Question 1

Recall the application about Chinese coffee growers obey the law of supply.What does the response from Chinese farmers illustrate switching from growing tea to coffee?

Accepted Answer

The response from Chinese farmers illustrates an increase in demand for coffee, which is causing them to switch from growing tea to coffee. This aligns with the law of supply, which states that an increase in demand for a good or service will lead to an increase in the quantity supplied. Therefore, the correct answer is (D) an increase in demand.

Question 2

Recall the example of increasing-cost industries such as sugar,at a price of 11 cents,the world supply of sugar equals the amount produced in the areas with low production costs.If the price of sugar increases what will happen in the sugar market?

Accepted Answer

As the price of sugar increases, producers in areas with higher production costs become more profitable, leading to an increase in the quantity supplied. Additionally, as the price of sugar increases, consumers may shift to consuming less sugar or finding substitutes, leading to a potential decrease in quantity demanded. However, the increase in quantity supplied due to producers in higher cost areas entering the market may offset the decrease in quantity demanded.

Question 3

Input prices fall as entry occurs in an increasing-cost industry.

Accepted Answer

In an increasing-cost industry, the cost of producing a unit of output increases as the industry expands. Therefore, input prices are not likely to fall when new firms enter the market. Instead, the increased demand for inputs can lead to higher input prices, which in turn can lead to higher production costs and potentially higher prices for consumers.

Question 4

Entry of new firms in an increasing-cost industry leads to an downward shift of the LRAC curve.

Accepted Answer

Entry of new firms in an increasing-cost industry leads to an upward shift of the LRAC curve due to diminishing returns to scale.

Question 5

How much economic profit does a firm make in the long-run equilibrium when the price equals the average cost of production?

Accepted Answer

When the price equals the average cost of production, the firm is earning only a normal profit or just enough to cover all the costs, including opportunity cost. Therefore, the economic profit in this case is zero.

Question 6

In the long run,if product prices rise firms will not produce more output.

Accepted Answer

In the long run, if product prices rise, firms are incentivized to produce more output to take advantage of higher profits, assuming other factors remain constant.

Question 7

List the three conditions that must be met when a perfectly competitive industry is in long-run equilibrium.

Accepted Answer

The answer of List the three conditions that must be...

Question 8

Draw a graph of a firm's short-run marginal cost,average variable cost,and average total cost curves.On this graph,identify the firm's short-run supply curve.Explain why this is the firm's short-run supply curve.

Accepted Answer

The answer of Draw a graph of a firm's short-run...

Question 9

Suppose all firms in an industry are earning positive economic profit.We would expect to find that in the future:

Accepted Answer

Positive economic profit means that firms are making more than just covering their costs, and this will attract new firms to enter the market. As new firms enter, the market supply will increase, causing a shift to the right in the supply curve, and competition will increase, causing the market price to fall. Therefore, we can expect that in the future, the market price will fall.

Question 10

Explain the relationship between price,short-run marginal cost,short-run average cost and long-run average cost in the final long-run competitive equilibrium condition.What are economic profits in this long-run equilibrium condition?

Accepted Answer

The answer of Explain the relationship between price,short-run marginal cost,short-run...

Question 11

In an increasing-cost industry firms can enter and leave in the long run.

Accepted Answer

In an increasing-cost industry, as more firms enter the market, the cost of production increases due to a limited supply of resources. This can lead to some firms leaving the market in the long run, but new firms can also enter if they believe they can still make a profit despite the increased costs. Therefore, firms can both enter and leave in the long run.

Question 12

For any an increasing-cost industry,the long-run supply curve has:

Accepted Answer

In an increasing-cost industry, as output increases, costs also increase due to factors such as scarcity of resources or technological limitations. As a result, firms must charge higher prices in order to cover their increasing costs and earn a profit. This means that the long-run supply curve will have a positive slope, reflecting the fact that firms are willing to supply more output only at higher prices.

Question 13

-Refer to Figure 9.8.In the long run:

Accepted Answer

In the long run, if a firm in a competitive market is profitable, existing firms will expand and new firms will enter the industry to take advantage of the profit opportunity, leading to an increase in supply.

Question 14

In an increasing-cost industry,the average cost of production increases as the total output increases due to:

Accepted Answer

In an increasing-cost industry, the average cost of production increases as the total output increases due to increasing input prices. As the industry expands, demand for inputs increases, driving up input prices and increasing the average cost of production. Price equaling marginal cost and increasing demand for outputs are not the primary factors behind increasing costs in this type of industry.

Question 15

Assume the data backup industry,a perfectly competitive industry,is in long-run equilibrium with a market price of $3 per 10GB.If demand for data backup decreases and this industry is a decreasing-cost industry,long-run equilibrium will be reestablished at a price:

Accepted Answer

The answer of Assume the data backup industry,a perfectly competitive...

Question 16

Recall the example of increasing-cost industries such as apartments,why is the supply curve for apartments positively sloped?

Accepted Answer

As the industry produces more apartments, the demand for land increases, leading to higher land prices. This translates to higher average costs for producing each additional apartment, leading to a positively sloped supply curve.

Question 17

The long-run supply curve for a increasing cost industry is downward sloping.

Accepted Answer

The long-run supply curve for an increasing cost industry is upward sloping, as production costs increase as more output is produced.

Question 18

The long-run industry supply curve is positively sloped for a decreasing cost industry.

Accepted Answer

The long-run industry supply curve is usually flat or upward sloping for a decreasing cost industry. This is because as the industry expands, firms can take advantage of economies of scale, leading to lower average costs and a lower cost of production. As a result, firms are willing to supply more output at the same or even lower prices, leading to a flat or upward sloping supply curve.

Question 19

Which one of the following is a good example of an increasing-cost industry?

Accepted Answer

The answer of Which one of the following is a...

Question 20

Assume firms in an increasing-cost industry are currently making profits.Which of the following statements describes what will happen in the long run?

Accepted Answer

In an increasing-cost industry, the entry of new firms will cause the price of inputs to increase, leading to higher production costs and a higher LRAC curve for each individual firm. As more firms enter the industry and demand more inputs, the price of inputs will continue to rise, causing the industry supply schedule to shift to the right but also causing each firm's LRAC curve to shift up. Thus, in the long run, the industry supply will increase and the price will decrease, but profits will be eroded for all firms, so they will not be making profits in the long run.

Quiz 9: Perfect Competition