Quiz 8
Microeconomics
Pure Competition
1. In a purely competitive market, there are
a. many buyers and many sellers, who can each affect the price of the product
b. many buyers and sellers, and no single participant can affect the price of product
c. a few buyers or sellers, who can each affect the price of the product
d. a few buyers or sellers, but no single participant can affect price of the product
e. many buyers and a few sellers, and a single seller can affect the price of the product
2.
The demand for the product of a perfectly competitive firm is
a) Perfectly elastic, horizontal
b) Perfectly inelastic, vertical
c) Unitary elastic
d) Infinite
e) It can be any of the above, depending on the market demand
3. Profit maximizing firms want to maximize the difference between
a. Total revenue and marginal cost
b. Price and marginal cost
c. Marginal revenue and marginal cost
d. Average revenue and average cost
e. Total revenue and total cost
4. Farley Frozen Yogurt is a perfectly competitive firm. The market price of a frozen yogurt cake is $6. Farley sells 200
frozen yogurt cakes. Its AVC is $9 and its AFC is $2. Farley should:
a. Continue to produce even though it is losing money.
b. Decrease production to increase profits.
c. Increase production to increase profits.
d. Shut down immediately, it is losing money.
5. Suppose there is a permanent increase in the demand for beer. In the perfectly competitive market, the most likely result
would be:
a.
higher price in the short run because of greater sales volume, and even higher prices later on as plant sizes are
increased.
b.
higher price in the short run, followed by large long run price increases as the inventory of beer is depleted.
c.
higher prices in the short run, then an increase in production in the long run that would cause price to decline.
d.
lower prices in the short run because of higher sales, but higher prices in the long run as the inventory of beer is
depleted.
6. The characteristics of perfect competition in the long run include all of the following except:
a) efficient production
b) marginal cost equals price
c) total revenue equals total cost
d) output at minimum long run average total cost
e) positive economic profit
7. In the market shown on the graph on the right
a. Is the firm making a profit or a loss?
b. Mark area that stands for profit or loss.
b. In the long run, will firms enter or exit this industry?
8. In the picture on the right,
a. the firm’s break even price
(0 Profit) is
b. mark the firm’s profit or
loss if price = P1.
9. Based on the following information on the hourly costs for Chip's Pizza Palace, a perfectly competitive firm. Pizzas sell for
$10. Fill out the table below. Find Chip's short-run profit-maximizing or loss-minimizing output per hour, Q*. Is the firm
making money or losing money? Bonus: graph MR, MC, ATC below, mark Q* and the firm’s profit/loss.
Output
Total Cost
(pizzas per hour)____($ per hour)
0
10
1
12
2
16
3
21
4
30
5
45
TR
Profit
MR
MC
ATC
_______________________________________________