William Rainey Harper College
ECO 211

Review

Chs. 8 and 9 Pure Competition

INSTRUCTIONS: Select the BEST answer for each question by marking the circle next to your selection

1.

Given the table below, 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



2.

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?

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



3.

In which market model would the number of firms be the fewest?

A.

monopolistic competition

B.

pure competition

C.

pure monopoly

D.

oligopoly



4.

Under which market model are the conditions of entry into the market easiest?

A.

pure competition

B.

pure monopoly

C.

monopolistic competition

D.

oligopoly



5.

Which idea is inconsistent with pure competition?

A.

short-run losses

B.

product differentiation

C.

freedom of entry or exit for firms

D.

a large number of buyers and sellers



6.

Which characteristic would best be associated with pure competition?

A.

few sellers

B.

price taker

C.

nonprice competition

D.

product differentiation



7.

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

A.

marginal cost.

B.

marginal revenue.

C.

average total cost.

D.

total revenue.



8.

Answer the question based on the table below.

Price

Quantity

TFC

TVC

$ 5

5

$25

$10

5

10

25

20

5

15

25

50

5

20

25

60

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



9.

Let us suppose Harry's, a local supplier of chili and beer, has the following revenue and cost structure:

total revenue$3,000 per week
total variable cost$2,000 per week
total fixed costs$2,000 per week

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.



10.


R-1 REF 23-45

Refer to the above graph. Which of the output levels is the profit-maximizing output level for this firm?

A.

Q1

B.

Q2

C.

Q3

D.

Q4



11.

Use the table below to answer the next question(s) for a purely competitive firm.

Output

Total revenue

Total cost

0

$ 0

$ 50

1

40

74

2

80

94

3

120

117

4

160

142

5

200

172

R-2 REF 23-49 (REF23049)

Refer to the above table. The marginal revenue from the third unit of output is:

A.

$40.

B.

$50.

C.

$120.

D.

$160.



12.

Use the table below to answer the next question(s) for a purely competitive firm.

Output

Total revenue

Total cost

0

$ 0

$ 50

1

40

74

2

80

94

3

120

117

4

160

142

5

200

172

R-2 REF 23-49 (REF23049)

Refer to the above table. When the firm produces 3 units of output, it makes an economic:

A.

profit of $3.

B.

loss of $3.

C.

profit of $9.

D.

loss of $9.



13.

Use the table below to answer the next question(s) for a purely competitive firm.

Output

Total revenue

Total cost

0

$ 0

$ 50

1

40

74

2

80

94

3

120

117

4

160

142

5

200

172

R-2 REF 23-49 (REF23049)

Refer to the above table. The marginal cost of the third unit of output is:

A.

$20.

B.

$23.

C.

$24.

D.

$25.



14.

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.



15.


R-3 REF 22-68

Using the diagram above, in order to maximize profits, this firm would produce ____________ which would result in ____________.

A.

0D units, a loss equal to ABGH

B.

0E units, a loss equal to ALFH

C.

0D units, economic profits equal to BCFG

D.

0E units, economic profits equal to ABGH



16.

Pure competition produces a socially optimal allocation of resources in the long run because:

A.

marginal cost equals marginal revenue.

B.

marginal cost equals average total cost.

C.

marginal revenue equals price.

D.

marginal cost equals price.



17.

In long-run equilibrium a purely competitive firm will operate where price is:

A.

greater than MR but equal to MC and minimum ATC.

B.

greater than MR and MC, but equal to minimum ATC.

C.

greater than MC and minimum ATC, but equal to MR.

D.

equal to MR, MC, and minimum ATC.



18.

Productive efficiency refers to:

A.

cost minimization, where P = minimum ATC.

B.

production, where P = MC.

C.

maximizing profits by producing where MR = MC.

D.

setting TR = TC.



19.

R-4 REF 23-130

According to the graphs above, what will happen in the long run to industry supply and the equilibrium price of the product?

A.

S will decrease, P will decrease.

B.

S will increase, P will decrease.

C.

S will decrease, P will increase.

D.

S will increase, P will increase.



20.

If firms enter a purely competitive industry, then in the long run this change will shift the industry:

A.

demand curve to the left, and the market price will decrease.

B.

demand curve to the right, and the market price will increase.

C.

supply curve to the right, and the market price will decrease.

D.

supply curve to the left, and the market price will increase.



21.


R-5 REF 23-126

A purely competitive firm, as shown above, will face what kind of change in profits over the long run, assuming industry demand is constant?

A.

Profits will increase.

B.

Profits will decrease.

C.

Profits will be unchanged.

D.

Cannot be decided from the information given.



22.

In the short run, fixed costs for a profitable firm are:

A.

zero.

B.

negative.

C.

important determinants of the output level.

D.

irrelevant in determining the optimal level of output.



23.

R-6 REF 23-97

Which point above is definitely not on a competitive firm's short-run supply curve?

A.

A

B.

B

C.

C

D.

D



24.


R-7 REF 23-96

This pure competitive firm in the above graph will not produce unless price equals at least:

A.

$2.

B.

$5.

C.

$7.

D.

$10.



25.

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.



26.


R-8 REF 23-81

The purely competitive firm above will:

A.

shut down.

B.

produce with short-run losses.

C.

produce with long-run economic profits.

D.

produce with short-run economic profits.



27.


R-9 REF 23-80

The graph above 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



28.


R-10 REF 23-79

The graph above represents a profit-maximizing firm producing under conditions of pure competition. When the firm is in equilibrium in the short run, its average fixed cost is:

A.

EH.

B.

DE.

C.

DH.

D.

DB.



29.

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.



30.


R-11 REF 22-72

Consider the purely competitive firm pictured above. The firm is earning:

A.

normal profits, since 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.



31.

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.



32.


R-12 REF 22-66

Refer to the above graph. The level of output at which this firm will produce is:

A.

0C.

B.

0B.

C.

0A.

D.

0K.




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