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QUIZ 3
ECON 1510 : PRINCIPLES OF MICROECONOMICS

Answer ALL Questions

1. Which of the following industries most closely approximates pure
competition?
A. agriculture
B. farm implements
C. clothing
D. steel

2. In which of the following industry structures is the entry of
new firms the most difficult?
A. pure monopoly
B. oligopoly
C. monopolistic competition
D. pure competition

3. Which of the following statements applies to a purely
competitive producer?
A. It will not advertise its product.
B. In long-run equilibrium it will earn an economic profit.
C. Its product will have a brand name.
D. Its product is slightly different from those of its
competitors.

4. Which of the following is characteristic of a purely competitive
seller’s demand curve?
A. Price and marginal revenue are equal at all levels of
output.
B. Average revenue is less than price.
C. Its elasticity coefficient is 1 at all levels of output.
D. It is the same as the market demand curve.

5. If a firm in a purely competitive industry is confronted with an
equilibrium price of $5, its marginal revenue:
A. may be either greater or less than $5.
B. will also be $5.
C. will be less than $5.
D. will be greater than $5.

6. For a purely competitive firm total revenue:
A. is price times quantity sold.
B. increases by a constant absolute amount as output expands.
C. graphs as a straight upsloping line from the origin.
D. has all of these characteristics.

7. The demand curve in a purely competitive industry is ______,
while the demand curve to a single firm in that industry is
______.
A. perfectly inelastic, perfectly elastic
B. downsloping, perfectly elastic
C. downsloping, perfectly inelastic
D. perfectly elastic, downsloping

8. Marginal revenue is the:
A. change in product price associated with the sale of one more
unit of output.
B. change in average revenue associated with the sale of one more
unit of output.
C. difference between product price and average total cost.
D. change in total revenue associated with the sale of one more
unit of output.

9. A competitive firm in the short run can determine the
profit-maximizing (or loss-minimizing) output by equating:
A. price and average total cost.
B. price and average fixed cost.
C. marginal revenue and marginal cost.
D. price and marginal revenue.

10. In the short run a purely competitive firm that seeks to
maximize profit will produce:
A. where the demand and the ATC curves intersect.
B. where total revenue exceeds total cost by the maximum
amount.
C. that output where economic profits are zero.
D. at any point where the total revenue and total cost curves
intersect.

11. A firm reaches a break-even point (normal profit position)
where:
A. marginal revenue cuts the horizontal axis.
B. marginal cost intersects the average variable cost curve.
C. total revenue equals total variable cost.
D. total revenue and total cost are equal.

12. In the short run the individual competitive firm’s supply curve
is that segment of the:
A. average variable cost curve lying below the marginal cost
curve.
B. marginal cost curve lying above the average variable cost
curve.
C. marginal revenue curve lying below the demand curve.
D. marginal cost curve lying between the average total cost and
average variable cost curves.

13. Suppose you find that the price of your product is less than
minimum AVC. You should:
A. minimize your losses by producing where P = MC.
B. maximize your profits by producing where P = MC.
C. close down because, by producing, your losses will exceed your
total fixed costs.
D. close down because total revenue exceeds total variable
cost.

14. If a firm is confronted with economic losses in the short run,
it will decide whether or not to produce by comparing:
A. marginal revenue and marginal cost.
B. price and minimum average variable cost.
C. total revenue and total cost.
D. total revenue and total fixed cost.

15. Assume a purely competitive firm is selling 200 units of output
at $3 each. At this output its total fixed cost is $100 and its
total variable cost is $350. This firm:
A. is maximizing its profit.
B. is making a profit, but not necessarily the maximum
profit.
C. is incurring losses.
D. should shut down in the short run.