Deck 14: Equilibrium and Efficiency

Question 1

In a perfectly competitive market

A) Firms take quantities as given
B) Firms produce the quantity for which marginal cost equals price
C) Firms can increase profits by charging a price higher than the market price
D) Firms produce the quantity for which marginal cost equals marginal revenue

Answer 1

Firms produce the quantity for which marginal cost equals price

Question 2

Suppose Julia and Zach are the only consumers of milk.Julia's demand for milk is defined as at prices below $4 and zero for prices above $4.Zach's demand for milk is defined as at prices below $5 and zero for prices above $5.

A) The market demand curve is upward sloping
B) The market demand curve is a downward sloping straight line
C) The market demand curve is kinked at $5
D) The market demand curve is kinked at $4

Answer 2

The market demand curve is kinked at $4

Question 3

Characteristics of a perfectly competitive market include

A) The absence of transaction costs
B) Differentiated products
C) Few sellers, some with a large market share
D) All of these

Answer 3

The absence of transaction costs

Question 4

The market supply of a product

A) Is the same as the supply curve of an individual seller
B) Graphically is the vertical sum of the individual supply curves
C) Graphically is the horizontal sum of the individual supply curves
D) A and C

Question 5

Characteristics of a perfectly competitive market include

A) The presence of transaction costs
B) Homogenous products
C) Few sellers, each with a large market share
D) All of these

Question 6

Transactions costs are absent when

A) Sellers can easily communicate their prices
B) Buyers can easily locate suppliers and learn their prices
C) Buyers and sellers can arrange transactions without significant obstacles
D) All of these

Question 7

Characteristics of a perfectly competitive market include

A) The absence of transaction costs
B) Product homogeneity
C) Many sellers, each with a very small market share
D) All of these

Question 8

The market supply of a product

A) Is the sum of the supply of all the individual sellers
B) Graphically is the vertical sum of the individual supply curves
C) Graphically is the horizontal sum of the individual demand curves
D) Graphically is downward sloping

Question 9

Suppose Julia and Zach are the only consumers of milk.Julia's demand for milk is defined as at prices below $4 and zero for prices above $4.Zach's demand for milk is defined as at prices below $5 and zero for prices above $5.

A) The market demand curve is upward sloping
B) The market demand curve is a downward sloping straight line
C) The market demand curve is kinked at a quantity of 2 units
D) The market demand curve is kinked at a quantity of 1 unit

Question 10

Milky Moo and Mega Cow are the only sellers of milk.Milky Moo's supply function is at prices above $0.50 and zero at prices below $0.50.Mega Cow's supply function is at prices above $0.33 and zero at prices below $0.33.At a price of $0.45

A) Milky Moo is the only supplier of milk
B) Mega Cow is the only supplier of milk
C) Both Milky Moo and Mega Cow supply milk
D) Neither Milky Moo nor Mega Cow supply milk

Question 11

Characteristics of a perfectly competitive market include

A) The presence of transaction costs
B) Differentiated products
C) Many sellers, each with a small market share
D) All of these

Question 12

In a perfectly competitive market

A) Firms are price setters
B) Firms produce the quantity for which marginal cost equals price
C) Firms can increase profits by charging a price higher than the market price
D) Firms are quantity setters

Question 13

Suppose Julia and Zach are the only consumers of milk.Julia's demand for milk is defined as at prices below $4 and zero for prices above $4.Zach's demand for milk is defined as at prices below $5 and zero for prices above $5.Market demand when price is $4 is

A) 12 - 3P
B) 10 - 2P
C) 22 - 3P
D) 22 - 5P

Question 14

Products are homogenous when

A) They are identical in the eyes of the purchasers
B) Some purchasers view the products as different
C) Suppliers can charge different prices for the same good
D) They are different in the eyes of the purchasers

Question 15

Market demand for a product

A) Is the demand of an individual consumer
B) Graphically is the horizontal sum of the individual demand curves
C) Graphically is the vertical sum of the individual demand curves
D) Graphically is the horizontal sum of the individual supply curves

Question 16

Market demand for a product

A) Is the sum of the demands of all the individual consumers
B) Graphically is the horizontal sum of the individual supply curves
C) Graphically is the vertical sum of the individual demand curves
D) Graphically is upward sloping

Question 17

Suppose Julia and Zach are the only consumers of milk.Julia's demand for milk is defined as at prices below $4 and zero for prices above $4.Zach's demand for milk is defined as at prices below $5 and zero for prices above $5.If the market price for milk is $4.50,market demand is

A) Zero
B) 1.5
C) 1
D) 10

Question 18

Milky Moo and Mega Cow are the only sellers of milk.Milky Moo's supply function is at prices above $0.50 and zero at prices below $0.50.Mega Cow's supply function is at prices above $0.33 and zero at prices below $0.33.At a price of $0.45

A) The market supply of milk is between 9 and 10 units
B) The market supply of milk is between 4 and 5 units
C) The market supply of milk is between 5 and 6 units
D) The market supply of milk is between 1 and 2 units

Question 19

Milky Moo and Mega Cow are the only sellers of milk.Milky Moo's supply function is at prices above $0.50 and zero at prices below $0.50.Mega Cow's supply function is at prices above $0.33 and zero at prices below $0.33.At a price of $2.00

A) The market supply of milk is 12P - 6
B) The market supply of milk is 9P - 3
C) The market supply of milk is 21P - 9
D) The market supply of milk is 12P - 9

Question 20

Milky Moo and Mega Cow are the only sellers of milk.Milky Moo's supply function is at prices above $0.50 and zero at prices below $0.50.Mega Cow's supply function is at prices above $0.33 and zero at prices below $0.33.At a price of $2.00

A) The market supply of milk is 33 units
B) The market supply of milk is 15 units
C) The market supply of milk is 18 units
D) The market supply of milk is 42 units

Question 21

The market demand for milk is Additionally,suppose that a dairy's variable costs are (where Q is the number of gallons of milk produced each day),its marginal cost is and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.Suppose the demand for milk doubles.If in the short run the number of firms is fixed and their fixed costs are sunk,what is the short run market supply function in terms of price?

A) 40P if price is greater than $20
B) P/4 if price is greater than $20
C) 2.5P if price is greater than $20
D) 300-10P

Question 22

Properties of long-run competitive equilibrium with free entry include

A) The equilibrium price must equal the minimum AC
B) Firms must earn zero profits
C) Active firms must produce at their efficient scale of production
D) All of these

Question 23

Suppose the market demand for milk is Additionally,suppose that a dairy's variable costs are (where Q is the number of gallons of milk produced each day),its marginal cost is and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.What is the market equilibrium quantity?

A) 5 gallons per day
B) 35 gallons per day
C) 50 gallons per day
D) 100 gallons per day

Question 24

The market demand for milk is Additionally,suppose that a dairy's variable costs are (where Q is the number of gallons of milk produced each day),its marginal cost is and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.Suppose the demand for milk doubles.If in the short run the number of firms is fixed and their fixed costs are sunk,how much does each of the active firms produce in the short run equilibrium?

A) 5
B) 6
C) 10
D) 20

Question 25

With free entry

A) There is a known and limited number of potential suppliers that can produce a good in the long run
B) There is an unlimited number of firms that can produce a good in the long run
C) The long run market demand curve is horizontal at the market price
D) Firms will always enter the market

Question 26

The short and long run market supply curves

A) Are equivalent
B) May differ because the set of firms that are able to produce in a market may change
C) May differ due to free entry in the short run
D) Are always different

Question 27

Suppose that,in the long run,a dairy's variable costs are (where Q is the number of gallons of milk produced each day),its marginal cost is and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.What is the long run market supply curve?

A) Vertical at 5 gallons per day
B) Horizontal at $20 per gallon
C) Horizontal at $50 per gallon
D) Horizontal at $100 per gallon

Question 28

The market demand for milk is Additionally,suppose that a dairy's variable costs are (where Q is the number of gallons of milk produced each day),its marginal cost is and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.Suppose the demand for milk doubles.If in the short run the number of firms is fixed and their fixed costs are sunk,what is the short run equilibrium quantity?

A) 100
B) 200
C) 50
D) 60

Question 29

Suppose the market demand for milk is Additionally,suppose that a dairy's variable costs are (where Q is the number of gallons of milk produced each day),its marginal cost is and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.How many active firms are in the market?

A) 50
B) 5
C) 10
D) 20

Question 30

The market demand for milk is Additionally,suppose that a dairy's variable costs are (where Q is the number of gallons of milk produced each day),its marginal cost is and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.Suppose the demand for milk doubles.If in the short run the number of firms is fixed and their fixed costs are sunk,what is the short run equilibrium price?

A) $20
B) $24
C) $10
D) $40

Question 31

Suppose that,in the long run,a dairy's variable costs are (where Q is the number of gallons of milk produced each day),its marginal cost is and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.What is the dairy's total cost function?

A)

B)

C)

D)

Question 32

With free entry

A) The long run market supply curve is horizontal at the market price
B) The long run market supply curve is vertical at the market price
C) The short and long run market supply curves are the same
D) The short run market supply curve is horizontal at the market price

Question 33

Milky Moo and Mega Cow are the only sellers of milk.Milky Moo's supply function is at prices above $0.50 and zero at prices below $0.50.Mega Cow's supply function is at prices above $0.33 and zero at prices below $0.33.

A) The market supply curve is kinked at $0.33
B) The market supply curve is kinked at $0.50
C) The market supply curve is downward sloping
D) The market supply curve is an upward sloping straight line

Question 34

Milky Moo and Mega Cow are the only sellers of milk.Milky Moo's supply function is at prices above $0.50 and zero at prices below $0.50.Mega Cow's supply function is at prices above $0.33 and zero at prices below $0.33.

A) The market supply curve is kinked at $0.33
B) The market supply curve is kinked at 1.5 units
C) The market supply curve is downward sloping
D) The market supply curve is kinked at 3 units

Question 35

Suppose that,in the long run,a dairy's variable costs are (where Q is the number of gallons of milk produced each day),its marginal cost is and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.What is the efficient scale of production?

A) 5 gallons per day
B) 100 gallons per day
C) 20 gallons per day
D) 50 gallons per day

Question 36

Properties of long-run competitive equilibrium with free entry include

A) The equilibrium price must equal the minimum MC
B) Firms must earn positive profits
C) Active firms must produce at their efficient scale of production
D) All of these

Question 37

Properties of long-run competitive equilibrium with free entry include

A) The equilibrium price must equal the minimum MC
B) Firms must earn zero profits
C) Active firms must produce at their maximum scale of production
D) All of these

Question 38

The market demand for milk is Additionally,suppose that a dairy's variable costs are (where Q is the number of gallons of milk produced each day),its marginal cost is and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.Suppose the demand for milk doubles.If in the short run the number of firms is fixed and their fixed costs are sunk,what is each of the active firms' profit per unit in the short run equilibrium?

A) $4
B) $20
C) $24
D) $10

Question 39

The market demand for milk is Additionally,suppose that a dairy's variable costs are (where Q is the number of gallons of milk produced each day),its marginal cost is and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.Suppose the demand for milk doubles.What is the new long-run equilibrium price?

A) $20
B) $40
C) $24
D) $2

Question 40

Suppose the market demand for milk is Additionally,suppose that a dairy's variable costs are (where Q is the number of gallons of milk produced each day),its marginal cost is and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.What is the market equilibrium price?

A) $50 per gallon
B) $20 per gallon
C) $100 per gallon
D) $25 per gallon

Question 41

Aggregate surplus

A) Is minimized under perfect competition
B) Is the difference between consumer and producer surpluses
C) Is the sum of consumer and producer surpluses
D) A and B

Question 42

Aggregate surplus

A) Equals consumers' total willingness to pay for a good less firms' total avoidable cost of production
B) Equals consumers' total willingness to pay for a good plus firms' total avoidable cost of production
C) Captures the net benefit created by the production and consumption of the good
D) A and C

Question 43

The market demand function for ice cream is and the market supply function for ice cream is ,where both quantities are measured in millions of gallons per year.What is the aggregate surplus at the competitive market equilibrium?

A) $4.2
B) $16.8
C) $8.4
D) $9

Question 44

The market demand function for ice cream is and the market supply function for ice cream is ,where both quantities are measured in millions of gallons per year.What is the producer surplus at the competitive market equilibrium?

A) $4.2
B) $5.4
C) $6
D) $3

Question 45

Aggregate surplus

A) Is maximized under perfect competition
B) Is minimized under perfect competition
C) Is the sum of consumer and producer surpluses
D) A and C

Question 46

Discuss some of the changes in the organization of the economic systems of countries transitioning from communism to capitalism.How does this type of market reform increase economic efficiency?

Question 47

A deadweight loss

A) Is zero in a perfectly competitive market
B) Is a reduction in aggregate surplus below its maximum possible value
C) Depends upon the amount produced and consumed
D) All of these

Question 48

The market demand function for ice cream is and the market supply function for ice cream is ,where both quantities are measured in millions of gallons per year.What is the consumer surplus at the competitive market equilibrium?

A) $4.2
B) $6
C) $4.5
D) $3

Question 49

The market demand for milk is Additionally,suppose that a dairy's variable costs are (where Q is the number of gallons of milk produced each day),its marginal cost is and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.Suppose the demand for milk doubles.How many new firms enter the market in the long run due to the increased demand?

A) 10
B) 20
C) 100
D) 2

Question 50

Suppose the wiz-pop market is in long-run equilibrium.Suddenly,fixed costs decrease,although variable costs remain unchanged.Discuss the short-run and long-run changes in market equilibrium.

Question 51

The market demand for milk is Additionally,suppose that a dairy's variable costs are (where Q is the number of gallons of milk produced each day),its marginal cost is and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.Suppose the demand for milk doubles.What is the new long-run equilibrium quantity?

A) 50
B) 60
C) 100
D) 120

Question 52

The market demand for milk is Additionally,suppose that a dairy's variable costs are (where Q is the number of gallons of milk produced each day),its marginal cost is and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.Suppose the demand for milk doubles.How many total active firms are in the market in the long run due to the increased demand?

A) 10
B) 20
C) 100
D) 2