Practice_Ch9_ - Chapter 9 Practice Test Pure Competition 1....

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Chapter 9 Practice Test Pure Competition 1. A purely competitive seller’s demand curve coincides with all of the following except : a. its marginal revenue curve b. its average revenue curve c. the market price d. the industry demand curve Answer: d Feedback: An individual seller in a competitive market is a “price taker.” Its demand curve graphs as a horizontal line at the level of the market price and this price measures two values to the firm: the amount of revenue received for both the average unit sold and the next unit sold. 2. Firms in purely competitive markets: a. have unit elastic demand curves b. are “price takers” c. engage in significant advertising d. face significant barriers to entry Answer: b Feedback: One of the key assumptions regarding competitive markets is that individual firms have no individual control over the market price, selling as much or as little as they desire at that price. Should they set a higher price, consumers will not buy any of their output, opting for that of another competing firm instead. 3. Compared to the downward-sloping demand curve for the output of a competitive industry, a single firm operating in that industry faces: a. a perfectly inelastic demand curve b. a perfectly elastic demand curve c. a unit elastic demand curve d. a downward-sloping marginal revenue curve Answer: b Feedback: A competitive firm is a price-taker: it can sell as much or as little as it chooses at the market price. Demand is perfectly elastic at the level of the market price. 4. Which of the following is a characteristic of equilibrium in long-run competitive markets? a. Consumer surplus is minimized b. Producer surplus exceeds consumer surplus c. Total consumer and producer surplus is maximized d. The difference between producer surplus and consumer surplus is maximized Answer: c Feedback: At long-run competitive equilibrium, price equals marginal cost equals minimum average total cost. These equalities ensure maximum total surplus.
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5. Use the following diagrams to answer the next question. Refer to the diagrams. Suppose the market price is G, which is the basis for the total revenue curve in the panel on the left. Which output level in the right panel corresponds to an output level of 320 in the left panel? a. A b. B c. C d. D Answer: c Feedback: The output of 320 in the left panel represents maximum profits, which is achieved if price and marginal cost are equal. 6. The market for which of the following most closely approximates pure competition? a. feed corn b. breakfast cereal c. MP3 players d. computers Answer: a Feedback: Competition requires many sellers of identical products. While there may be many sellers of cereal, MP3 players and computers, their products are quite differentiated. 7. The economic profits of firms in long-run competitive equilibrium are:
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This note was uploaded on 02/22/2011 for the course ECON 2023 taught by Professor Meier during the Spring '11 term at St. Petersburg College.

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Practice_Ch9_ - Chapter 9 Practice Test Pure Competition 1....

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