_____1. The demand curve confronted by the individual purely competitive firm is:perfectly elastic, and shown graphically by a horizontal...
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_____ 1. The demand curve confronted by the individual purely competitive firm is:

      a. perfectly elastic, and shown graphically by a horizontal line.

b. inelastic but not perfectly inelastic.

c. perfectly inelastic, and shown graphically by a vertical line.

d. elastic but not perfectly elastic.


_____ 2. In pure competition, product price faced by an individual firm is

  1. set by each firm.
  2. market determined, and is equal to the firm's marginal revenue.
  3. market determined, and is equal to the firm's total fixed cost.
  4. set by government.


_____ 3. The optimum output level for a purely competitive firm in the short run is

a.  where the demand curve and the ATC curve intersect.

  1. that output where economic profits are maximized.
  2. that output where economic profits are zero

       d.  where the total revenue and total cost are equal.


_____ 4. A firm should continue to operate in the short run, even if it has economic losses,

as long as

  1. all fixed costs are covered, even if all variable costs are not covered.
  2. its total revenue is less than its total costs.
  3. all of its variable costs and some of its fixed costs are covered.
  4. the price of its product is less than its average variable costs.


______5.    The break-even point occurs where the

a.  MR = MC.

b.  TR = TC.

c.  MR = TR.

d.  MC = TC







Answer question #6 on the basis of the following cost data for a firm that is selling in a purely competitive market. Also, fill in columns TR (Total Revenue) and EP (Economic Profit).  



Market Price = $200



  TOTAL              

   OUTPUT   COST MC    TR     EP    

  0    310 --  _____  _____   

1    400 90      _____  _____   

2         450 50  _____  _____   

3    510 60  _____  _____   

4    592 82  _____  _____   

5    710     118  _____  _____   

6    840     130  _____  _____   

7   1022     182  _____  _____   

8   1258     236  _____  _____   

9   1539     281  _____  _____   

10   1900     361  _____  _____   


6. If the market price for the firm's product is $200, 


  a.  what will be the optimum output level?   Answer: _____units of output  

      b.  At this optimum output level, what will be the dollar amount of the profits or losses?

   (Indicate profits by a + sign and losses by a - sign.)    Answer: $ _____________


Answer questions #7-8 on the basis of the following diagram:

 

Dollars    50         MC    

                                                     ATC

      40         MR


      30 AVC

     

   20


   10

       

             0 200 400 600 800 1000

Output



7. In order to maximize profits or minimize losses this firm will produce (how many?) ______units of output at a price of $________.


8. At the optimum output level, what will the total profits or losses be? Use a + sign to indicate  

      profits and use a - sign to indicate losses.


$ _____________






Use the following graphs which represent two different firms operating under conditions of pure competition in the short run to answer question #9.


  Firm A Firm B

 Costs    MC      Costs   MC

     ATC     ATC

       MR      

             AVC  

     AVC     

        MR

       

                   

     0                      Quantity            0     Quantity



9. Which firm shows losses that are so large that it should stop production in the short run?

a. Firm A

b. Firm B

c. Both Firms A and B should shut down.

d. Neither Firm A nor B should shut down since both are earning       economic profits.


10.    Use the graph below to answer the questions about a purely competitive firm.

 

       Costs        MC    

          ATC

                    6                          MR

           

  4    AVC



     10      20 Quantity


a. What is the average total cost of production?     ___________


b. What is the total revenue for this firm?         ___________


c.  What are the total economic profits or losses?   ___________

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