Microeconomics Brief Edition 2Nd Edition Mcconnell Test Bank Full Chapter PDF

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Chapter 07
Pure Competition
Multiple Choice Questions
1. Which market model has the least number of firms?
A. Monopolistic competition
B. Pure competition
C. Pure monopoly
D. Oligopoly
2. There would be a unique product for which there are few close substitutes under which
market model?
B. Pure competition
C. Pure monopoly
D. Oligopoly
3. There would be some control over price within rather narrow limits in which market model?
B. Pure competition
C. Pure monopoly
D. Oligopoly
4. Mutual interdependence would tend to limit control over price in which market model?
B. Pure competition
C. Pure monopoly
D. Oligopoly
5. In which two market models would advertising be used most often?
A. Pure competition and monopolistic competition
B. Pure competition and pure monopoly
C. Monopolistic competition and oligopoly
D. Pure monopoly and oligopoly
6. There is no control over price by firms in:
A. oligopoly.
B. pure monopoly.
C. pure competition.
D. monopolistic competition.
7. Under which market model are the conditions of entry into the market easiest?
A. Pure competition
B. Pure monopoly
C. Monopolistic competition
D. Oligopoly
8. The market model with the largest number of firms is:
A. oligopoly.
B. pure monopoly.
C. pure competition.
D. monopolistic competition.
9. Which characteristic would best be associated with pure competition?
A. Few sellers
B. Price taker
C. Nonprice competition
D. Product differentiation
10. Under which market model are the conditions of entry the most difficult?
B. Pure competition
C. Pure monopoly
D. Oligopoly
11. The production of agricultural products such as wheat or corn would best be described by
which market model?
B. Pure competition
C. Pure monopoly
D. Oligopoly
12. The retail trade for clothing would be an example of which market model?
B. Pure competition
C. Pure monopoly
D. Oligopoly
13. The steel and automobile industries would be examples of which market model?
B. Pure competition
C. Pure monopoly
D. Oligopoly
14. In a purely competitive industry, each firm:
A. is a price maker.
B. produces a differentiated product.
C. can easily enter or exit the industry.
D. engages in forms of nonprice competition.
15. Which is a feature of a purely competitive market?
A. There are price differences 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.
16. Which is true under conditions of pure competition?
A. There are differentiated products.
B. The market demand curve is perfectly elastic.
C. No single firm can influence the market price by changing its output.
D. Firms that cannot make pure or economic profits go bankrupt.

17. Price is constant or "given" to the 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 total supply.
D. product differentiation is reinforced by extensive advertising.
18. Purely competitive firms are assumed to:
A. advertise.
B. be price takers.
C. sell where marginal cost is minimized.
D. confront demand curves that are perfectly inelastic.
19. 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.

20. Which is a reason why there is no advertising by individual firms under pure competition?
A. Firms produce a homogeneous product.
B. The quantity of the product demanded is very large.
C. The market demand curve cannot be increased.
D. Firms do not make long-run profits.
21. If the demand curve facing a firm is perfectly elastic, then:
A. its marginal revenue will equal price.
B. its marginal revenue schedule will decrease at an increasing rate.
C. its marginal revenue schedule decreases twice as fast as the demand curve.
D. it can increase its total revenue by lowering the price of its product.
22. 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.
23. 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.
24. Sam owns a firm that produces tomatoes in a purely competitive market. The firm's demand
curve is:
A. a vertical line.
B. a horizontal line.
C. upsloping to the right.
D. downsloping to the right.
25. A single firm in pure competition in the short run has a:
A. vertical supply curve.
B. vertical demand curve.
C. horizontal supply curve.
D. horizontal demand curve.
26. In pure competition, the marginal revenue of a firm always equals:
A. product price.
B. total revenue.
C. average total cost.
D. marginal cost.
27. Average revenue is:
A. total revenue minus total cost.
B. marginal revenue minus marginal cost.
C. marginal revenue divided by the quantity of output.
D. total revenue divided by the quantity of output.
28. In pure competition, the average revenue of a firm always equals:
A. marginal cost.
B. average total cost.
C. marginal revenue.
D. total revenue.
29.
Refer to the above graph for a firm in pure competition. Line A represents:
A. total revenue.
B. average revenue.
D. average fixed cost.

30.
Refer to the above graph for a firm in pure competition. Line B represents:
A. total revenue.
B. marginal revenue.
D. average fixed cost.

31.
Refer to the above graph for a firm in pure competition. Line B is horizontal because:
A. total revenue is greater than marginal revenue.
B. marginal revenue is greater than total revenue.
C. the firm has a perfectly inelastic demand curve.
D. the firm has a perfectly elastic demand curve.
32. Total revenue for producing eight units of output is $48. Total revenue for producing nine
units of output is $63. Given this information, the:
A. average revenue for producing nine units is $1.
B. average revenue for producing nine units is $15.
C. marginal revenue for producing the ninth unit is $1.
D. marginal revenue for producing the ninth unit is $15.

33. In pure competition, marginal revenue is:
A. equal to total revenue.
B. equal to product price.
C. less than product price.
D. greater than product price.
34. Assume the price of a product sold by a purely competitive firm is $5. Given the data in the
accompanying table, at what output is total profit highest in the short run?
A. 20
B. 30
C. 40
D. 50
35. Given the table below, what is the short-run profit-maximizing level of output for the firm?
A. 2 units
B. 3 units
C. 4 units
D. 5 units
36. Answer the question based on the table below.
At what point on the table would a purely competitive firm cover all of its costs and earn only
normal profits?
A. Q = 5
B. Q = 10
C. Q = 15
D. Q = 20
37. Let us suppose Harry's, a local supplier of chili and pizza, has the following revenue and cost
structure:
A. Harry's should stay open in the long run
B. Harry's should shut down in the short run
C. Harry's should stay open in the short run
D. Harry's should shut down in the short run but reopen in the long run
38. In a typical graph for a purely competitive firm, the intersection of the total cost and total
revenue curves would be:
A. a point of maximum economic profit.
B. a point of minimum economic loss.
C. a point where MR = MC.
D. a break-even point.
39.
Refer to the above table. The equilibrium price of the product is:
A. $40.
B. $80.
C. $120.
D. $160.
40.
Refer to the above table. The marginal revenue from the third unit of output is:
A. $40.
B. $50.
C. $120.
D. $160.
41.
Refer to the above table. When the firm produces three units of output, it makes an
economic:
A. profit of $3.
B. loss of $3.
C. profit of $9.
D. loss of $9.
42.
Refer to the above table. The marginal cost of the third unit of output is:
A. $20.
B. $23.
C. $24.
D. $25.
43. A profit-maximizing firm in the short run will expand output:
A. until marginal cost begins to rise.
B. until total revenue equals total cost.
C. until marginal cost equals average variable cost.
D. as long as marginal revenue is greater than marginal cost.
44. Which is true for a purely competitive firm in short-run equilibrium?
A. The firm is making only normal profits.
B. The firm's marginal cost is greater than its marginal revenue.
C. The firm's marginal revenue is equal to its marginal cost.
D. A decrease in output would lead to a rise in profits.
45. Which is necessarily true for a purely competitive firm in short-run equilibrium?
A. Marginal revenue less marginal cost equals zero.
B. Price less average total cost equals zero.
C. Total revenue less total cost equals zero.
D. Marginal revenue is zero.

46. A purely competitive firm's output is currently such that its marginal cost is $4 and marginal
revenue is $5. Assuming profit maximization, the firm should:
A. cut its price and raise its output.
B. raise its price and cut output.
C. leave price unchanged and raise output.
D. leave price unchanged and cut output.
47. A firm sells a product in a purely competitive market. The marginal cost of the product at the
current output of 1000 units is $2.50. The minimum possible average variable cost is $2.00.
The market price of the product is $2.50. To maximize profit or minimize losses, the firm
should:
A. continue producing 1000 units.
B. produce less than 1000 units.
C. produce more than 1000 units.
D. shut down.
should:
D. shut down.
should:
D. shut down.
50.
Refer to the above data. This firm is selling its output in a(n):
A. imperfectly competitive market.
B. monopolistic market.
C. purely competitive market.
D. oligopolistic market.
51.
Refer to the above data. If the firm's minimum average variable cost is $10, the firm's profit-
maximizing level of output would be:
A. 2.
B. 3.
C. 4.
D. 5.
52.
Refer to the above data. At the profit-maximizing output, the firm's total revenue is:
A. $48.
B. $38.
C. $80.
D. $64.
53. The MR = MC profit maximization 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.
current output is $5.00 and the market price is $5.00. What should the firm do?
A. Shut down if the minimum possible average variable cost is $5.25.
B. Shut down if the minimum possible average variable cost is $4.75.
C. Increase output if the minimum possible average variable cost is $5.25.
D. Decrease output if the minimum possible average variable cost is $4.75.
B. Increase output if the minimum possible average variable cost is $2.00.

B. Decrease output if the minimum possible average variable cost is $3.00.
57. T-Shirt Enterprises is selling in a purely competitive market. Its output is 300 units, which sell
for $1 each. At this level of output, marginal cost is $1 and average variable cost is $1.50. The
firm should:
A. produce zero units of output.
B. decrease output to 250 units.
C. continue to produce 300 units.
D. increase output to 350 units.

58.
Refer to the above graph. The level of output at which this firm will produce is:
A. 0A.
B. 0B.
C. 0C.
D. 0K.
59.
Refer to the above graph. The level of output at which this firm will shut down is:
A. 0A.
B. 0B.
C. 0C.
D. 0K.
60.
Refer to the above graph. The level of output at which this firm is maximizing an economic
profit is:
A. 0A.
B. 0B.
C. 0C.
D. 0K.
61. The table below shows cost data for a firm that is selling in a purely competitive market.
Refer to the above cost chart. The lowest output level on this firm's short-run supply curve
is:
A. 10.
B. 12.
C. 16.
D. 20.
Refer to the above cost chart. If the marginal revenue is $6, what output should the firm
produce?
A. 10
B. 12
C. 14
D. 20
Refer to the above cost chart. Which output level will the firm never produce?
A. 10
B. 12
C. 16
D. 20
Refer to the above table. If the market price for the firm's product is $50, the competitive firm
will:
A. produce one unit.
B. produce two units.
C. produce three units.
D. shut down.
Refer to the above table. If the market price for the firm's product is $70, the competitive firm
will:
A. produce one unit.
B. produce two units.
C. produce three units.
D. shut down.
Refer to the above table. If the market price for the firm's product is $180, the competitive
firm will produce:
A. 6 units at an economic profit of $100.
B. 6 units at an economic profit of $120.
C. 7 units at an economic profit of $238.
D. 7 units at an economic profit of $278.
67. In the short run the individual competitive firm's supply curve is the 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.
68. The individual firm's short-run supply curve is the part of its:
A. average total cost curve that is upsloping.
B. average variable cost curve that is upsloping.
C. marginal cost curve lying above its average variable cost curve.
D. marginal cost curve lying above its average total cost curve.
69. A purely competitive firm is in short-run equilibrium and its MC exceeds its ATC. 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 realizing a loss.
D. this is an increasing-cost industry.
70. The Campus Crustacean Company receives $2 per box for its crawfish and is selling 1600
boxes to maximize its profits. What is the per-unit profit on a box of crawfish at the profit-
maximizing level of output if the variable cost is $1 per box and fixed costs are $1200?
A. $0.25
B. $0.50
C. $1.00
D. $1.25
71.
Refer to the above graph. The profit-maximizing level of output for the firm is:
A. 0A.
B. 0B.
C. 0C.
D. 0K.
72.
Refer to the above graph. At what level of output will the firm shut down?
A. 0A
B. 0B
C. 0C
D. 0K
73.
Consider the purely competitive firm pictured above. The firm is earning:
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.

74.
Based on the graph above, 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.
75. When a firm produces less output, it can reduce:
A. its fixed costs but not its variable costs.
B. its variable costs but not its fixed costs.
C. average fixed cost.
D. marginal revenue.
76. 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.
77. A firm should increase the quantity of output as long as its:
A. marginal revenue is greater than its marginal cost.
B. marginal cost is greater than its marginal revenue.
C. average revenue is greater than its average total cost.
D. average revenue is greater than its average variable cost.
78. A firm should always continue to operate at a loss in the short run if:
A. the firm will show a profit.
B. the owner enjoys helping her customers.
C. it can cover its variable costs and some of its fixed costs.
D. the firm cannot produce any other products more profitably.

79.
Refer to the above graph. It shows a profit-maximizing, purely competitive firm operating in
the short run. Which area in the graph represents the amount the firm can save by continuing
to produce in the short run rather than closing down immediately?
A. 0beg
B. 0cdg
C. acdf
D. abef
80.
Refer to the above graph. It shows a profit-maximizing, purely competitive firm operating 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
81.
Refer to the above graph. At output level H, the area:
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 fixed costs of production.

82.
Refer to the above graph. At output level H, the area:
A. 0CGH represents the firm's variable cost of production.
B. ACGE represents the firm's economic profit.
C. 0AEH represents the firm's economic profit.
D. 0CGH represents the firm's fixed costs of production.

83.
Refer to the above graph. At output level H, the area of economic profit is:
A. BAEF.
B. ACG.
C. 0AEH.
D. BCGF.
84. A purely competitive firm will be willing to produce at a loss in the short run provided:
A. the loss is no greater than its total variable costs.
B. the loss is no greater than its marginal costs.
C. the loss is no greater than its total fixed costs.
D. price exceeds marginal costs.

85. Candy Cane Corporation (CCC) produces 100,000 boxes of candy bars per year that sell for
$3 a box. If variable costs are $2 per box and it has $125,000 in fixed operating costs, in the
short run the CCC should:
A. shut down as fixed costs are not being covered.
B. keep producing as profits are $25,000.
C. keep producing because variable costs are covered.
D. reduce production until the break-even point is reached.
86.
Refer to the above graph. It shows the cost curves for a competitive firm. If the market price
falls to $0.55, the optimal output rate is:
A. 0.
B. 15.
C. 20.
D. more than 20, but less than 35.

87.
Refer to the above graph. It shows the cost curves for a competitive firm. At output level 20,
the marginal cost is:
A. $0.60.
B. $0.90.
C. $1.05.
D. $1.20.
88.
Refer to the above graph. It 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
89. The purely competitive firm's supply curve:
A. is perfectly inelastic in the short run.
B. is horizontal in the long run.
C. is upward sloping when some inputs are fixed.
D. becomes less elastic in the long run.

90. In general, in the short run, the supply curve of a purely competitive firm is:
A. identical to the marginal-cost curve.
B. a horizontal line equal to the market price.
C. the rising portion of the average-total-cost (ATC) curve.
D. the rising portion of the marginal-cost curve above the AVC curve.
91. 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.
92.
Given the above graph, the competitive firm's short run supply curve is the:
A. MC curve above F.
B. MC curve above G.
C. MC curve above H.
D. MC curve above J.
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Multiple Choice Questions

1. Which market model has the least number of firms?

5. In which two market models would advertising be used most often?

A. Pure competition and monopolistic competition

B. Pure competition and pure monopoly

C. Monopolistic competition and oligopoly

D. Pure monopoly and oligopoly

6. There is no control over price by firms in:

8. The market model with the largest number of firms is:

9. Which characteristic would best be associated with pure competition?

B. produces a differentiated product.

C. can easily enter or exit the industry.

D. engages in forms of nonprice competition.

15. Which is a feature of a purely competitive market?

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.

16. Which is true under conditions of pure competition?

A. There are differentiated products.

B. The market demand curve is perfectly elastic.

D. Firms that cannot make pure or economic profits go bankrupt.

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 total supply.

D. product differentiation is reinforced by extensive advertising.

18. Purely competitive firms are assumed to:

C. sell where marginal cost is minimized.

D. confront demand curves that are perfectly inelastic.

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.

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.

21. If the demand curve facing a firm is perfectly elastic, then:

A. its marginal revenue will equal price.

B. its marginal revenue schedule will decrease at an increasing rate.

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.

A. equal to the total revenue curve.

C. upsloping to the right.

D. downsloping to the right.

25. A single firm in pure competition in the short run has a:

A. vertical supply curve.

B. vertical demand curve.

C. horizontal supply curve.

D. horizontal demand curve.

26. In pure competition, the marginal revenue of a firm always equals:

C. average total cost.

A. total revenue minus total cost.

B. marginal revenue minus marginal cost.

C. marginal revenue divided by the quantity of output.

D. total revenue divided by the quantity of output.

28. In pure competition, the average revenue of a firm always equals:

B. average total cost.

C. average total cost.

D. average fixed cost.