits?

Accepted Answer

A)  Q = 5
B)  Q = 10
C)  Q = 15
D)  Q = 20E) C) and D)
F) A) and B)

Question 13

Given the accompanying diagram, which level of output should the entrepreneur choose to maximize profits?

Accepted Answer

A)  either X₁ or X₃ since the profit level will be the same
B)  X₃ since any increase in output will reduce profits
C)  X₁ since any decrease in output will reduce profits
D)  X₂ since at this level the difference between MR and MC is maximizedE) C) and D)
F) None of the above

Question 14

Replacement and repair costs

Accepted Answer

A)  are only relevant to manufacturing firms.
B)  are intermittent and often unpredictable.
C)  are historically well managed by dictators such as Hugo Chavez, Fidel Castro, and others motivated to secure their power and wealth in perpetuity.
D)  should always be managed with sinking funds.E) A) and B)
F) B) and D)

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

In which of the following market structures is there clear-cut mutual interdependence with respect to price-output policies?

Accepted Answer

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

Question 17

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

Accepted Answer

A)  should close down in the short run.
B)  is maximizing its profits.
C)  is realizing an economic loss of $60.
D)  is realizing an economic Profit of $40.E) A) and B)
F) A) and C)

Question 18

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 C)
F) A) and D)

Question 19

Refer to the diagram for a purely competitive producer. The firm's short-run supply curve is

Accepted Answer

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.E) All of the above
F) A) and C)

Question 20

Which of the following industries most closely approximates pure competition?

Accepted Answer

A)  agriculture
B)  farm implements
C)  clothing
D)  steelE) A) and C)
F) None of the above

Exam 10: Pure Competition in the Short Run

Why can't an individual firm raise its price by reducing output or lower its price to increase sales volume in a purely competitive market?

Correct AnswerverifiedBecause the individual firm's output is ...View AnswerShow Answer

Which of the following industries most closely approximates pure competition?

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

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

Correct AnswerverifiedShow Answer

The table gives data for a purely competitive, profit-maximizing firm. Based on this information, in the short run how much is this firm earning in economic profit (or losing, as reflected by negative numbers) ?

Correct AnswerverifiedShow Answer

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

Refer to the diagram for a purely competitive producer. The firm's short-run supply curve is

Correct AnswerverifiedShow Answer

The accompanying table gives cost data for a firm that is selling in a purely competitive market. If product price is $60, the firm will

Correct AnswerverifiedShow Answer

The accompanying table gives cost data for a firm that is selling in a purely competitive market. If the market price for the firm's product is $12, the competitive firm should produce

Correct AnswerverifiedShow Answer

Given the data in the table, at what quantity would a purely competitive firm cover all of its costs and earn only normal profits?

Correct AnswerverifiedShow Answer

In which of the following market structures is there clear-cut mutual interdependence with respect to price-output policies?

Correct AnswerverifiedShow Answer

Given the accompanying diagram, which level of output should the entrepreneur choose to maximize profits?

Correct AnswerverifiedShow Answer

The accompanying table gives cost data for a firm that is selling in a purely competitive market. If the market price for this firm's product is $15, it will produce

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

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

Correct AnswerverifiedShow Answer

Refer to the accompanying graph for a purely competitive firm. When the firm is in equilibrium in the short run, its average fixed cost is

Correct AnswerverifiedShow Answer

Replacement and repair costs

Correct AnswerverifiedShow Answer

As long as an additional unit of output yields a marginal revenue larger than its marginal cost, it will be adding to total profits of the firm.

Correct AnswerverifiedShow Answer

The fallacy of composition states that

Correct AnswerverifiedShow Answer

Local electric or gas utility companies mostly operate in which market structure?

Correct AnswerverifiedShow Answer

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