1. In the short run, a purely competitive firm will earn a normal profit when: P
ID: 1207191 • Letter: 1
Question
1. In the short run, a purely competitive firm will earn a normal profit when:
P > MC.
P = AVC.
that firm's MR = market equilibrium price.
P = ATC.
2. The MR = MC rule applies:
in both the short run and the long run.
in the short run but not in the long run.
in the long run but not in the short run.
only to a purely competitive firm.
3. If for a firm P = minimum ATC = MC, then:
both allocative efficiency and productive efficiency are being achieved.
productive efficiency is being achieved, but allocative efficiency is not.
neither allocative efficiency nor productive efficiency is being achieved.
allocative efficiency is being achieved, but productive efficiency is not.
4. Which of the following is true concerning purely competitive industries?
There will be economic losses in the long run because of cut-throat competition.
Economic profits will persist in the long run if consumer demand is strong and stable.
There are economic profits in the long run but not in the short run.
In the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits.
5. Allocative efficiency is achieved when the production of a good occurs where:
P = minimum AVC.
P = minimum ATC.
total revenue is equal to TFC.
P = MC.
6. A firm is producing an output such that the benefit from one more unit is more than the cost of producing that additional unit. This means the firm is:
achieving productive efficiency.
producing less output than allocative efficiency requires.
producing an inefficient output, but we cannot say whether output should be increased or decreased.
producing more output than allocative efficiency requires.
7. Which of the following distinguishes the short run from the long run in pure competition?
Firms can enter and exit the market in the long run but not in the short run.
Firms use the MR = MC rule to maximize profits in the short run but not in the long run.
Firms attempt to maximize profits in the long run but not in the short run.
The quantity of labor hired can vary in the long run but not in the short run.
8. Because the monopolist's demand curve is downsloping:
MR will equal price.
price must be lowered to sell more output.
the elasticity coefficient will increase as price is lowered.
its supply curve will also be downsloping.
9. If a pure monopolist is operating in a range of output where demand is elastic:
marginal revenue will be positive and rising.
marginal revenue will be positive but declining.
it cannot possibly be maximizing profits.
total revenue will be declining.
10. Which of the following conditions is not required for price discrimination?
Buyers with different elasticities must be physically separate from each other.
The good or service cannot be profitably resold by original buyers.
The seller must be able to segment the market, that is, to distinguish buyers with different elasticities of demand.
The seller must possess some degree of monopoly power.
demand and marginal revenue curves.
demand curve only.
marginal revenue curve only.
average revenue curve only.
12. Monopolistic competition resembles pure competition because:
barriers to entry are either weak or nonexistent.
both industries emphasize nonprice competition.
in both instances firms will operate at the minimum point on their long-run average total cost curves.
both industries entail the production of differentiated products.
13. If the number of firms in a monopolistically competitive industry increases and the degree of product differentiation diminishes:
the likelihood of collusive pricing would increase.
individual firms would now be operating at outputs where their average total costs would be higher.
the likelihood of realizing economic profits in the long run would be enhanced.
the industry would more closely approximate pure competition.
Explanation / Answer
(1) In profit maximizing equilibrium, P = MR = MC
(2) MR = MC both in short run & long run.
(3) Both allocative & productive efficiency are achieved.
Allocation is efficient when P = MC & Production is efficienct when P = minimum ATC
(4) In the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits.
(5) Allocative efficiency is where P = MC
(6) When Marginal revenue is less than marginal cost, firm is producing less output than is required by allocative efficiency.
(7) Firms can enter and exit the market in the long run but not in the short run.
(8) the elasticity coefficient will increase as price is lowered.
As we move downward along demand curve, elasticity decreases.
(9) marginal revenue will be positive and rising.
(10) Buyers with different elasticities must be physically separate from each other.
Physical separation of buyers is not a necessary condition.
(11) Demand & Marginal revenue curve.
(12) in both instances firms will operate at the minimum point on their long-run average total cost curves.
(13) the industry would more closely approximate pure competition.
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