Practice: PC in Short Run

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Rodney Fields
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1 Practice: PC in Short Run Student: 1. Which of the following industries most closely approximates pure competition? A. agriculture B. farm implements C. clothing D. steel 2. 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. 3. 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. 4. 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. In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. 5. Refer to the above information. For a 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. 6. Which of the following statements iscorrect? 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. 7. Firms seek to maximize: A. per unit profit. B. total revenue. C. total profit. D. market share.

2 8. Refer to the above short-run data. The profit-maximizing output for this firm is: A. above 440 units. B. 440 units. C. 320 units. D. 100 units. 9. The firm represented by the above 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. 10. 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. 11. The MR = MC rule can be restated for a purely competitive seller asp=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. 12. 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.

3 Answer the question on the basis of the following data confronting a firm: 13. Refer to the above data. This firm is selling its output in a(n): A. monopolistically competitive market. B. monopolistic market. C. purely competitive market. D. oligopolistic market. 14. 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 Refer to the above diagram for a purely competitive producer. If product price isp 3 : A. the firm will maximize profit at pointd. B. the firm will earn an economic profit. C. economic profits will be zero. D. new firms will enter this industry. 16. 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. Answer the question on the basis of the following cost data for a firm that is selling in a purely competitive market:

4 17. Refer to the above data. Which of the following is the firm's short-run supply schedule? A. B. C. D. 18. Refer to the above data. If there were 1,000 identical firms in this industry and total or market demand is as shown below, equilibrium price will be: A. $32. B. $42. C. $36. D. $ 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. 20. 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. 21. 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. B. profit-maximizing rule. C. shut-down rule. D. break-even rule.

5 22. If a purely competitive firm is producing at thep=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. Answer the question on the basis of the following cost data for a purely competitive seller: 23. Refer to the above data. If product price is $45, the firm will: 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. 24. 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. 25. Refer to the above diagram. The firm will produce at a loss if price is: A. less thanp 1. B. P 2. C. P 3. D. P Refer to the above 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.

6 Answer the question on the basis of the following cost data for a firm that is selling in a purely competitive market. 27. Refer to the above data. 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. The following table applies to a purely competitive industry composed of 100 identical firms. 28. Refer to the above table. The equilibrium price in this purely competitive market is: A. $5. B. $4. C. $3. D. $ Refer to the above table. 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. 30. (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.

Pre-Test Chapter 21 ed17

Pre-Test Chapter 21 ed17 Multiple Choice Questions 1. Which of the following is not a basic characteristic of pure competition? A. considerable nonprice competition B. no barriers to the entry or exodus