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A) displays declining unit costs so long as output is increasing.
B) indicates the lowest unit costs achievable when a firm has had sufficient time to alter plant size.
C) has a shape which is the inverse of the law of diminishing returns.
D) can be derived by summing horizontally the average total cost curves of all firms in an industry.
|
B
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|
A) it is encountering diseconomies of scale. C) the law of diminishing returns is taking hold.
B) it is encountering economies of scale. D) the firm’s long-run ATC curve will be rising
|
b
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If a firm increases all of its inputs by 10 percent and its output increases by 10 percent, then:
A) it is encountering diseconomies of scale. C) it is encountering constant returns to scale.
B) it is encountering economies of scale. D) the marginal products of all inputs are falling.
|
c
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Diseconomies of scale means that:
A) a firm’s long-run average total cost curve is declining.
B) a firm’s long-run average total cost curve is rising.
C) the advantages of specialization are being more fully realized.
D) a given increase in inputs results in a more-than-proportionate increase in output.
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b
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Suppose a firm is in a range of production where it is experiencing economies of scale. Knowing this, we
can predict that:
A) the long-run average total cost curve is upsloping.
B) a 10 percent increase in all inputs will increase output by less than 10 percent.
C) a 10 percent increase in all inputs will increase output by more than 10 percent.
D) the firm is encountering problems of managerial bureaucracy because of its size.
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c
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The law of diminishing returns explains why the long-run average total cost curve is U-shaped.
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false
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Economists would describe the U.S. automobile industry as:
A) purely competitive. B) an oligopoly. C) monopolistically competitive. D) a pure monopoly.
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b
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In which of the following market structures is there clear-cut mutual interdependence with respect to priceoutput policies?
A) pure monopoly B) oligopoly C) monopolistic competition D) pure competition
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b
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Which of the following industries most closely approximates pure competition?
A) agriculture B) farm implements C) clothing D) steel
|
a
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Economists use the term imperfect competition to describe:
A) all industries which produce standardized products.
B) any industry in which there is no nonprice competition.
C) a pure monopoly only.
D) those markets which are not purely competitive.
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D
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|
In which of the following industry structures is the entry of new firms the most difficult?
A) pure monopoly B) oligopoly C) monopolistic competition D) pure competition
|
a
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An industry comprised of 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
|
a
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An industry comprised of four firms, each with about 25 percent of the total market for a product is an
example of:
A) monopolistic competition B) oligopoly C) pure monopoly D) pure competition
|
b
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|
An industry comprised of a very large number of sellers producing a standardized product is known as:
A) monopolistic competition B) oligopoly C) pure monopoly D) pure competition
|
d
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An industry comprised of a small number of firms, each of which considers the potential reactions of its
rivals in making price-output decisions is called:
A) monopolistic competition B) oligopoly C) pure monopoly D) pure competition
|
b
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Which of the following statements applies to a purely competitive producer?
A) It will not advertise its product.
B) In long-run equilibrium it will earn an economic profit.
C) Its product will have a brand name.
D) Its product is slightly different from those of its competitors.
|
a
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A purely competitive seller is:
A) both a "price maker" and a "price taker." C) a "price taker."
B) neither a "price maker" nor a "price taker." D) a "price maker."
|
c
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Which of the following is not characteristic of pure competition?
A) price strategies by firms C) no barriers to entry
B) a standardized product D) a larger number of sellers
|
a
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Which of the following is not a basic characteristic of pure competition?
A) considerable nonprice competition C) a standardized or homogeneous product
B) no barriers to the entry or exodus of firms D) a large number of buyers and sellers
|
A
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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.
|
B
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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.
|
a
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Price is constant or given to the individual firm selling in a purely competitive market because:
A) the firm’s demand curve is downsloping.
B) of product differentiation reinforced by extensive advertising.
C) each seller supplies a negligible fraction of total supply.
D) there are no good substitutes for its product.
|
c
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For a purely competitive seller, price equals:
A) average revenue. B) marginal revenue. C) total revenue divided by output. D) all of the above.
|
d
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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 the above characteristics.
|
d
|
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The marginal revenue curve of a purely competitive firm:
A) lies below the firm’s demand curve.
B) increases at an increasing rate as output expands.
C) is horizontal at the market price.
D) is downsloping because price must be reduced to sell more output.
|
C
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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 C) downsloping, perfectly inelastic
B) downsloping, perfectly elastic D) perfectly elastic, downsloping
|
B
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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 which is less than product price when it sells an extra unit.
D) is selling a differentiated (heterogeneous) product.
|
b
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The vertical distance between the horizontal axis and any point on a pure competitor’s demand curve
measures:
A) total revenue.
B) total cost.
C) product price, marginal revenue, and average revenue.
D) the quantity demanded.
|
c
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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.
|
c
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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.
|
a
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A purely competitive seller’s average revenue curve coincides with:
A) its marginal revenue curve only.
B) its demand curve only.
C) both its demand and marginal revenue curves.
D) neither its demand nor its marginal revenue curve.
|
C
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A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by
equating:
A) price and average total cost. C) marginal revenue and marginal cost.
B) price and average fixed cost. D) price and marginal revenue.
|
C
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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 where economic profits are zero.
D) at any point where the total revenue and total cost curves intersect.
|
B
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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.
|
a
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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.
|
D
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|
The MR = MC rule applies:
A) to firms in all types of industries. C) only to monopolies.
B) only when the firm is a "price taker." D) only to purely competitive firms.
|
a
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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.
|
a
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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.
|
B
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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.
|
A
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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. C) is realizing a loss of $60.
B) is maximizing its profits. D) is realizing an economic profit of $40.
|
D
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|
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.
|
B
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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.
|
C
|
|
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 total costs.
|
c
|
|
A purely competitive firm should produce in the short run if its total revenue is sufficient to cover its:
A) total variable costs. B) total costs. C) total fixed costs. D) marginal costs.
|
a
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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.
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.
|
c
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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. C) total revenue and total cost.
B) price and minimum average variable cost. D) total revenue and total fixed cost.
|
B
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A firm finds that at its MR = MC output, its TC = $1000, 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.
|
b
|
|
The lowest point on a purely competitive firm’s short-run supply curve corresponds to:
A) the minimum point on its ATC curve. C) the minimum point on its AFC curve.
B) the minimum point on its AVC curve. D) the minimum point on its MC curve.
|
b
|
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If a purely competitive firm is producing at some 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.
|
d
|
|
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
|
c
|
|
The short-run shut-down point for a purely competitive firm occurs:
A) at any point where price is less than the minimum AVC.
B) between the two break-even points.
C) at any point where total revenue is less than total cost.
D) at any point where the firm is not making an economic profit.
|
a
|
|
In a purely competitive industry:
A) there will be no economic profits in either the short run or the long run.
B) economic profits may persist in the long run if consumer demand is strong and stable.
C) there may be economic profits in the short run, but not in the long run.
D) there may be economic profits in the long run, but not in the short run.
|
c
|
|
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.
|
c
|
|
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
|
c
|
|
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. C) ATC is being minimized.
B) marginal revenue exceeds ATC. D) total revenue equals total cost.
|
b
|
|
. 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.
|
b
|
|
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.
|
c
|
|
In the short run a purely competitive firm will maximize profit by producing that output at which:
A) total revenue exceeds total cost by a maximum amount.
B) total revenue exceeds total cost by a minimum amount.
C) total revenue and total cost are equal.
D) total fixed cost equals total variable cost.
|
a
|
|
A purely competitive firm’s short-run supply curve is:
A) the upward sloping portion of its marginal cost curve.
B) the upward sloping portion of its average variable cost curve.
C) its marginal cost curve above average variable cost.
D) its average total cost curve
|
c
|
|
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
|
D
|
|
Suppose a firm in a purely competitive market discovers that the price of its product is above its minimum
AVC point but everywhere below ATC. Given this, the firm:
A) minimizes losses by producing at the minimum point of its AVC curve.
B) maximizes profits by producing where MR = ATC.
C) should close down immediately.
D) should continue producing in the short run, but leave the industry in the long run.
|
D
|
|
Which of the following is true concerning purely competitive industries?
A) There will be economic losses in the long run because of cut-throat competition.
B) Economic profits will persist in the long run if consumer demand is strong and stable.
C) In the short run, firms may incur economic losses or earn economic profits, but in the long run they
earn normal profits.
D) There are economic profits in the long run, but not in the short run.
|
C
|
|
If a purely competitive firm is producing at the MR = MC output level and earning an economic profit,
then:
A) the selling price for this firm is above the market equilibrium price.
B) new firms will enter this market.
C) some existing firms in this market will leave.
D) there must be price fixing by the industry’s firms.
|
b
|
|
Long-run competitive equilibrium:
A) is realized only in constant-cost industries. C) is not economically efficient.
B) will never change once it is realized. D) results in zero economic profits
|
D
|
|
We would expect an industry to expand if firms in that industry are:
A) earning normal profits. C) incurring economic losses.
B) earning economic profits. D) earning accounting profits.
|
b
|
|
Which of the following statements is correct?
A) Economic profits induce firms to enter an industry; losses encourage firms to leave.
B) Economic profits induce firms to leave an industry; profits encourage firms to leave.
C) Economic profits and losses have no significant impact on the growth or decline of an industry.
D) Normal profits will cause an industry to expand.
|
a
|
|
Suppose a purely competitive increasing-cost industry is in long-run equilibrium. Now assume that a
decrease in consumer demand occurs. After all resulting adjustments have been completed, the new
equilibrium price:
A) and industry output will be less than the initial price and output.
B) will be greater than the initial price, but the new industry output will be less than the original output.
C) will be less than the initial price, but the new industry output will be greater than the original output.
D) and industry output will be greater than the initial price and output.
|
a
|
|
Which of the following statements is correct?
A) The long-run supply curve for a purely competitive increasing-cost industry will be upsloping.
B) The long-run supply curve for a purely competitive increasing-cost industry will be perfectly elastic.
C) The long-run supply curve for a purely competitive industry will be less elastic than the industry’s
short-run supply curve.
D) The long-run supply curve for a purely competitive decreasing-cost industry will be upsloping.
|
a
|
|
A constant-cost industry is one in which:
A) a higher price per unit will not result in an increased output.
B) if 100 units can be produced for $100, then 150 can be produced for $150, 200 for $200, and so forth.
C) the demand curve and therefore the unit price and quantity sold seldom change.
D) the total cost of producing 200 or 300 units is no greater than the cost of producing 100 units.
|
b
|
|
Which of the following will not hold true for a competitive firm in long-run equilibrium?
A) P equals AFC B) P equals minimum ATC C) MC equals minimum ATC D) P equals MC
|
a
|
|
Assume a purely competitive increasing-cost industry is initially in long-run equilibrium and that an
increase in consumer demand occurs. After all economic adjustments have been completed product price
will be:
A) lower, but total output will be larger than originally.
B) higher and total output will be larger than originally.
C) lower and total output will be smaller than originally.
D) higher, but total output will be smaller than originally.
|
b
|
|
Assume a purely competitive, increasing-cost industry is in long-run equilibrium. If a decline in demand
occurs, firms will:
A) leave the industry, price will decrease, and quantity produced will increase.
B) enter the industry and price and quantity will both increase.
C) leave the industry and price and output will both increase.
D) leave the industry and price and output will both decline.
|
d
|
|
When a purely competitive firm is in long-run equilibrium:
A) marginal revenue exceeds marginal cost.
B) price equals marginal cost.
C) total revenue exceeds total cost.
D) minimum average total cost is less than the product price.
|
b
|
|
A purely competitive firm:
A) must earn a normal profit in the short run.
B) cannot earn economic profit in the long run.
C) may realize either economic profit or losses in the long run.
D) cannot earn economic profit in the short run.
|
b
|
|
A purely competitive firm is precluded from making economic profit in the long run because:
A) it is a "price taker." C) of unimpeded entry to the industry.
B) its demand curve is perfectly elastic. D) it produces a differentiated product.
|
c
|
|
If a purely competitive constant-cost industry is realizing economic profits, we can expect industry supply
to:
A) increase, output to increase, price to decrease, and profits to decrease.
B) increase, output to increase, price to increase, and profits to decrease.
C) decrease, output to decrease, price to increase, and profits to increase.
D) increase, output to decrease, price to decrease, and profits to decrease.
|
a
|
|
Assume that a decline in consumer demand occurs in a purely competitive industry which is initially in
long-run equilibrium. We can:
A) predict that the new price will be greater than the original price.
B) predict that the new price will be less than the original price.
C) predict that the new price will be the same as the original price.
D) not compare the original and the new price without knowing about cost conditions in the industry
|
d
|
|
Purely competitive industry X has constant costs and its product is an inferior good. The industry is
currently in long-run equilibrium. The economy now goes into a recession and average incomes decline.
The result will be:
A) an increase in output and in the price of the product.
B) an increase in output, but not in the price, of the product.
C) a decrease in the output, but not in the price, of the product.
D) a decrease in output and in the price of the product.
|
b
|
|
A firm is producing an output such that the benefit from one more unit is more than the cost of producing
that additional unit. This means the firm is:
A) producing more output than allocative efficiency requires.
B) producing less output than allocative efficiency requires.
C) achieving productive efficiency.
D) producing an inefficient output, but we cannot say whether output should be increased or decreased.
|
b
|
|
The term productive efficiency refers to:
A) any short-run equilibrium position of a competitive firm.
B) the production of the product-mix most desired by consumers.
C) the production of a good at the lowest average total cost.
D) fulfilling the condition P = MC.
|
c
|
|
Resources are efficiently allocated when production occurs where:
A) marginal cost equals average variable cost. C) price is equal to marginal cost.
B) price is equal to average revenue. D) price is equal to average variable cost
|
c
|
|
Under pure competition in the long run:
A) neither allocative efficiency nor productive efficiency are achieved.
B) both allocative efficiency and productive efficiency are achieved.
C) productive efficiency is achieved, but allocative efficiency is not.
D) allocative efficiency is achieved, but productive efficiency is not.
|
b
|
|
If a purely competitive firm is producing where price exceeds marginal cost, then:
A) the firm will fail to maximize profit, but resources will be efficiently allocated.
B) the firm will fail to maximize profit and resources will be overallocated to the product.
C) the firm will fail to maximize profit and resources will be underallocated to the product.
D) resources will be underallocated to the product, but the firm will maximize profit.
|
c
|
|
Because the equilibrium position of a purely competitive seller entails an equality of price and marginal
costs, competition produces up to an efficient allocation of economic resources.
|
t
|
|
The short-run supply curve slopes upward because producers must be compensated for rising marginal
costs.
|
t
|
