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Chapter 10 Pure Competition in the Short Run Answer Key
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.
AACSB: Knowledge Application

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 10-01 Give the names and summarize the main characteristics of the four basic market models.
Test Bank: I
Topic: Four Market Models
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

Blooms: Understand
Test Bank: I
3. Which of the following industries most closely approximates pure competition?
A. agriculture
B. farm implements
C. clothing
D. steel

Blooms: Understand
Test Bank: I
4. Economists use the term imperfect competition to describe
A. all industries that produce standardized products.

B. any industry in which there is no nonprice competition.
C. a pure monopoly only.
D. those markets that are not purely competitive.

Blooms: Understand
Test Bank: I
5. In which of the following industry structures is the entry of new firms the most difficult?
A. pure monopoly
B. oligopoly
D. pure competition
10-1
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Blooms: Understand
Test Bank: I
6. An industry comprising 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.

Blooms: Understand
Test Bank: I
7. An industry comprising four firms, each with about 25 percent of the total market for a product, is an example of
B. oligopoly.
C. pure monopoly.

Blooms: Understand
Test Bank: I
8. An industry comprising a very large number of sellers producing a standardized product is known as
B. oligopoly.
C. pure monopoly.

Blooms: Understand
Test Bank: I
9. An industry comprising a small number of firms, each of which considers the potential reactions of its rivals in making price-output decisions, is
called
B. oligopoly.
C. pure monopoly.

Blooms: Understand
Test Bank: I
10. Which of the following statements applies to a purely competitive producer?
A. It will not advertise its product.

10-2
B. In long-run equilibrium, it will earn an economic profit.
C. Its product will have a brand name that elicits customer loyalty.
D. Its product is slightly different from those of its competitors.

Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 10-02 List the conditions required for purely competitive markets.
Test Bank: I
Topic: Pure Competition: Characteristics and Occurrence
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."

Blooms: Remember
Difficulty: 01 Easy
Test Bank: I
12. Which of the following is not a characteristic of pure competition?
A. pricing strategies by firms

B. a standardized product
C. no barriers to entry
D. a larger number of sellers

Blooms: Remember
Difficulty: 01 Easy
Test Bank: I
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

Blooms: Remember
Difficulty: 01 Easy
Test Bank: I
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.

Blooms: Understand
Learning Objective: 10-03 Explain how demand is seen by a purely competitive seller.
Test Bank: I
Topic: Demand as Seen by a Purely Competitive Seller
10-3
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.

Blooms: Understand
Test Bank: I
16.
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, 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.

Blooms: Understand
Test Bank: I
17.
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.

Blooms: Understand
Test Bank: I
18.
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.
10-4
Blooms: Understand
Test Bank: I
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.

Blooms: Understand
Test Bank: I
20. Price is constant 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. marginal costs are constant.

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

Blooms: Understand
Test Bank: I
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.

Blooms: Understand
Test Bank: I
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.
10-5
C. is horizontal at the market price.
D. has all of these characteristics.

Blooms: Understand
Test Bank: I
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

Blooms: Understand
Test Bank: I
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 that is less than product price when it sells an extra unit.
D. is selling a differentiated (heterogeneous) product.

Blooms: Understand
Test Bank: I
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.

Blooms: Understand
Test Bank: I
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.

Blooms: Understand
Test Bank: I
28.
10-6
Refer to the 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.

Blooms: Understand
Test Bank: I
Type: Graph
29.
Refer to the diagram, which pertains to a purely competitive firm. Curve C represents
A. total revenue and marginal revenue.
10-7
B. marginal revenue only.
C. total revenue and average revenue.
D. average revenue and marginal revenue.

Blooms: Understand
Test Bank: I
Type: Graph
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.

Blooms: Understand
Test Bank: I
31. Firms seek to maximize
A. per unit profit.

B. total revenue.
C. total profit.
D. market share.

Blooms: Understand
Learning Objective: 10-04 Convey how purely competitive firms can use the total-revenue–total-cost approach to maximize profits or minimize losses in the short run.
Test Bank: I
Topic: Profit Maximization in the Short Run: Total-Revenue–Total-Cost Approach
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.

Blooms: Understand
Test Bank: I
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 at which economic profits are zero.
D. at any point where the total revenue and total cost curves intersect.

Blooms: Understand
Test Bank: I
10-8
34.
Refer to the short-run data in the accompanying graph. The profit-maximizing output for this firm is
A. above 440 units.

B. 440 units.
C. 320 units.
D. 100 units.

Blooms: Understand
Test Bank: I
Type: Graph
35.
10-9
Refer to the short-run data in the accompanying graph. 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.

Blooms: Understand
Test Bank: I
Type: Graph
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.

Blooms: Understand
Test Bank: I
37.
10-10
Curve (1) in the diagram is a purely competitive firm's
A. total cost curve.

B. total revenue curve.
C. marginal revenue curve.
D. total economic profit curve.

Blooms: Understand
Test Bank: I
Type: Graph
38.
10-11

Blooms: Understand
Test Bank: I
Type: Graph
39.


Blooms: Understand
Test Bank: I
Type: Graph
40.
10-12

D. total profit curve.

Blooms: Understand
Test Bank: I
Type: Graph
41.
Refer to the diagram. Other things equal, an increase of product price would be shown as
10-13
A. an increase in the steepness of curve (3), an upward shift in curve (2), and an 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 curves (2) and (3).
D. an upward shift in curve (2) only.

Blooms: Understand
Test Bank: I
Type: Graph
42.
The firm represented by the 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.

Blooms: Understand
Test Bank: I
Type: Graph
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.

Blooms: Understand
10-14
Test Bank: I
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.

Blooms: Understand
Learning Objective: 10-05 Explain how purely competitive firms can use the marginal-revenue–marginal-cost approach to maximize profits or minimize losses in the short run.
Test Bank: I
Topic: Profit Maximization in the Short Run: Marginal-Revenue–Marginal-Cost Approach
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.

Blooms: Understand
Test Bank: I
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.

Blooms: Understand
Test Bank: I
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.

Blooms: Understand
Learning Objective: 10-06 Explain why a competitive firms marginal cost curve is the same as its supply curve.
Test Bank: I
Topic: Marginal Cost and Short-Run Supply
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.
10-15
Blooms: Understand
Test Bank: I
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.

Blooms: Understand
Test Bank: I
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.

Blooms: Understand
Test Bank: I
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.

Blooms: Understand
Test Bank: I
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.

Blooms: Understand
Test Bank: I
53. A purely competitive firm should produce in the short run if its total revenue is sufficient to cover its
A. total variable costs.

10-16
B. total costs.
C. total fixed costs.
D. marginal costs.

Blooms: Understand
Test Bank: I
54. Output Marginal Revenue Marginal Cost

0 -- --
1 $16 $10
2 16 9
3 16 13
4 16 17
5 16 21
The data in the accompanying table indicates that this firm is selling its output in a(n)
A. monopolistically competitive market.

B. monopolistic market.
C. purely competitive market.
D. oligopolistic market.

Blooms: Understand
Test Bank: I
Type: Table

0 -- --
1 $16 $10
2 16 9
3 16 13
4 16 17
5 16 21
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
A. 2.
B. 3.
C. 4.
D. 5.

Blooms: Understand
Test Bank: I
Type: Table

0 -- --
1 $16 $10
2 16 9
3 16 13 10-17
Copyright4© 2018 McGraw-Hill Education.
16 All rights reserved.17
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
5 16 21
Refer to the data in the accompanying table. At the profit-maximizing output, the firm's total revenue is
A. $48.
B. $32.
C. $80.
D. $64.

Blooms: Understand
Test Bank: I
Type: Table

0 -- --
1 $16 $10
2 16 9
3 16 13
4 16 17
5 16 21
Refer to the data in the accompanying table. 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.

Blooms: Understand
Test Bank: I
Type: Table
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.

Blooms: Understand
Test Bank: I
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.
10-18
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.

Blooms: Understand
Test Bank: I
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 average variable cost.
C. total revenue and total cost.
D. total revenue and total fixed cost.

Blooms: Understand
Test Bank: I
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.

Blooms: Understand
Test Bank: I
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.

Blooms: Understand
Test Bank: I
63.
10-19
Refer to the 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.

Blooms: Understand
Test Bank: I
Type: Graph
64.
Refer to the diagram for a purely competitive producer. The firm will produce at a loss at all prices
A. below P2.
B. below P1.
10-20
C. below P3.
D. between P2 and P3.

Blooms: Understand
Test Bank: I
Type: Graph
65.
Refer to the 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.

Blooms: Understand
Test Bank: I
Type: Graph
66.
10-21
Refer to the 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.

Blooms: Understand
Test Bank: I
Type: Graph
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.

Blooms: Understand
Test Bank: I
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.

Blooms: Understand
Test Bank: I
10-22
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.

Blooms: Understand
Test Bank: I
70.
According to the accompanying 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.

Blooms: Understand
Test Bank: I
Type: Graph
71.
10-23
Refer to the accompanying diagram. At the profit-maximizing output, total revenue will be
A. 0AHE.
B. 0BGE.
C. 0CFE.
D. ABGE.

Blooms: Understand
Test Bank: I
Type: Graph
72.
10-24
According to the accompanying diagram, at the profit-maximizing output, total fixed cost is equal to
A. 0AHE.
B. 0BGE.
C. 0CFE.
D. BCFG.

Blooms: Understand
Test Bank: I
Type: Graph
73.
According to the accompanying diagram, at the profit-maximizing output, total variable cost is equal to
A. 0AHE.
B. 0CFE.
C. 0BGE.
D. ABGH.

Blooms: Understand
Test Bank: I
Type: Graph
74.
10-25
According to the accompanying 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.

Blooms: Understand
Test Bank: I
Type: Graph
75. If a purely competitive firm is producing at some output 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.

Blooms: Understand
Test Bank: I
76. Average Average Average

Total Fixed Variable Total Marginal
Product Cost Cost Cost Cost
1 $100.00 $17.00 $117.00 $17
2 50.00 16.00 66.00 15
3 33.33 15.00 48.33 13
4 25.00 14.25 39.25 12
5 20.00 14.00 34.00 13
6 16.67 14.00 30.67 14
7 14.29 15.71 30.00 26
8 12.50 17.50 30.00 30
9 11.11 19.44 30.55 35
10 10.00 21.60 31.60 41 10-26
11 © 2018 McGraw-Hill
Copyright 9.09 24.00 All rights
Education. 33.09 48
reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
12 8.33 26.67 35.00 56
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
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.

Blooms: Understand
Test Bank: I
Type: Table

1 $100.00 $17.00 $117.00 $17
2 50.00 16.00 66.00 15
3 33.33 15.00 48.33 13
4 25.00 14.25 39.25 12
5 20.00 14.00 34.00 13
6 16.67 14.00 30.67 14
7 14.29 15.71 30.00 26
8 12.50 17.50 30.00 30
9 11.11 19.44 30.55 35
10 10.00 21.60 31.60 41
11 9.09 24.00 33.09 48
12 8.33 26.67 35.00 56
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.

Blooms: Understand
Test Bank: I
Type: Table

1 $100.00 $17.00 $117.00 $17
2 50.00 16.00 66.00 15
3 33.33 15.00 48.33 13
4 25.00 14.25 39.25 12
5 20.00 14.00 34.00 13
6 16.67 14.00 30.67 14
7 14.29 15.71 30.00 26
8 12.50 17.50 30.00 30 10-27
9 11.11 19.44 30.55 35
10 10.00 21.60 31.60 41
11 9.09 24.00 33.09 48
12 8.33 26.67 35.00 56
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.

Blooms: Understand
Test Bank: I
Type: Table

1 $100.00 $17.00 $117.00 $17
2 50.00 16.00 66.00 15
3 33.33 15.00 48.33 13
4 25.00 14.25 39.25 12
5 20.00 14.00 34.00 13
6 16.67 14.00 30.67 14
7 14.29 15.71 30.00 26
8 12.50 17.50 30.00 30
9 11.11 19.44 30.55 35
10 10.00 21.60 31.60 41
11 9.09 24.00 33.09 48
12 8.33 26.67 35.00 56
The accompanying table gives cost data for a firm that is selling in a purely competitive market. Which of the following tables gives the firm's short-
run supply schedule?
A. Price Qs
$50 12
42 10
36 8
32 8
20 6
13 0
B. Price Qs
$50 12
42 11
36 9
32 8
20 6
13 5
C. Price Qs
$50 11 10-28
Copyright 10 Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
36 9
32 8
20 6
13 0
D. Price Qs
$50 11
42 10
36 9
32 8
20 6
13 5

Blooms: Understand
Test Bank: I
Type: Table

1 $100.00 $17.00 $117.00 $17
2 50.00 16.00 66.00 15
3 33.33 15.00 48.33 13
4 25.00 14.25 39.25 12
5 20.00 14.00 34.00 13
6 16.67 14.00 30.67 14
7 14.29 15.71 30.00 26
8 12.50 17.50 30.00 30
9 11.11 19.44 30.55 35
10 10.00 21.60 31.60 41
11 9.09 24.00 33.09 48
12 8.33 26.67 35.00 56
The accompanying table gives cost data for a firm that is selling in a purely competitive market. If there were 1,000 identical firms in this industry
and total, or market, demand is as shown in the second table, equilibrium price will be
Price Quantity Demanded

$50 3,000
42 6,000
36 9,000
32 11,000
20 14,000
13 19,500
A. $32.
B. $42.
C. $36.
D. $20.

Blooms: Understand
Test Bank: I
Type: Table
10-29
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.

Blooms: Understand
Test Bank: I
82.
In the provided diagram, the profit-maximizing output
A. is n.
B. is k.
C. is h.
D. cannot be determined from the information given.

Blooms: Understand
Test Bank: I
Type: Graph
83.
10-30
In the provided diagram, at the profit-maximizing output, total profit is
A. efbc.
B. fgab.
C. egac.
D. 0fbn.

Blooms: Understand
Test Bank: I
Type: Graph
84.
10-31
In the provided 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.

Blooms: Understand
Test Bank: I
Type: Graph
85.
According to the information in the provided diagram, this firm is selling its product in a(n)
A. purely competitive market.

B. oligopoly market.
C. monopolistically competitive market.
D. monopolistic market.

Blooms: Understand
Test Bank: I
Type: Graph
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.

10-32
Blooms: Understand
Test Bank: I
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.

Blooms: Understand
Test Bank: I
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 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.

Blooms: Understand
Test Bank: I
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.

Blooms: Understand
Test Bank: I
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.

Blooms: Understand
Test Bank: I
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.
10-33
B. profit-maximizing rule.
C. shut-down rule.
D. break-even rule.

Blooms: Understand
Test Bank: I
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.

Blooms: Understand
Test Bank: I
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.

Blooms: Understand
Test Bank: I
94.
At P2 in the accompanying diagram, this firm will
10-34
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.

Blooms: Understand
Test Bank: I
Type: Graph
95.
At P1 in the accompanying diagram, 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.

Blooms: Understand
Test Bank: I
Type: Graph
96.
10-35

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.

Blooms: Understand
Test Bank: I
Type: Graph
97.
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.

Blooms: Understand
10-36
Test Bank: I
Type: Graph
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.

Blooms: Understand
Test Bank: I
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.

Blooms: Understand
Test Bank: I
100. Output Total Cost

0 $50
1 90
2 120
3 140
4 170
5 210
6 260
7 330
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
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.

Blooms: Understand
Test Bank: I
Type: Table

0 $50
1 90
2 120
3 140
4 170 10-37
Copyright5© 2018 McGraw-Hill210
Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
6 260
7 330
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.

Blooms: Understand
Test Bank: I
Type: Table

0 $50
1 90
2 120
3 140
4 170
5 210
6 260
7 330
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.

Blooms: Understand
Test Bank: I
Type: Table
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.

Blooms: Understand
Test Bank: I
104.
10-38
Refer to the accompanying diagram. This firm will earn only a normal profit if product price is
A. P1.
B. P2.
C. P3.
D. P4.

Blooms: Understand
Test Bank: I
Type: Graph
105.
10-39
Refer to the accompanying diagram. The firm will realize an economic profit if price is
A. P1.
B. P2.
C. P3.
D. P4.

Blooms: Understand
Test Bank: I
Type: Graph
106.
Refer to the accompanying diagram. The firm will produce at a loss if price is
A. less than P1.

B. P2.
C. P3.
D. P4.

Blooms: Understand
Test Bank: I
Type: Graph
107.
10-40
Refer to the accompanying diagram. The firm will shut down at any price less than
A. P1.
B. P2.
C. P3.
D. P4.

Blooms: Understand
Test Bank: I
Type: Graph
108.
10-41
Refer to the accompanying 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.

Blooms: Understand
Test Bank: I
Type: Graph

1 $150.00 $25.00 $175.00 $ 25.00
2 75.00 23.00 98.00 21.00
3 50.00 20.00 70.00 14.00
4 37.50 21.00 58.50 24.00
5 30.00 23.00 53.00 31.00
6 25.00 25.00 50.00 35.00
7 21.43 28.00 49.43 46.01
8 18.75 33.00 51.76 68.07
9 16.67 39.00 55.67 86.95
10 15.00 48.00 63.00 128.97
The accompanying table gives cost data for a firm that is selling in a purely competitive market. 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.

Blooms: Understand
Test Bank: I
Type: Table

1 $150.00 $25.00 $175.00 $ 25.00
2 75.00 23.00 98.00 21.00
3 50.00 20.00 70.00 14.00
4 37.50 21.00 58.50 24.00
5 30.00 23.00 53.00 31.00
6 25.00 25.00 50.00 35.00
7 21.43 28.00 49.43 46.01
8 18.75 33.00 51.76 68.07
9 16.67 39.00 55.67 86.95
10 15.00 48.00 63.00 128.97
The accompanying table gives cost data for a firm that is selling in a purely competitive market. At 6 units of output, total fixed cost is and total
10-42
cost is .
A. $25; $50
B. $50; $300
C. $100; $200
D. $150; $300

Blooms: Understand
Test Bank: I
Type: Table

1 $150.00 $25.00 $175.00 $ 25.00
2 75.00 23.00 98.00 21.00
3 50.00 20.00 70.00 14.00
4 37.50 21.00 58.50 24.00
5 30.00 23.00 53.00 31.00
6 25.00 25.00 50.00 35.00
7 21.43 28.00 49.43 46.01
8 18.75 33.00 51.76 68.07
9 16.67 39.00 55.67 86.95
10 15.00 48.00 63.00 128.97
The accompanying table gives cost data for a firm that is selling in a purely competitive market. 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

Blooms: Understand
Test Bank: I
Type: Table

1 $150.00 $25.00 $175.00 $ 25.00
2 75.00 23.00 98.00 21.00
3 50.00 20.00 70.00 14.00
4 37.50 21.00 58.50 24.00
5 30.00 23.00 53.00 31.00
6 25.00 25.00 50.00 35.00
7 21.43 28.00 49.43 46.01
8 18.75 33.00 51.76 68.07
9 16.67 39.00 55.67 86.95
10 15.00 48.00 63.00 128.97
The accompanying table gives cost data for a firm that is selling in a purely competitive market. We can infer that, at zero output, this firm's total
fixed, total variable, and total costs are
10-43
A. zero, zero, and zero, respectively.
B. zero, $25, and $175, respectively.
C. $150, $25, and $175, respectively.
D. $150, zero, and $150, respectively.

Blooms: Understand
Test Bank: I
Type: Table

1 $150.00 $25.00 $175.00 $ 25.00
2 75.00 23.00 98.00 21.00
3 50.00 20.00 70.00 14.00
4 37.50 21.00 58.50 24.00
5 30.00 23.00 53.00 31.00
6 25.00 25.00 50.00 35.00
7 21.43 28.00 49.43 46.01
8 18.75 33.00 51.76 68.07
9 16.67 39.00 55.67 86.95
10 15.00 48.00 63.00 128.97
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 $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.

Blooms: Understand
Test Bank: I
Type: Table

1 $150.00 $25.00 $175.00 $ 25.00
2 75.00 23.00 98.00 21.00
3 50.00 20.00 70.00 14.00
4 37.50 21.00 58.50 24.00
5 30.00 23.00 53.00 31.00
6 25.00 25.00 50.00 35.00
7 21.43 28.00 49.43 46.01
8 18.75 33.00 51.76 68.07
9 16.67 39.00 55.67 86.95
10 15.00 48.00 63.00 128.97
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 $68.10, it
will produce
10-44
A. 8 units at an economic profit of zero.

Blooms: Understand
Test Bank: I
Type: Table

1 $150.00 $25.00 $175.00 $ 25.00
2 75.00 23.00 98.00 21.00
3 50.00 20.00 70.00 14.00
4 37.50 21.00 58.50 24.00
5 30.00 23.00 53.00 31.00
6 25.00 25.00 50.00 35.00
7 21.43 28.00 49.43 46.01
8 18.75 33.00 51.76 68.07
9 16.67 39.00 55.67 86.95
10 15.00 48.00 63.00 128.97
will produce


Blooms: Understand
Test Bank: I
Type: Table

1 $150.00 $25.00 $175.00 $ 25.00
2 75.00 23.00 98.00 21.00
3 50.00 20.00 70.00 14.00
4 37.50 21.00 58.50 24.00
5 30.00 23.00 53.00 31.00
6 25.00 25.00 50.00 35.00
7 21.43 28.00 49.43 46.01
8 18.75 33.00 51.76 68.07
9 16.67 39.00 55.67 86.95
10 15.00 48.00 63.00 128.97
will produce
10-45
C. 3 units at an economic profit of zero.
D. 4 units at a loss of $138.

Blooms: Understand
Test Bank: I
Type: Table

1 $150.00 $25.00 $175.00 $ 25.00
2 75.00 23.00 98.00 21.00
3 50.00 20.00 70.00 14.00
4 37.50 21.00 58.50 24.00
5 30.00 23.00 53.00 31.00
6 25.00 25.00 50.00 35.00
7 21.43 28.00 49.43 46.01
8 18.75 33.00 51.76 68.07
9 16.67 39.00 55.67 86.95
10 15.00 48.00 63.00 128.97
will produce

C. 3 units at an economic profit of zero.
D. 4 units at a loss of $138.

Blooms: Understand
Test Bank: I
Type: Table
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.

Blooms: Understand
Test Bank: I
Type: Table
119. Total Total Fixed Total Variable Total

Output Cost Cost Cost
0 $50 $0 $50
1 50 70 120
2 50 120 170
3 50 150 200
4 50 220 270
5 50 300 350
10-46
6 50 390 440 or distribution without the prior written consent of McGraw-Hill Education.
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction
The accompanying table gives cost data for a firm that is selling in a purely competitive market. The 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.

Blooms: Understand
Test Bank: I
Type: Table

0 $50 $0 $50
1 50 70 120
2 50 120 170
3 50 150 200
4 50 220 270
5 50 300 350
6 50 390 440
The accompanying table gives cost data for a firm that is selling in a purely competitive market. 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.

Blooms: Understand
Test Bank: I
Type: Table

0 $50 $0 $50
1 50 70 120
2 50 120 170
3 50 150 200
4 50 220 270
5 50 300 350
6 50 390 440
The accompanying table gives cost data for a firm that is selling in a purely competitive market. The marginal cost of the fifth unit of output is
A. $80.
10-47
B. $90.
C. $50.
D. $20.

Blooms: Understand
Test Bank: I
Type: Table

0 $50 $0 $50
1 50 70 120
2 50 120 170
3 50 150 200
4 50 220 270
5 50 300 350
6 50 390 440
The accompanying table gives cost data for a firm that is selling in a purely competitive market. 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.

Blooms: Understand
Test Bank: I
Type: Table

0 $50 $0 $50
1 50 70 120
2 50 120 170
3 50 150 200
4 50 220 270
5 50 300 350
6 50 390 440
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
A. realize a $25 economic profit.

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

Blooms: Understand
Test Bank: I
Type: Table
10-48
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.

Blooms: Understand
Test Bank: I
125. Quantity Demanded Price Quantity Supplied

400,000 $5 800,000
500,000 4 700,000
600,000 3 600,000
700,000 2 500,000
800,000 1 400,000
The accompanying table applies to a purely competitive industry composed of 100 identical firms. The equilibrium price in this purely competitive
market is
A. $5.
B. $4.
C. $3.
D. $2.

Blooms: Understand
Test Bank: I
Type: Table

400,000 $5 800,000
500,000 4 700,000
600,000 3 600,000
700,000 2 500,000
800,000 1 400,000
The accompanying table applies to a purely competitive industry composed of 100 identical firms. 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.

Blooms: Understand
Test Bank: I
Type: Table
10-49
400,000 $5 800,000
500,000 4 700,000
600,000 3 600,000
700,000 2 500,000
800,000 1 400,000
The accompanying table applies to a purely competitive industry composed of 100 identical firms. 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.

Blooms: Understand
Test Bank: I
Type: Table

400,000 $5 800,000
500,000 4 700,000
600,000 3 600,000
700,000 2 500,000
800,000 1 400,000
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
A. $5.
B. $4.
C. $3.
D. $2.

Blooms: Understand
Test Bank: I
Type: Table

400,000 $5 800,000
500,000 4 700,000
600,000 3 600,000
700,000 2 500,000
800,000 1 400,000
maximizing its profit and earning only a normal profit, each must have a total cost of
A. $18,000.
10-50
B. $20,000.
C. $22,000.
D. $14,000.

Blooms: Understand
Test Bank: I
Type: Table

400,000 $5 800,000
500,000 4 700,000
600,000 3 600,000
700,000 2 500,000
800,000 1 400,000
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.

Blooms: Understand
Test Bank: I
Type: Table
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.

Blooms: Understand
Test Bank: I
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.

Blooms: Understand
Test Bank: I
133. (Last Word) Fixed costs for a firm are analogous to
10-51
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.

Blooms: Understand
Test Bank: I
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.

Blooms: Understand
Test Bank: I
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.

Blooms: Understand
Test Bank: I
True / False Questions

136. Oligopoly firms may produce either standardized or differentiated products.
TRUE
Blooms: Understand
Test Bank: I
137. The term imperfect competition refers to every market structure besides pure competition.
TRUE
Blooms: Understand
Test Bank: I
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.
10-52
FALSE
Blooms: Understand
Test Bank: I
139. Although individual purely competitive firms can influence the price of their product, these firms as a group cannot influence market price.
FALSE
Blooms: Remember
Difficulty: 01 Easy
Test Bank: I
140. In a purely competitive industry, competition centers more on advertising and sales promotion than on price.
FALSE
Blooms: Remember
Difficulty: 01 Easy
Test Bank: I
141. Price and marginal revenue are identical for an individual purely competitive seller.
TRUE
Blooms: Understand
Test Bank: I
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.
FALSE
Blooms: Understand
Test Bank: I
143. Marginal revenue is the addition to total revenue resulting from the sale of one more unit of output.
TRUE
Blooms: Understand
Test Bank: I
10-53
144. In maximizing profit, a firm will always produce that output where total revenues are at a maximum.
FALSE
Blooms: Understand
Test Bank: I
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.
FALSE
Blooms: Understand
Test Bank: I
146. A competitive firm will produce in the short run so long as its price exceeds its average fixed cost.
FALSE
Blooms: Understand
Test Bank: I
147.
The firm described in the accompanying graph will maximize profits by producing output D.
FALSE
10-54
Blooms: Understand
Test Bank: I
Type: Graph
148.
In the accompanying diagram, at the profit-maximizing output, total revenue will be 0GLD.
FALSE
Blooms: Understand
Test Bank: I
Type: Graph
149.
10-55
In the accompanying diagram, at output C, production will result in an economic profit.
TRUE
Blooms: Understand
Test Bank: I
Type: Graph
150.
In the accompanying diagram, at any price below R, the firm will shut down in the short run.
10-56
TRUE
Blooms: Understand
Test Bank: I
Type: Graph
151.
In the accompanying graph, if demand fell to the level of FNJ, there would be no output at which the firm could realize an economic profit.
FALSE
Blooms: Understand
Test Bank: I
Type: Graph
152.
10-57
In the accompanying diagram, if the firm produced D units of output at price G, it would earn a normal profit.
TRUE
Blooms: Understand
Test Bank: I
Type: Graph
153. The short-run supply curve slopes upward because producers must be compensated for rising marginal costs.
TRUE
Blooms: Understand
Test Bank: I
Multiple Choice Questions

154. Which market model assumes the least number of firms in an industry?
A. monopolistic competition
B. pure competition
C. pure monopoly
D. oligopoly

Blooms: Understand
Test Bank: II
155. In which market model would there be a unique product for which there are no close substitutes?
10-58
B. pure competition
C. pure monopoly
D. oligopoly

Blooms: Understand
Test Bank: II
156. There would be some control over price within rather narrow limits in which market model?
B. pure competition
C. pure monopoly
D. oligopoly

Blooms: Understand
Test Bank: II
157. Mutual interdependence would tend to limit control over price in which market model?
B. pure competition
C. pure monopoly
D. oligopoly

Blooms: Understand
Test Bank: II
158. 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

Blooms: Understand
Test Bank: II
159. In which market model are the conditions of entry into the market easiest?
A. pure competition
B. pure monopoly
D. oligopoly

Blooms: Understand
Test Bank: II
10-59
160. In which market model are the conditions of entry the most difficult?
B. pure competition
C. pure monopoly
D. oligopoly

Blooms: Understand
Test Bank: II
161. Local electric or gas utility companies mostly operate in which market structure?
B. pure competition
C. pure monopoly
D. oligopoly

Blooms: Understand
Test Bank: II
162. The fast-food restaurant industry in a large city would be an example of which market model?
B. pure competition
C. pure monopoly
D. oligopoly

Blooms: Understand
Test Bank: II
163. The market for agricultural products such as wheat or corn would best be described by which market model?
B. pure competition
C. pure monopoly
D. oligopoly

Blooms: Understand
Test Bank: II
164. The soft drink and automobile industries would be examples of which market model?
B. pure competition
C. pure monopoly
D. oligopoly

10-60
Blooms: Understand
Test Bank: II
165. Which of the following is not a basic market model?
A. pure competition
B. free enterprise
C. oligopoly
D. monopoly

Blooms: Understand
Test Bank: II
166. Which idea is inconsistent with pure competition?
A. price-taking behavior
B. product differentiation
C. freedom of entry or exit for firms
D. a large number of buyers and sellers

Blooms: Remember
Difficulty: 01 Easy
Test Bank: II
167. Which characteristic would best be associated with pure competition?
A. few sellers
B. price takers
C. nonprice competition
D. product differentiation

Blooms: Remember
Difficulty: 01 Easy
Test Bank: II
168. 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

Blooms: Remember
Difficulty: 01 Easy
Test Bank: II
169. 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.
10-61
D. engages in various forms of nonprice competition.

Blooms: Remember
Difficulty: 01 Easy
Test Bank: II
170. Which of the following is a feature of a purely competitive market?
A. Price differences exist between firms producing the same product.

B. There are significant barriers to entry into the industry.
C. The industry's demand curve is perfectly elastic.
D. Products are standardized or homogeneous.

Blooms: Remember
Difficulty: 01 Easy
Test Bank: II
171. Which of the following 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 production level.
D. Each individual firm has the ability to set its own price.

Blooms: Remember
Difficulty: 01 Easy
Test Bank: II
172. Which of the following is a reason why individual firms under pure competition would not find it gainful to advertise their product?
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.

Blooms: Remember
Difficulty: 01 Easy
Test Bank: II
173. Price is taken to be a "given" by an individual firm selling in a purely competitive market because
A. the firm's demand curve is downward-sloping.

B. there are no good substitutes for the firm's product.
C. each seller supplies a negligible fraction of the total market.
D. product differentiation is reinforced by extensive advertising.

Blooms: Remember
Difficulty: 01 Easy
Test Bank: II
174. Which of the following is not a necessary characteristic of a purely competitive industry?
10-62
A. The industry or market demand is highly elastic.
B. Firms can easily enter or leave the industry.
C. There are so many small firms that no one firm can influence the market price.
D. Consumers see no difference between the product of one firm and that of another.

Blooms: Understand
Test Bank: II
175. 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.

Blooms: Understand
Test Bank: II
176. A purely competitive firm can be identified by the fact that
A. there are other firms in the industry producing similar products.

B. it is making only normal profits in the short run.
C. its average revenue equals its marginal revenue.
D. it experiences diminishing marginal returns.

Blooms: Understand
Test Bank: II
177. 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.

Blooms: Understand
Test Bank: II
178. If the demand curve faced by an individual firm is downward-sloping, the firm cannot be
A. a monopoly firm.
B. a purely competitive firm.
C. an oligopolistic firm.
D. a monopolistically competitive firm.

Blooms: Understand
Test Bank: II
10-63
179. In pure competition, the demand for the product of a single firm is perfectly
A. elastic because the firm produces a unique product.

B. inelastic because the firm produces a unique product.
C. elastic because many other firms produce the same product.
D. inelastic because many other firms produce the same product.

Blooms: Understand
Test Bank: II
180. If a firm is a price taker, then the demand curve for the firm's product is
A. equal to the total revenue curve.

B. perfectly inelastic.
C. perfectly elastic.
D. unit elastic.

Blooms: Understand
Test Bank: II
181. Xavier produces and sells tomatoes in a purely competitive market. This implies that Xavier's marginal revenue from an extra unit of tomatoes is
always equal to the
A. unit price.
B. average cost.
C. variable cost.
D. unit profit.

Blooms: Understand
Test Bank: II
182. Suppose that Joe sells pork in a purely competitive market. The market price of pork is $3 per pound. Joe's marginal revenue from selling the 12th
pound of pork would be
A. $36.
B. $3.
C. 12 lb.
D. 1 lb.

Blooms: Understand
Test Bank: II
183. In pure competition, each extra unit of output that a firm sells will yield a marginal revenue that is
A. equal to the price.

B. less than the price.
C. greater than the price.
D. equal to the average cost.

10-64
Blooms: Understand
Test Bank: II
184. Average revenue is conceptually equivalent to the
A. unit price of the product.

B. average cost of the product.
C. marginal cost of the product.
D. marginal revenue of the product.

Blooms: Understand
Test Bank: II
185. Unit price and average revenue are the same or equal in
A. pure competition only.

B. pure monopoly only.
C. monopolistic competition only.
D. all market structures.

Blooms: Understand
Test Bank: II
186. Average revenue and marginal revenue are equal at each output level in
A. pure competition.
B. monopolistic competition.
C. monopoly.
D. oligopoly.

Blooms: Understand
Test Bank: II
187. 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.

Blooms: Understand
Test Bank: II
188. The total revenue of a purely competitive firm from selling 6 units of output is $48. Based on this information, the unit price of the output must be
A. $8.
B. $42.
10-65
C. $288.
D. $54.

Blooms: Understand
Test Bank: II
189. 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.

Blooms: Understand
Test Bank: II
190. 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.

Blooms: Understand
Test Bank: II
191.
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?
Output Total Cost

20 $70
25 75
30 85
35 100
40 125
45 155
50 190
A. 20
B. 30
C. 40
D. 50

Blooms: Understand
Test Bank: II
10-66
192. In the standard model of pure competition in the short run, a profit-maximizing firm will produce the output quantity where the gap between
A. marginal revenue and marginal cost is the largest, with revenue higher than cost.
B. average revenue and average cost is the largest, with revenue higher than cost.
C. total revenue and total cost is the largest, with revenue higher than cost.
D. average revenue and average variable cost is the largest.

Blooms: Understand
Test Bank: II
193. In the standard model of pure competition, a profit-maximizing firm will shut down in the short run if price is below
A. marginal cost.
B. average cost.
C. average fixed cost.
D. average variable cost.

Blooms: Understand
Test Bank: II
194. In the standard model of pure competition, a profit-maximizing firm 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 cost.

Blooms: Understand
Test Bank: II
195.
Given the accompanying table, what is the short-run profit-maximizing level of output for the firm?
Output Total Revenue Total Cost

1 $4 2
2 8 3
3 12 6
4 16 9
5 20 14
A. 2 units
B. 3 units
C. 4 units
D. 5 units

Blooms: Understand
10-67
Test Bank: II
196.
Refer to the provided graph for a purely competitive firm in the short run. The firm would suffer losses if it operated at which of the following ranges of
output?
A. 0A
B. AB
C. BC
D. any level below C

Blooms: Understand
Test Bank: II
197.
10-68
Refer to the provided graph for a purely competitive firm in the short run. Profits would be maximized if the firm produces which level of output?
A. A
B. B
C. C
D. greater than C

Blooms: Understand
Test Bank: II
198.
Refer to the provided graph for a purely competitive firm in the short run. If the firm is maximizing profit, the price of the product is:
A. D.
B. E.
10-69
C. F.
D. G.

Blooms: Understand
Test Bank: II
199.
Refer to the provided 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

Blooms: Understand
Test Bank: II
200.
10-70
Refer to the provided 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.

Blooms: Understand
Test Bank: II

0 $2,500
1 2,700
2 3,100
3 3,700
4 4,500
5 6,000
The table shows the total costs for a purely competitive firm. If the firm shuts down in the short run, the total cost will be
A. $ 0.
B. $2,500.
C. $2,700.
D. $3,100.

Blooms: Understand
Test Bank: II

0 $2,500
1 2,700
10-71
2 3,100
3 3,700
4 4,500
5 6,000
The table shows the total costs for a purely competitive firm. If the product sells for $1,200 a unit, the firm's profit-maximizing output is
A. 2.
B. 3.
C. 4.
D. 5.

Blooms: Understand
Test Bank: II
203. Price Quantity TFC TVC

$5 5 $25 $10
5 10 25 20
5 15 25 50
5 20 25 60
Given the data in the table, at what quantity 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

Blooms: Understand
Test Bank: II
204. Total Revenue $3,000 Per Week

Total Variable Cost $2,000 Per Week
Total Fixed Cost $2,000 Per Week
Let us suppose Harry's, a local supplier of chili and pizza, has the revenue and cost structure shown here.
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.

Blooms: Understand
Test Bank: II
205.
10-72
Which of the output levels in the accompanying graph is the profit-maximizing output level for this firm?
A. Q1
B. Q2
C. Q3
D. Q4

Blooms: Understand
Test Bank: II
206.
In the graph, the amount of profit is measured by the gap between
10-73
A. e and the vertical axis.
B. e and the horizontal axis.
C. d and e.
D. e and f.

Blooms: Understand
Test Bank: II
207.
In a typical graph for a purely competitive firm, at the point where the total cost and total revenue curves intersect, the firm
A. earns some economic profit.

B. suffers some economic loss.
C. earns some normal profit.
D. suffers some accounting loss.

Blooms: Understand
Test Bank: II
208. Output Total Revenue Total Cost

0 $0 $50
1 40 74
2 80 94
3 120 117
4 160 142
5 200 172
The table gives data for a purely competitive firm. The market price of the product in the short run is
A. $40.
10-74
B. $80.
C. $120.
D. $160.

Blooms: Understand
Test Bank: II

0 $0 $50
1 40 74
2 80 94
3 120 117
4 160 142
5 200 172
The table gives data for a purely competitive firm. The marginal revenue from the third unit of output is
A. $40.
B. $50.
C. $120.
D. $160.

Blooms: Understand
Test Bank: II

0 $0 $50
1 40 74
2 80 94
3 120 117
4 160 142
5 200 172
The table gives data for a purely competitive firm. When the firm produces 3 units of output, it makes an economic
A. profit of $3.
B. loss of $3.
C. profit of $ 40.
D. loss of $39.

Blooms: Understand
Test Bank: II
211. Rent (Binding 20-Year Lease) $1,000 Per Week

Sales $2,000 Per Week
Raw Material Cost $1,000 Per Week
Value of Your Own Labor $500 Per Week
As president and owner of the Sour Grapes Lemonade Company, you face the costs shown. To maximize your financial well-being, you should
10-75
A. continue to operate in the short run because rent is less than sales.
B. shut down because variable costs exceed fixed costs.
C. shut down because the company is losing money.
D. continue operating in the short run.

Blooms: Understand
Test Bank: II
212. 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. as long as marginal revenue is less than marginal cost.
D. as long as marginal revenue is greater than marginal cost.

Blooms: Understand
Test Bank: II
213. Farmer Jones is producing wheat and must accept the market price of $6.00 per bushel. At this time, her average total costs and her marginal costs
both equal $8.00 per bushel. Her average variable costs are $5 per bushel. In order to maximize profits or minimize losses in the short run, farmer
Jones should
A. increase output.
B. increase selling price.
C. produce zero output and close down.
D. continue producing, but reduce output.

Blooms: Understand
Test Bank: II
214. Which of the following 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.

Blooms: Understand
Test Bank: II
215. Which is necessarily true for a purely competitive firm in short-run equilibrium?
A. Marginal revenue minus marginal cost equals zero.

B. Price minus average total cost equals zero.
C. Total revenue minus total cost equals zero.
D. Marginal revenue is zero.

Blooms: Understand
10-76
Test Bank: II
216. A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 1,000 units is $2.50. The minimum
possible average variable cost is $2.00. The market price of the product is $2.50. To maximize profits or minimize losses, the firm should
A. continue producing 1,000 units.

B. continue production, but produce less than 1,000 units.
C. increase production to more than 1,000 units.
D. shut down.

Blooms: Understand
Test Bank: II
217. A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 800 units is $3.50. The average
variable cost is $3.00. The market price of the product is $4.00. To maximize profits or minimize losses, the firm should
A. continue producing 800 units.

B. continue production, but produce less than 800 units.
C. increase production to more than 800 units.
D. shut down.

Blooms: Understand
Test Bank: II
A. continue producing 500 units.

D. shut down.

Blooms: Understand
Test Bank: II
A. continue to produce 200 units.

D. shut down.

Blooms: Understand
Test Bank: II
220. A firm sells a product in a purely competitive market. The marginal cost of the product at the current output is $4.00 and the market price is $4.50.
What should the firm do?
10-77
A. shut down if the minimum possible average variable cost is below $4.50
B. decrease output if the minimum possible average variable cost is below $4.50
C. increase output if the minimum possible average variable cost is below $4.50
D. decrease output if the minimum possible average variable cost is above $4.50

Blooms: Understand
Test Bank: II
221. T-Shirt Enterprises is selling in a purely competitive market. It is producing 3,000 units, selling them for $2.00 each. At this level of output, the
average total cost is 2.50 and the average variable cost is $2.20. Based on these data, the firm should

B. decrease output to 2,500 units.
C. continue to produce 3,000 units.
D. increase output to 3,500 units.

Blooms: Understand
Test Bank: II
222.
Given the accompanying diagram, which level of output should the entrepreneur choose to maximize profits?
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 maximized

Blooms: Understand
Test Bank: II
10-78
223.
To maximize profits, the firm whose data is shown in the graph should produce the quantity
A. 0A.
B. 0B.
C. 0C.
D. 0K.

Blooms: Understand
Test Bank: II
224.
Refer to the accompanying graph. If the market price for the product falls, then which of the curves would shift?
10-79
A. MC
B. ATC
C. AVC
D. D

Blooms: Understand
Test Bank: II
225. Average Average Marginal

Output Variable Cost Total Cost Cost
10 $5.00 $15.00 $3
12 4.00 13.00 4
14 4.75 11.50 6
16 5.75 9.00 9
20 9.00 12.00 14
The accompanying table shows cost data for a firm that is selling in a purely competitive market. The firm will produce its output only if the price is
at least equal to what minimum level?
A. $3
B. $4
C. $5
D. $9

Blooms: Understand
Test Bank: II
226. Average Average Marginal

Output Variable Cost Total Cost Cost
10 $5.00 $15.00 $3
12 4.00 13.00 4
14 4.75 11.50 6
16 5.75 9.00 9
20 9.00 12.00 14
The accompanying table shows cost data for a firm that is selling in a purely competitive market. If the price of the product is $6, what output level
will the firm produce?
A. 0
B. 12
C. 14
D. 16

Blooms: Understand
Test Bank: II
227. Outpuit AFC AVC ATC MC

1 $300 $100 $400 $100
2 150 75 225 50
3 100 70 170 60
4 75 73 148 10-80 80
Copyright 5© 2018 McGraw-Hill
60Education. All rights
80reserved. No reproduction
140 110 without the prior written consent of McGraw-Hill Education.
or distribution
6 50 90 140 140
7 43 103 146 180
8 38 119 156 230
9 33 138 171 290
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
A. produce 4 units.
B. produce 5 units.
C. produce 6 units.
D. shut down.

Blooms: Understand
Test Bank: II

1 $300 $100 $400 $100
2 150 75 225 50
3 100 70 170 60
4 75 73 148 80
5 60 80 140 110
6 50 90 140 140
7 43 103 146 180
8 38 119 156 230
9 33 138 171 290
10 30 160 190 360
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
competitive firm will produce
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.

Blooms: Understand
Test Bank: II

1 $300 $100 $400 $100
2 150 75 225 50
3 100 70 170 60
4 75 73 148 80
5 60 80 140 110
6 50 90 140 140
7 43 103 146 180
8 38 119 156 230
9 33 138 171 290
10 30 160 190 360
10-81
The accompanying table shows cost data for a firm that is selling in a purely competitive market. 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.

Blooms: Understand
Test Bank: II

1 $300 $100 $400 $100
2 150 75 225 50
3 100 70 170 60
4 75 73 148 80
5 60 80 140 110
6 50 90 140 140
7 43 103 146 180
8 38 119 156 230
9 33 138 171 290
10 30 160 190 360
The first table shows cost data for a firm that is selling in a purely competitive market. Now assume there are 100 identical firms in this industry,
each of which has the same cost data as the single firm described in the cost table. Now consider the demand curve data for this industry as shown in
the second table.

$360 400
290 500
230 600
180 700
140 800
110 900
80 1,000
The equilibrium price in the market will be
A. $140.
B. $180.
C. $230.
D. $290.

Blooms: Understand
Test Bank: II
231. A purely competitive firm is currently in short-run equilibrium and its MC exceeds its ATC at its current output level. It can be concluded that
A. firms will leave the industry in the long run.

B. the firm is realizing an economic profit.
C. the firm is suffering an economic loss.
D. the firm will shut down in the short run.
10-82
Blooms: Understand
Test Bank: II
232. The Campus Crustacean Company receives $2 per box for its crawfish and is selling 1,600 boxes to maximize its profits. What is the profit per box
of crawfish at this equilibrium level of output if the average variable cost is $1 per box and total fixed costs are $1,200?
A. $0.25
B. $0.50
C. $1.00
D. $1.25

Blooms: Understand
Test Bank: II
233.
Refer to the accompanying graph. The firm will earn maximum total profits if it produces and sells quantity
A. 0A.
B. 0B.
C. 0C.
D. 0K.

Blooms: Understand
Test Bank: II
234.
10-83
In the accompanying graph, at what level of output will the firm earn a maximum unit-profit margin (or profit per unit)?
A. 0A
B. 0B
C. 0C
D. 0K

Blooms: Understand
Test Bank: II
235.
Consider the purely competitive firm whose data are shown in the accompanying graph. The firm is earning
10-84
A. normal profits, since its price is above AVC.
B. economic profits, since its price is above AVC.
C. normal profits, since its price just covers ATC.
D. losses, since it is operating at the shutdown point.

Blooms: Understand
Test Bank: II
236.
Consider the purely competitive firm whose data are shown in the accompanying graph. At its short-run equilibrium point, the firm is earning
A. zero normal profits.

B. zero economic profits.
C. zero accounting profits.
D. We can say nothing about this firm's profit or loss situation.

Blooms: Understand
Test Bank: II
237. A purely competitive firm is producing at the point where its marginal cost equals the price of its product. If the firm increases its output, then total
revenue will
A. increase and profits will increase.

B. decrease and profits will increase.
C. increase and profits will decrease.
D. decrease and profits will decrease.

Blooms: Understand
Test Bank: II
10-85
238. A firm should continue to operate even at a loss in the short run if
A. its output is above the break-even point.

B. its revenues are less than its fixed costs.
C. it can cover its variable costs and some of its fixed costs.
D. it has some fixed costs that cannot be brought down to zero.

Blooms: Understand
Test Bank: II
239.
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
A. EH.
B. DE.
C. DH.
D. DB.

Blooms: Understand
Test Bank: II
240.
10-86
Refer to the accompanying graph for a purely competitive firm. When the firm is in equilibrium in the short run, the amount of economic profit per unit is
A. EH.
B. DE.
C. DH.
D. DB.

Blooms: Understand
Test Bank: II
241.
Refer to the accompanying graph for a purely competitive firm operating at a loss in the short run. Which area in the graph represents the portion of total
costs that the firm can recoup by continuing to produce rather than shutting down?
10-87
A. 0beg
B. bcde
C. acdf
D. abef

Blooms: Understand
Test Bank: II
242.
Refer to the accompanying graph for a purely competitive firm operating at a loss in the short run. Which area in the graph represents the amount of
economic loss for the firm?
A. 0beg
B. bcde
C. acdf
D. abef

Blooms: Understand
Test Bank: II
243.
10-88
Refer to the accompanying graph for a purely competitive firm operating at a loss in the short run. Which of the following changes in its market would
allow the firm to earn positive profits again?
A. an increase in the market demand

B. an increase in the wages of workers in the industry
C. a decrease in the market demand
D. a decrease in the price of the industry's product

Blooms: Understand
Test Bank: II
244.
At output level H in the provided graph, the area
10-89
A. 0CGH represents the firm's total cost of production.
B. ACGE represents the firm's economic profit.
C. 0AEH represents the firm's economic profit.
D. BCGF represents the firm's total fixed cost of production.

Blooms: Understand
Test Bank: II
245. A purely competitive firm will be willing to produce even at a loss in the short run, as long as
A. the loss is smaller than its total variable costs.

B. the loss is smaller than its marginal costs.
C. the loss is smaller than its total fixed costs.
D. price exceeds marginal costs.

Blooms: Understand
Test Bank: II
246.
The accompanying graph shows the cost curves for a competitive firm. If the market price falls to $0.55, the optimal output is
A. 0.
B. 15.
C. 20.
D. more than 20, but less than 35.

Blooms: Understand
Test Bank: II
10-90
247.
The accompanying graph shows the cost curves for a competitive firm. What is the lowest price at which the firm will start producing output in the short
run?
A. $1.25
B. $1.05
C. $0.90
D. $0.60

Blooms: Understand
Test Bank: II
248.
10-91
The accompanying graph shows the cost curves for a competitive firm. If the market price of the product is $1.05 per unit, then the firm will produce how
many units in the short run?
A. between 0 and 15
B. between 15 and 20
C. between 20 and 35
D. above 35

Blooms: Understand
Test Bank: II
249.
The accompanying graph shows short-run cost curves for a competitive firm. At what price would the firm face the same profit or loss whether it chooses to
10-92
produce or not?
A. P1
B. P2
C. P3
D. P4

Blooms: Understand
Test Bank: II
250.
The accompanying graph shows short-run cost curves for a competitive firm. At what minimum price would the firm be willing to produce some output in
the short run?
A. P1
B. P2
C. P3
D. P4

Blooms: Understand
Test Bank: II
251.
10-93
The accompanying graph shows short-run cost curves for a competitive firm. At what price would the firm break even?
A. P1
B. P2
C. P3
D. P4

Blooms: Understand
Test Bank: II
252. The short-run supply curve for a competitive firm is the
A. entire MC curve.
B. segment of the MC curve lying below the AVC curve.
C. segment of the MC curve lying above the AVC curve.
D. segment of the AVC curve lying to the right of the MC curve.

Blooms: Understand
Test Bank: II
253.
10-94
Given the provided graph, the competitive firm's supply curve is the
A. MC curve above F.
B. MC curve above G.
C. MC curve above H.
D. MC curve above J.

Blooms: Understand
Test Bank: II
254.
This purely competitive firm shown in the accompanying graph will not produce unless price is at least
10-95
A. $2.
B. $5.
C. $7.
D. $10.

Blooms: Understand
Test Bank: II
255.
At which of the following prices will the firm shown in the accompanying graph make an economic profit?
A. $2
B. $5
C. $7
D. $10

Blooms: Understand
Test Bank: II
256.
10-96
At what price will the firm shown in the accompanying graph make just a normal profit?
A. $2
B. $5
C. $7
D. $10

Blooms: Understand
Test Bank: II
257.
Which point in the accompanying graph is definitely not on the competitive firm's short-run supply curve?
10-97
A. A
B. B
C. C
D. D

Blooms: Understand
Test Bank: II
258.
Which point in the accompanying graph is the break-even point for the firm?
A. A
B. B
C. C
D. D

Blooms: Understand
Test Bank: II
259.
10-98
Which point in the accompanying graph is the shutdown point for the firm?
A. A
B. B
C. C
D. D
260. Total
Total Total
Variable
Product Fixed Cost AACSB: Knowledge Application
Cost Blooms: Understand Difficulty: 02 Medium
0 $150 $ 0 Learning Objective: 10-06 Explain why a competitive firms marginal cost curve is the same as its supply curve.
1 150 50 Test Bank: II Topic: Marginal Cost and Short-Run Supply
2 150 75
3 150 105
4 150 145
5 150 200
6 150 270
7 150 360
8 150 475
9 150 620
10 150 800
Refer to the accompanying cost table. If a competitive firm faced with these costs finds that it can sell its product at $60 per unit, it will
A. produce 5 units and incur a loss of $50.

B. produce 6 units and incur a loss of $30.
C. produce 7 units and realize a profit of $32.
D. close down in the short run.
10-99
Blooms: Understand
Test Bank: II
261. Total
Total Total
Variable
Product Fixed Cost
Cost
0 $150 $ 0
1 150 50
2 150 75
3 150 105
4 150 145
5 150 200
6 150 270
7 150 360
8 150 475
9 150 620
10 150 800
Refer to the accompanying cost table. If price of the product were $30 per unit, the firm would
A. produce 5 units and incur a loss of $50.

B. produce 6 units and incur a loss of $30.
C. produce 7 units and realize a loss of $32.

Blooms: Understand
Test Bank: II
262.
Total
Total Total
Variable
Product Fixed Cost
Cost
0 $150 $ 0
1 150 50
2 150 75
3 150 105
4 150 145
5 150 200
6 150 270
7 150 360
8 150 475
9 150 620
10 150 800
Based on the cost data given in the accompanying table, which of the price-quantity tables correctly represents the firm's short-run supply schedule?
(a) (b) (c) (d)

P Qs P Qs P Qs P Qs
$20 1 $20 0 $20 0 $20 3
30 2 30 0 30 0 30 4
45 3 45 4 45 0 45 5
60 4 60 5 60 0 60 6
75 5 75 6 75 5 75 7
95 6 95 7 95 6 95 8
120 7 120 8 120 7 120 9
150 8 150 9 150 8 150 10
10-100
A. table a
B. table b
C. table c
D. table d

Blooms: Understand
Test Bank: II
263. Total
Total Total
Variable
Product Fixed Cost
Cost
0 $150 $ 0
1 150 50
2 150 75
3 150 105
4 150 145
5 150 200
6 150 270
7 150 360
8 150 475
9 150 620
10 150 800
The first table shows cost data for a single firm. Now suppose that there are 600 identical firms in this industry, each with the same cost data.
Suppose, too, that the demand curve for this industry is as shown in the second table.

$20 6,800
30 5,975
45 5,500
60 5,125
75 4,500
95 4,200
120 3,600
150 2,400
Based on all these data, the equilibrium price of the product in the market will be
A. $60.
B. $95.
C. $120.
D. $75.

Blooms: Understand
Test Bank: II
264. Total
Total Total
Variable
Product Fixed Cost
Cost
0 $150 $ 0
1 150 50
2 150 75 10-101
Copyright
150 Education.
105 All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
4 150 145
5 150 200
6 150 270
7 150 360

$20 6,800
30 5,975
45 5,500
60 5,125
75 4,500
95 4,200
120 3,600
150 2,400
When the market is in equilibrium, each of the firms will be producing
A. 5 units.
B. 6 units.
C. 7 units.
D. 9 units.

Blooms: Understand
Test Bank: II
265. Total
Total Total
Variable
Product Fixed Cost
Cost
0 $150 $ 0
1 150 50
2 150 75
3 150 105
4 150 145
5 150 200
6 150 270
7 150 360
8 150 475
9 150 620
10 150 800

$20 6,800
30 5,975
10-102
45 5,500
60 5,125
75 4,500
95 4,200
120 3,600
150 2,400
At equilibrium, each firm will realize
A. an economic profit of $155.

B. an economic profit of $35.
C. a loss of $45.
D. a loss of $135.

Blooms: Understand
Test Bank: II
266.
The firm represented in this diagram, which gives short-run data, is selling under conditions of
A. pure monopoly.
B. pure competition.
C. monopolistic competition.
D. oligopoly.

Blooms: Understand
Test Bank: II
267.
10-103
The provided graph gives short-run data for a firm. If the product price is P2, the firm will
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.

Blooms: Understand
Test Bank: II
268.
10-104
The provided graph gives short-run data for a firm. Which of the following statements is correct?
A. Production is profitable only when price is above P3.

B. Average fixed cost is (P3 - P1) at output Q4.
C. The firm will produce an output of Q1 when price is P1.
D. At price P1, the firm will not supply any quantity.

Blooms: Understand
Test Bank: II
269. In the short run, fixed costs for a profitable competitive firm are
A. zero.
B. negative.
C. important determinants of the output level.
D. irrelevant in determining the optimal level of output.

Blooms: Understand
Test Bank: II
270.
If the supply and demand curves in the provided graph represent the market supply and demand for a purely competitive industry, then the demand curve
that an individual firm in the industry faces
A. is identical to the market demand.

B. is equal to the marginal-revenue curve, which is a flat line at P0.
C. is more elastic than the market demand but has a marginal-revenue curve lying below it.
D. has the same slope as the market demand, but at P0 its quantity demanded is only a fraction of Q0.

Blooms: Understand
10-105
Test Bank: II
271. In pure competition, price is determined where the industry
A. demand and supply curves intersect.

B. total cost is less than total revenue.
C. demand intersects the individual firm's marginal cost curve.
D. average total cost equals total variable cost.

Blooms: Understand
Test Bank: II
272. If the market demand for the product increases, in the short run a purely competitive firm
A. will not change its output quantity because there are so many firms that the individual firm will not be affected by the change.
B. will earn higher profits or experience smaller losses as a result of the change in the market.
C. will experience no change in costs as it steps up production in response to the change in the market.
D. can employ more inputs and increase the size of its plant, to respond to the change in the market.

Blooms: Understand
Test Bank: II
273. The prices of raw materials increase in a purely competitive industry. This change will result in a(n)
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.

Blooms: Understand
Test Bank: II
274. Technological advance improves productivity in a purely competitive industry. This change will result in a shift
A. down of the individual firm's MC curve, causing the market supply curve to shift to the left.
B. down of the individual firm's MC curve, causing the market supply curve to shift to the right.
C. up of the individual firm's MC curve, causing the market supply curve to shift to the left.
D. up of the individual firm's MC curve, causing the market supply curve to shift to the right.

Blooms: Understand
Test Bank: II
275. The resource cost falls in a purely competitive industry. This change will result in a(n)
A. increase in marginal cost for firms in the industry and an increase in the industry supply curve.
B. decrease in marginal cost for firms in the industry and a decrease in the industry supply curve.
C. decrease in marginal cost for firms in the industry and an increase in the industry supply curve.
D. increase in marginal cost at each output level for firms in the industry and an increase in the industry supply curve.
10-106
Blooms: Understand
Test Bank: II
276. Assume that labor is a variable input. The average wage of workers increases in a purely competitive industry. This change will result in a(n)
A. increase in marginal cost for firms in the industry and an increase in the industry supply curve.
B. decrease in marginal cost for firms in the industry and a decrease in the industry supply curve.
C. decrease in marginal cost for firms in the industry and an increase in the industry supply curve.
D. increase in marginal cost for firms in the industry and a decrease in the industry supply curve.

Blooms: Understand
Test Bank: II
277. Which of the following changes will not affect the market supply or the market demand in a purely competitive industry?
A. a change in fixed costs

B. a change in the number of buyers
C. a change in marginal costs
D. a change in the number of firms

Blooms: Understand
Test Bank: II
278. A competitive firm faces fixed costs even if it produces zero output. If it starts producing and selling some output, which of the following would
happen?
A. The firm’s total costs would increase, and its losses may become larger.
B. The firm would earn revenues and will therefore earn positive profits.
C. The firm’s total costs would decrease, allowing it to possibly earn profits.
D. The firm would earn revenues that are greater than its costs.

Blooms: Understand
Test Bank: II
True / False Questions

279. If there are many firms in an industry, then it must be a purely competitive market.
FALSE
Blooms: Understand
Test Bank: II
280. The basic difference between pure competition and monopolistic competition is in the number of firms in the industry.
10-107
FALSE
Blooms: Understand
Test Bank: II
281. Competitive firms are price takers largely because of intensive advertising by their competitors.
FALSE
Blooms: Remember
Difficulty: 01 Easy
Test Bank: II
282. For a purely competitive firm, the demand curve facing it is the same as its marginal revenue curve.
TRUE
Blooms: Understand
Test Bank: II
283. In pure competition, the industry demand curve is infinitely price elastic.
FALSE
Blooms: Understand
Test Bank: II
284. For an individual firm in pure competition, the firm's average revenue and marginal revenue at any output level are both equal to the product's price.
TRUE
Blooms: Understand
Test Bank: II
285. If a purely competitive firm is producing a level of output greater than its profit-maximizing output, then its profits must be negative.
FALSE
Blooms: Understand
Test Bank: II
286. As long as its total revenues are greater than its total costs, a firm will earn positive economic profits.
10-108
TRUE
Blooms: Understand
Test Bank: II
287. If the firm produces an output level below its break-even point, then the firm will earn negative economic profits.
TRUE
Blooms: Understand
Test Bank: II
288. If a purely competitive firm is producing a level of output where the marginal revenue is less than the marginal cost, then its profits must be negative.
FALSE
Blooms: Understand
Test Bank: II
289. 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.
TRUE
Blooms: Understand
Test Bank: II
290. If MR > MC for a competitive firm, it should reduce its level of output in order to make MR equal to MC.
FALSE
Blooms: Understand
Test Bank: II
291. In the short run, a competitive firm will not produce unless price is at least equal to average total costs.
FALSE
Blooms: Understand
Test Bank: II
292. In the short run, fixed costs are important in determining a competitive firm's optimal level of output.
10-109
FALSE
Blooms: Understand
Test Bank: II
293. In pure competition, a competitive firm‘s supply curve is that section of its marginal cost curve above ATC, and at any price below the average cost,
the firm will produce nothing.
FALSE
Blooms: Understand
Test Bank: II
10-110
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AACSB: Knowledge Application

AACSB: Knowledge Application

3. Which of the following industries most closely approximates pure competition?

AACSB: Knowledge Application

4. Economists use the term imperfect competition to describe

A. all industries that produce standardized products.

AACSB: Knowledge Application

AACSB: Knowledge Application

AACSB: Knowledge Application

AACSB: Knowledge Application

AACSB: Knowledge Application

10. Which of the following statements applies to a purely competitive producer?

A. It will not advertise its product.

AACSB: Knowledge Application

11. A purely competitive seller is

A. both a "price maker" and a "price taker."

AACSB: Knowledge Application

12. Which of the following is not a characteristic of pure competition?

A. pricing strategies by firms

AACSB: Knowledge Application

A. considerable nonprice competition

AACSB: Knowledge Application

AACSB: Knowledge Application

A. Price and marginal revenue are equal at all levels of output.

AACSB: Knowledge Application

purely competitive firm, total revenue graphs as a

A. straight, upsloping line.

AACSB: Knowledge Application

purely competitive firm, marginal revenue graphs as a

A. straight, upsloping line.

AACSB: Knowledge Application

purely competitive firm,

A. marginal revenue will graph as an upsloping line.

A. may be either greater or less than $5.

AACSB: Knowledge Application

A. the firm's demand curve is downsloping.

AACSB: Knowledge Application

AACSB: Knowledge Application

22. For a purely competitive firm, total revenue

A. is price times quantity sold.

AACSB: Knowledge Application

23. The marginal revenue curve of a purely competitive firm

A. lies below the firm's demand curve.

AACSB: Knowledge Application

A. perfectly inelastic; perfectly elastic

AACSB: Knowledge Application

25. A perfectly elastic demand curve implies that the firm

A. must lower price to sell more output.

AACSB: Knowledge Application

A. product price increases as output increases.

AACSB: Knowledge Application

27. Which of the following statements is correct?

AACSB: Knowledge Application

A. total revenue and marginal revenue.

AACSB: Knowledge Application

A. total revenue and marginal revenue.

AACSB: Knowledge Application

30. Marginal revenue is the

AACSB: Knowledge Application

31. Firms seek to maximize