ECON 231
Chapter 10 Study Quiz


1.
(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.


2.
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.


3.
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.


The following table applies to a purely competitive industry composed of 100 identical firms.

Reference: REF23131

4.
Refer to the above table. If each of the 100 firms in the industry is 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.




Reference: F23105

5.
Refer to the above diagram. At P4, this firm will:
A.
shut down in the short run.
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.


6.
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.




Reference: F23038

7.
Refer to the above short-run data. The shape of the total cost curve reflects:
A.
diminishing opportunity costs.
B.
the law of rising fixed costs.
C.
increasing and diminishing returns.
D.
economies and diseconomies of scale.


8.
Marginal revenue for a purely competitive firm:
A.
is greater than price.
B.
is less than price.
C.
is equal to price.
D.
may be either greater or less than price.


In answering the next question(s), assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis.
Reference: REF23017

9.
Refer to the above information. For a purely competitive firm marginal revenue:
A.
graphs as a straight, upsloping line.
B.
is a straight line, parallel to the vertical axis.
C.
is a straight line, parallel to the horizontal axis.
D.
graphs as a straight, downsloping line.


Answer the next question(s) on the basis of the following cost data for a purely competitive seller:

Reference: REF23113

10.
Refer to the above data. If product price is $25, the firm will:
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.


Answer the next question(s) on the basis of the following data confronting a firm:

Reference: REF23060

11.
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.


12.
Suppose an increase in product demand occurs in a decreasing-cost industry. As a result:
A.
the new long-run equilibrium price will be lower than the original long-run equilibrium price.
B.
equilibrium quantity will decline.
C.
firms will eventually leave the industry.
D.
the new long-run equilibrium price will be higher than the original price.


13.
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.


14.
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.


15.
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.


16.
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.


17.
Long-run competitive equilibrium:
A.
is realized only in constant-cost industries.
B.
will never change once it is realized.
C.
is not economically efficient.
D.
results in zero economic profits.


18.
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.


Answer the next question(s) on the basis of the following cost data for a firm that is selling in a purely competitive market:

Reference: REF23083

19.
Refer to the above data. If the market price for the firm's product is $32, the competitive firm will produce:
A.
8 units at an economic profit of $16.
B.
5 units at a loss of $10.
C.
8 units at a loss equal to the firm's total fixed cost.
D.
7 units at an economic profit of $41.50.


Answer the next question(s) on the basis of the following cost data for a firm that is selling in a purely competitive market.

Reference: REF23123

20.
Refer to the above data. At 6 units of output, total fixed cost is ____ and total cost is ____:
A.
$25; $50.
B.
$50; $300.
C.
$100, $200.
D.
$150; $300.


21.
The term allocative efficiency refers to:
A.
the level of output that coincides with the intersection of the MC and AVC curves.
B.
minimization of the AFC in the production of any good.
C.
the production of the product-mix most desired by consumers.
D.
the production of a good at the lowest average total cost.




Reference: F23167

22.
Refer to the above diagram showing the average total cost curve for a purely competitive firm. At the long-run equilibrium level of output, this firm's economic profit:
A.
is zero.
B.
is $400.
C.
is $200.
D.
cannot be determined from the information provided.


Reference: F23153

23.
Refer to the above diagrams, which pertain to a purely competitive firm producing output q and the industry in which it operates. The predicted long-run adjustments in this industry might be offset by:
A.
a decline in product demand.
B.
an increase in resource prices.
C.
a technological improvement in production methods.
D.
entry of new firms into the industry.


24.
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.


25.
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.


26.
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.


27.
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




Reference: F23167

28.
Refer to the above diagram showing the average total cost curve for a purely competitive firm. Suppose this firm is maximizing its total profit and the market price is $15. The firm's per unit profit is:
A.
$5.
B.
$200.
C.
a positive amount less than $5.
D.
a positive amount more than $200.


Answer the next question(s) on the basis of the following cost data for a firm that is selling in a purely competitive market:

Reference: REF23083

29.
Refer to the above data. Which of the following is the firm's short-run supply schedule?


Answer:


30.
The loss of a purely competitive firm which shuts down in the short run:
A.
is equal to its total variable costs.
B.
is zero.
C.
is equal to its total fixed costs.
D.
cannot be determined.


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