Micro Chapter 21 Practice Problems #1 Pure Competition Key

1. Which market model has the least number of firms?

A)
monopolistic competition B) pure competition
oligopoly
Answer: C

C) pure monopoly

D)

2. There would be some control over price within rather narrow limits in which market
model?
A)
monopolistic competition B) pure competition C) pure monopoly D)
oligopoly
Answer: A
3. Mutual interdependence would tend to limit control over price in which market model?
A)
monopolistic competition B) pure competition C) pure monopoly D)
oligopoly
Answer: D
4. In which two market models would advertising be used most often?
A)
pure competition and monopolistic competition C)
monopolistic
competition and oligopoly
B)
pure competition and pure monopoly
D)
pure monopoly and
oligopoly
Answer: C
5. There is no control over price by firms in:
A)
oligopoly. B) pure monopoly.
competition.
Answer: C

C) pure competition.

D) monopolistic

6. Under which market model are the conditions of entry into the market easiest?
A)
pure competition B) pure monopoly C) monopolistic competition
oligopoly
Answer: A

D)

7. Which idea is inconsistent with pure competition?

A)
short-run losses
C)
freedom of entry or exit for firms
B)
product differentiation
D)
a large number of buyers and sellers
Answer: B
8. Under which market model are the conditions of entry the most difficult?
A)
monopolistic competition B) pure competition C) pure monopoly
oligopoly
Answer: C

D)

9. In a purely competitive industry, each firm:

A)
is a price maker.
C)
can easily enter or exit the industry.
B)
produces a differentiated product. D)
engages in forms of nonprice
competition.
Answer: C
10. Which is a feature of a purely competitive market?
A)
price differences between firms producing the same product
B)
significant barriers to entry into the industry
C)
the industry's demand curve is perfectly elastic

D)
Answer: D

products are standardized or homogeneous

11. Which is true under conditions of pure competition?

A)
There are differentiated products.
B)
The market demand curve is perfectly elastic.
C)
No single firm can influence the market price by changing its output.
D)
Firms that cannot make pure or economic profits go bankrupt.
Answer: C
12. The steel and automobile industries would be examples of which market model?
A)
monopolistic competition B) pure competition C) pure monopoly D)
oligopoly
Answer: D
13. Competitive firms are assumed to:
A)
advertise.
B)
be price takers.
C)
sell where marginal cost is minimized.
D)
confront demand curves that are perfectly inelastic.
Answer: B
14. A purely competitive firm does not try to sell more of its product by lowering its price
below the market price because:
A)
its competitors would not permit it.
B)
it can sell all it wants to at the market price.
C)
this would be considered unethical price chiseling.
D)
its demand curve is inelastic, so total revenue will decline.
Answer: B
15. A purely competitive firm can be identified by the fact that:
A)
there are other firms in the industry producing close substitutes.
B)
it is making only normal profits in the short run.
C)
its average revenue equals marginal revenue.
D)
it experiences diminishing marginal returns.
Answer: C
16. In pure competition, the marginal revenue of a firm always equals:
A)
product price. B) total revenue. C) average total cost.
Answer: A

D) marginal cost.

B
0

Q u a n tity

17. Refer to the above graph for a firm in pure competition. Line A represents:
A)
total revenue. B) average revenue. C) average total cost. D) average
fixed cost.
Answer: A
18. Refer to the above graph for a firm in pure competition. Line B represents:
A)
total revenue. B) marginal revenue. C) average total cost. D) average
fixed cost.
Answer: B
19. Refer to the above graph for a firm in pure competition. Line B is a horizontal line
because:
A)
total revenue is greater than marginal revenue. C)
the firm has a
perfectly inelastic demand curve.
B)
marginal revenue is greater than total revenue. D)
the firm has a
perfectly elastic demand curve.
Answer: D
20. Total revenue for producing 8 units of output is $48. Total revenue for producing 9 units
of output is $63. Given this information, the:
A)
average revenue for producing 9 units is $1.
B)
average revenue for producing 9 units is $15.
C)
marginal revenue for producing the ninth unit is $1.
D)
marginal revenue for producing the ninth unit is $15.
Answer: D