Economics 103 – Review Questions Chapter 10

Economics 251 – Review Questions Chapter 23 – Pure Competition

(1) Which of the following industries approximates pure competition?

(a) Agriculture.

(b) Farm implements.

(d) Steel.

(2) A one-firm industry is known as:

(a) monopolistic competition.

(b) oligopoly.

(d) pure competition.

(3) 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.

(d) pure competition.

(4) 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.

(d) pure competition.

(5) If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue:

(a) may be either greater or less than $5.

(b) will also be $5.

(d) will be greater than $5.

(6) A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating:

(a) price and average total cost.

(b) price and average fixed cost.

(d) price and marginal revenue.

(7) A firm in a perfectly competitive market is:

(a) a price maker, can set price by the amount supplied to the market.

(b) a price taker, as it takes the market price as given.

(d) one firm among relatively few firms in the market place.

Consider Figure 1 in answering Questions (8), (9), and (10).

Figure 1

$/Q

(8) In Figure 1, the profit-maximizing output for this firm is:

(a) 550 units.

(b) 440 units.

(d) 100 units.

(9) In Figure 1, if output was 100 units, the firm should maximize profits by:

(a) increasing output, as long as Price > Marginal Cost.

(b) increasing output until Price = Minimum of Average Total Cost.

(d) remaining at an output level of 100 units.

(10) In Figure 1, if output was 550 units, the firm should maximize profits by:

(a) decreasing output, as long as Marginal Cost > Price.

(b) decreasing output down to an output level of 100 units.

(d) decreasing output until Price = Minimum of Average Total Cost

(11) An increasing-cost industry is the result of:

(a) higher resource prices which occurs as the industry expands.

(b) a change in the industry's minimum efficient scale

(d) improvements in technology which force industry average costs downward.

Consider Figure 2 in answering Questions (12), (13), (14), and (15).

Figure 2

(12) In Figure 2, the lowest price at which the firm should produce (as opposed to shutting down) is:

(a) P(1).

(b) P(2).

(d) P(4).

(13) In Figure 2, the firm will produce at a loss at all prices:

(a) below P(1).

(b) below P(2).

(d) between P(1) and P(2).

(14) In Figure 2, if the product price is P(1):

(a) the firm will earn an economic loss.

(b) the firm will earn an economic profit.

(d) firms will exit this industry.

(15) In Figure 2, the firm's short run supply curve is:

(a) the ABCD segment of the MC curve.

(b) the BCD segment of the MC curve.

(d) not shown.

Consider Figure 3 in answering Questions (16), (17), (18), (19), and (20).

Figure 3

(16) In Figure 3, at the profit-maximizing output, total revenue will be:

(a) OAHE.

(b) OBGE.

(d) ABGH.

(17) In Figure 3, at the profit-maximizing output, total fixed cost is equal to:

(a) OAHE.

(b) OBGE.

(d) BCFG.

(18) In Figure 3, at the profit-maximizing output, total variable cost is equal to:

(a) OAHE.

(b) OCFE.

(d) ABGH.

(19) In Figure 3, total profits are equal to:

(a) OAHE

(b) OCFE

(d) ABGH

(20) In Figure 3, in the long run we should expect:

(a) firms to enter the industry, market supply to rise, and product price to fall.

(b) firms to leave the industry, market supply to rise, and product price to fall.

(d) no change in the number of firms in this industry.