Question 1

Suppose that the market for candy canes operates under conditions of perfect competition,that it is initially in long-run equilibrium,that the price of each candy cane is $0.10,and that the market demand curve is downward sloping.The price of sugar rises,increasing the marginal and average total costs of producing candy canes by $0.05.In the short run,a typical producer of candy canes will be making:

Accepted Answer

The increase in marginal and average total costs means that the typical producer's cost curves have shifted upward. In the short run, the price of candy canes remains at $0.10 due to market conditions, so the typical producer will not be able to cover their increased costs. This will result in a loss and negative economic profit for the producer.

Question 2

Suppose that the market for candy canes operates under conditions of perfect competition,that it is initially in long-run equilibrium,that the price of each candy cane is $0.10,and that the market demand curve is downward sloping.The price of sugar rises,increasing the marginal and average total cost of producing candy canes by $0.05;there are no other changes in production costs.In the long run,we will observe:

Accepted Answer

The increase in production costs will lead to a decrease in profits for candy cane producers. As a result, firms will begin to exit the industry in search of more profitable ventures. This will cause a decrease in supply, leading to an increase in price. Eventually, the market will reach a new long-run equilibrium at a higher price, reflecting the higher production costs.

Question 3

A curve that shows the quantity of a good or service supplied at various prices after all long-run adjustments to a price change have been completed is a long-run _____ curve.

Accepted Answer

A long-run industry supply curve shows the quantity of a good or service supplied at various prices after all long-run adjustments to a price change have been completed. This includes adjustments such as changes in the number of firms in the industry, changes in technology, and changes in resource prices. Marginal revenue and marginal cost curves relate to the behavior of individual firms, while a production curve shows the quantity of output produced at various levels of input.

Question 4

The supply curve found by taking the horizontal summation of the short-run supply curves of all of the firms in a perfectly competitive industry is called the _____ curve.

Accepted Answer

This is because the short-run market supply curve represents the quantity of output that all firms in the industry are willing and able to produce at each price level in the short run, and taking their horizontal summation gives the market supply curve. Choices A, C, and D are incorrect because they do not accurately describe the supply curve that is found in a perfectly competitive industry.

Question 5

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium.Subsequently,an increase in population increases the demand for haircuts.In the short run,the market price will _____ and the output of a typical firm will _____.

Accepted Answer

An increase in population will shift the demand curve for haircuts to the right,resulting in a temporary shortage at the original equilibrium price.According to the laws of supply and demand,this shortage will cause the price to rise in the short run.Each firm in the market will experience an increase in the quantity demanded for their services,which will cause them to increase their output. Therefore, both price and output of a typical firm will rise in the short run.

Question 6

Use the following to answer question: 
-(Figure: Short-Run Costs)Use Figure: Short-Run Costs.This firm's short-run supply curve begins at quantity:

Accepted Answer

The short-run supply curve begins at the minimum point of the average variable cost curve, which is point Q in the figure.

Question 7

In perfect competition,the assumption of easy entry and exit implies that,in the _____ run,all firms in the industry will earn _____ economic profits.

Accepted Answer

In perfect competition, firms can easily enter or exit the industry in the long run. This means that if any firm is earning positive economic profits in the short run, new firms will enter the industry, increasing the supply and driving down the price. This, in turn, will lead to a decrease in profits for all firms in the long run, and eventually, all firms will earn zero economic profits. Therefore, in the long run, all firms in a perfectly competitive market will earn zero economic profits.

Question 8

Suppose that the market for candy canes operates under conditions of perfect competition,that it is initially in long-run equilibrium,that the price of each candy cane is $0.10,and that the market demand curve is downward sloping.The price of sugar rises,increasing the marginal and average total cost of producing candy canes by $0.05;there are no other changes in production costs.Once all of the adjustments to long-run equilibrium have been made,the price of candy canes will equal:

Accepted Answer

The increase in production costs will shift the supply curve to the left, causing the equilibrium price to increase. As a result, the price of candy canes will increase by the same amount as the increase in production costs, which is $0.05. Therefore, the new equilibrium price will be $0.10 + $0.05 = $0.15. Thus, the correct answer is choice C.

Question 9

Assuming a downward-sloping demand curve,a decrease in production costs for firms in a perfectly competitive market initially in long-run equilibrium will cause a(n):

Accepted Answer

A decrease in production costs will shift the supply curve to the right, causing a temporary increase in quantity supplied and a decrease in price in the short run. Firms will experience economic profits as long as price exceeds average total cost. In the long run, however, new firms will enter the market, increasing supply and driving down price until economic profit is eliminated. Therefore, there will be no permanent increase in price, increase in demand, or increase in firms' marginal revenue.

Question 10

If firms are making positive economic profits in the short run,then in the long run:

Accepted Answer

When firms in an industry are making positive economic profits, it attracts new firms into the industry because they are attracted by the opportunity to earn profits. This entry of new firms increases the industry's output and typically leads to a decrease in prices until economic profits are normalized (i.e., reduced to zero).

Question 11

If firms are taking economic losses in the short run,then in the long run,firms will leave the industry,industry output will _____,and economic losses will _____.

Accepted Answer

In the long run, firms will leave the industry which means there will be a decrease in the number of firms producing in the market. As a result, the industry output will fall and the economic losses will decrease.

Question 12

Suppose economic profits exist in perfect competition in the short run.Firms will enter in the long run because of easy entry,the short-run market _____ curve will shift to the right,and _____ will _____.

Accepted Answer

In perfect competition, if economic profits exist in the short run, new firms will enter the market in the long run due to easy entry. This increases the market supply, shifting the short-run market supply curve to the right, and as a result, output in the market will increase.

Question 13

Suppose that the market for haircuts in a community is a perfectly competitive constant-cost industry and that the market is initially in long-run equilibrium.Subsequently,an increase in population increases the demand for haircuts.In the long run,firms will _____ the market,driving the price of haircuts _____ and the profits of individual firms _____.

Accepted Answer

With an increase in population, the demand for haircuts will increase. This will lead to firms entering the market, increasing the supply of haircuts. The increase in supply will cause the price of haircuts to decrease in order to maintain equilibrium. As the price decreases, the profits of individual firms will also decrease, driving some firms out of the market in the long run. Therefore, the correct answer is option B, where firms will enter the market, driving the price of haircuts down, and the profits of individual firms back to zero in the long run.

Question 14

Short-run economic profits in a perfectly competitive industry encourage firms to _____ the industry,and short-run losses encourage firms to _____ the industry.

Accepted Answer

In a perfectly competitive market, short-run economic profits attract new firms to enter the industry, increasing supply and driving down prices and profits. Conversely, short-run losses lead existing firms to exit the industry, reducing supply, which can help prices and remaining firms' profitability to recover.

Question 15

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium.Subsequently,an increase in population increases the demand for haircuts.In the short run,the typical firm is likely to:

Accepted Answer

An increase in population and demand for haircuts will cause the equilibrium price to increase in the short run. While the typical firm can increase its output to meet the higher demand for haircuts, it will face higher costs due to the law of diminishing returns. As a result, the firm's average total cost will be higher than the equilibrium price, leading to an economic profit. However, in the long run, other firms are likely to enter the market, leading to an increase in the supply of haircuts and a decrease in the price. Therefore, the economic profit earned by the firm will eventually be eroded, and the market will return to long-run equilibrium.

Question 16

The short-run industry supply curve:

Accepted Answer

The short-run industry supply curve shows the total quantity supplied by all firms in an industry for each possible price when the number of producers is fixed. This curve is essential in understanding the behavior of the industry in the short run.

Question 17

In perfect competition,a change in fixed cost will:

Accepted Answer

In perfect competition, firms earn zero profit in the long run. Thus, a change in fixed cost will encourage entry or exit of firms in the long run, which will change the overall supply in the market. As a result, the market price will change enough to leave firms earning zero profits. A change in fixed cost will not directly affect output or variable cost in the short run.

Question 18

The market for beef is in long-run equilibrium at $3.25 per pound.The announcement that mad cow disease has been discovered in the United States reduces the demand for beef sharply,and the price falls to $2.00 per pound.If the long-run supply curve is horizontal,when the long-run equilibrium is reestablished,the price will be:

Accepted Answer

If the long-run supply curve is horizontal, it indicates that the supply is perfectly elastic. This means that suppliers are willing to supply any quantity at a fixed price. Therefore, even after a temporary shock like the discovery of mad cow disease, when the market adjusts back to long-run equilibrium, the price will return to its original level of $3.25 per pound, assuming no other changes in the market conditions.

Question 19

Suppose that some firms in a perfectly competitive industry earn negative economic profits in the short run.In the long run,the:

Accepted Answer

In the long run, if firms in a perfectly competitive industry are earning negative economic profits, some firms will exit the industry. This reduces the total supply of the product, causing the short-run industry supply curve to shift to the left.

Question 20

In a perfectly competitive market:

Accepted Answer

In a perfectly competitive market, prices are determined by the forces of supply and demand, and firms are price takers. As a result, any change in production cost will be reflected in the price, as firms cannot charge a higher price than the market equilibrium price. Therefore, choice A is the correct answer. Choices B, C, and D are incorrect, as they do not accurately describe the characteristics of a perfectly competitive market.

Quiz 12: Perfect Competition and the Supply Curve

A curve that shows the quantity of a good or service supplied at various prices after all long-run adjustments to a price change have been completed is a long-run _____ curve.

The supply curve found by taking the horizontal summation of the short-run supply curves of all of the firms in a perfectly competitive industry is called the _____ curve.

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium.Subsequently,an increase in population increases the demand for haircuts.In the short run,the market price will _ and the output of a typical firm will _.

Use the following to answer question: -(Figure: Short-Run Costs) Use Figure: Short-Run Costs.This firm's short-run supply curve begins at quantity:

In perfect competition,the assumption of easy entry and exit implies that,in the _ run,all firms in the industry will earn _ economic profits.

Assuming a downward-sloping demand curve,a decrease in production costs for firms in a perfectly competitive market initially in long-run equilibrium will cause a(n) :

If firms are making positive economic profits in the short run,then in the long run:

If firms are taking economic losses in the short run,then in the long run,firms will leave the industry,industry output will _,and economic losses will _.

Suppose economic profits exist in perfect competition in the short run.Firms will enter in the long run because of easy entry,the short-run market ___ curve will shift to the right,and _ will ___.

Short-run economic profits in a perfectly competitive industry encourage firms to _ the industry,and short-run losses encourage firms to _ the industry.

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium.Subsequently,an increase in population increases the demand for haircuts.In the short run,the typical firm is likely to:

The short-run industry supply curve:

In perfect competition,a change in fixed cost will:

Suppose that some firms in a perfectly competitive industry earn negative economic profits in the short run.In the long run,the:

In a perfectly competitive market: