Question 1

The operation of the "invisible hand" means the pursuit of private interests promotes social interests in pure competition.

Accepted Answer

A) True 
 B)False

Question 2

Based on the graph above,the firm is earning:

Accepted Answer

A)   zero normal profits.
B)   zero economic profits.
C)   zero accounting profits.
D)   We can say nothing about this firm's profit or loss situation.E) A) and B)
F) A) and D)

Question 3

The production of agricultural products such as wheat or corn would best be described by which market model?

Accepted Answer

A)   Monopolistic competition
B)   Pure competition
C)   Pure monopoly
D)   OligopolyE) C) and D)
F) B) and D)

Question 4

A purely competitive firm will be willing to produce at a loss in the short run provided:

Accepted Answer

A)   the loss is no greater than its total variable costs.
B)   the loss is no greater than its marginal costs.
C)   the loss is no greater than its total fixed costs.
D)   price exceeds marginal costs.E) A) and D)
F) A) and B)

Question 5

Sam owns a firm that produces tomatoes in a purely competitive market.The firm's demand curve is:

Accepted Answer

A)   a vertical line.
B)   a horizontal line.
C)   upsloping to the right.
D)   downsloping to the right.E) A) and B)
F) A) and C)

Question 6

Assume a purely competitive increasing-cost industry is in long-run equilibrium.Now suppose that an increase in consumer demand occurs.After all the resulting adjustments have been completed,the new equilibrium price:

Accepted Answer

A)   and industry output will be less than the initial price and output.
B)   and industry output will be greater than the initial price and output.
C)   will be greater,but the new output will be less than initially.
D)   will be less,but the new output will be greater than initially.E) None of the above
F) All of the above

Question 7

Which statement is correct? The long-run supply curve for a purely competitive:

Accepted Answer

A)   decreasing-cost industry is upsloping.
B)   increasing-cost industry is perfectly elastic.
C)   increasing-cost industry is upsloping.
D)   increasing-cost industry is less elastic than the industry's short-run supply curve.E) A) and B)
F) B) and C)

Question 8

Assume that the market for soybeans is purely competitive.Currently,firms growing soybeans are experiencing economic profits.In the long run,we can expect this market's:

Accepted Answer

A)   supply to increase.
B)   demand to increase.
C)   supply to decrease.
D)   demand to decrease.E) B) and D)
F) None of the above

Question 9

In pure competition,marginal revenue is:

Accepted Answer

A)   equal to total revenue.
B)   equal to product price.
C)   less than product price.
D)   greater than product price.E) A) and B)
F) C) and D)

Question 10

In the long run,pure competition forces firms to produce at the minimum of average total cost and charge a price consistent with that cost.

Accepted Answer

A) True 
 B)False

Question 11

The demand curves for firms in a purely competitive industry are perfectly elastic.

Accepted Answer

A) True 
 B)False

Question 12

Refer to the above graph.At output level H,the area:

Accepted Answer

A)   0CGH represents the firm's total cost of production.
B)   ACGE represents the firm's economic profit.
C)   0AEH represents the firm's economic profit.
D)   BCGF represents the firm's fixed costs of production.E) None of the above
F) All of the above

Question 13

The long-run supply curve under pure competition will be:

Accepted Answer

A)   downsloping in a decreasing-cost industry and upsloping in an increasing-cost industry.
B)   horizontal in a constant-cost industry and downsloping in an increasing-cost industry.
C)   vertical in a constant-cost industry and upsloping in a decreasing-cost industry.
D)   upsloping in an increasing-cost industry and vertical in a constant-cost industry.E) A) and C)
F) A) and D)

Question 14

The long-run supply curve for a competitive,decreasing-cost industry is upsloping.

Accepted Answer

A) True 
 B)False

Question 15

Refer to the above data.This firm is selling its output in a(n) :

Accepted Answer

A)   imperfectly competitive market.
B)   monopolistic market.
C)   purely competitive market.
D)   oligopolistic market.E) All of the above
F) A) and C)

Question 16

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

Accepted Answer

A)   Pure competition
B)   Pure monopoly
C)   Monopolistic competition
D)   OligopolyE) B) and C)
F) All of the above

Question 17

The market model with the largest number of firms is:

Accepted Answer

A)   oligopoly.
B)   pure monopoly.
C)   pure competition.
D)   monopolistic competition.E) A) and B)
F) C) and D)

Question 18

Candy Cane Corporation (CCC) produces 100,000 boxes of candy bars per year that sell for $3 a box.If variable costs are $2 per box and it has $125,000 in fixed operating costs,in the short run the CCC should:

Accepted Answer

A)   shut down as fixed costs are not being covered.
B)   keep producing as profits are $25,000.
C)   keep producing because variable costs are covered.
D)   reduce production until the break-even point is reached.E) All of the above
F) A) and B)

Question 19

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?

Accepted Answer

A)   20
B)   30
C)   40
D)   50At an output level of 40,total revenue is $5 * 40 = $200 and total cost is $125,so profit is $75.This is maximum profit of the output levels shown.E) A) and B)
F) A) and C)

Question 20

Which characteristic would best be associated with pure competition?

Accepted Answer

A)   Few sellers
B)   Price taker
C)   Nonprice competition
D)   Product differentiationE) None of the above
F) A) and C)

Exam 7: Pure Competition

The production of agricultural products such as wheat or corn would best be described by which market model?

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The market model with the largest number of firms is:

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Sam owns a firm that produces tomatoes in a purely competitive market.The firm's demand curve is:

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The demand curves for firms in a purely competitive industry are perfectly elastic.

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Which statement is correct? The long-run supply curve for a purely competitive:

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The operation of the "invisible hand" means the pursuit of private interests promotes social interests in pure competition.

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Assume that the market for soybeans is purely competitive.Currently,firms growing soybeans are experiencing economic profits.In the long run,we can expect this market's:

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Which characteristic would best be associated with pure competition?

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Assume a purely competitive increasing-cost industry is in long-run equilibrium.Now suppose that an increase in consumer demand occurs.After all the resulting adjustments have been completed,the new equilibrium price:

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In pure competition,marginal revenue is:

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A purely competitive firm will be willing to produce at a loss in the short run provided:

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Refer to the above data.This firm is selling its output in a(n) :

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Based on the graph above,the firm is earning:

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The long-run supply curve under pure competition will be:

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The long-run supply curve for a competitive,decreasing-cost industry is upsloping.

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In the long run,pure competition forces firms to produce at the minimum of average total cost and charge a price consistent with that cost.

Correct AnswerverifiedShow Answer

Candy Cane Corporation (CCC) produces 100,000 boxes of candy bars per year that sell for $3 a box.If variable costs are $2 per box and it has $125,000 in fixed operating costs,in the short run the CCC should:

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

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Refer to the above graph.At output level H,the area:

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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?

Correct AnswerverifiedShow Answer

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