Question: The market for agricultural products such as wheat or corn would best be described by which market model?

Answer: Pure competition

Question: It shows short-run cost curves for a competitive firm. At what price would the firm break even?

Answer: it would break even when MC=ATC

Question: The fast-food restaurant industry would be an example of which market model?

Answer: Monopolistic competition

Question: A purely competitive firm’s output is currently such that its marginal cost is $4 and marginal revenue is $5. Assuming profit maximization, the firm should:

Answer: Leave price unchanged and raise output

Question: In pure competition, each extra unit of output that a firm sells will yield a marginal revenue that is:

Answer: Equal to the price

Question: A purely competitive firm can be identified by the fact that

Answer: Its average revenue equals its marginal revenue

AR=MR

Question: Which idea is inconsistent with pure competition?

-Product differentiation

Price-taking behavior

Freedom of entry or exit for firms

A large number of buyers and sellers

Answer: Product differentiation

Question: If a firm increases its output quantity when marginal revenue is less than marginal cost then its profits will:

Answer: Decrease

Question: A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 500 units is $1.50. The minimum possible average variable cost is $1.00. The market price of the product is $1.25. To maximize profits or minimize losses, the firm should:

Answer: Continue production, but produce less than 500 units

Question: In the standard model of pure competition, a profit-maximizing firm will shut down in the short run if price is below:

Answer: Average variable cost