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Economics 130: Exam 3 Study Guide

1) Which market model has the least number of firms?

a. Pure monopoly

2) There is no control over price by firms in:

b. Pure competition

3) Which is true under conditions of pure competition?

c. A large number of firms

d. Standardized product (meaning no product differentiation)

e. Price takers (no exertion over product price)

f. Free entry and exit in and out of the market

g. Individual firms have a perfectly elastic demand curve, but whole industries that represent a market do not have a perfectly elastic curve (market demand)

h. Ask Kaibara

4) Competitive firms are assumed to:

i. See Problem 3

j. Ask Kaibara

5) The demand curve faced by a purely competitive firm:

k. Is completely horizontal, meaning perfectly elastic, because a purely competitive firm cannot change the product price no matter how much output they produce or sell.

l. Total Revenue is a slope

m. Demand = Marginal Revenue = Average Revenue

6) If a firm is a price taker, then the demand curve for the film’s product is:

n. Completely horizontal because the price will not change.

Use the following graph to answer question 7:

7) Refer to the graph on the left for a firm in pure competition. Line A represents:

o. The total revenue made from selling each extra unit of output as per the price at Line B.

p. (Additionally, Line B is the demand curve, marginal revenue curve, and average revenue curve.)

8) Assume the price of a product sold by a purely competitive firm is $5. Given the data in the accompanying table (bottom left), at what output is the total profit highest in the short run?

Output | Total Cost |

20 | $70 |

25 | $75 |

30 | $85 |

35 | $100 |

40 | $125 |

45 | $155 |

50 | $190 |

Total Revenue | Marginal Cost | Marginal Revenue |

$100 | (TCb – TCa) | (TRb – TRa) |

$125 | $5 | $25 |

$150 | $10 |...