Question 1

Demand increases in an increasing-cost industry that is initially in long-run competitive equilibrium.After full adjustment,price will be

Accepted Answer

In an increasing-cost industry, as demand increases, the cost of production also increases. This means that in the long run, the equilibrium price will be higher than its original level. Therefore, the correct choice is C.

Question 2

If an industry is in long-run competitive equilibrium and experiences a decrease in demand,then as a result the equilibrium price will __________,which will cause the representative firm's __________ curve to shift downward and some firms will __________ the industry.

Accepted Answer

A decrease in demand will lead to a surplus of goods at the current equilibrium price, leading to a fall in price. This will cause the marginal revenue curve to shift downward, leading to a decrease in profit for firms. Some firms will exit the industry to reduce supply and eventually restore the equilibrium price.

Question 3

If firms are earning zero economic profits,they must be producing at an output level at which

Accepted Answer

When firms are earning zero economic profits, it means they are covering all their costs, including both variable and fixed costs, which occurs when price equals average total cost.

Question 4

If the perfectly competitive firm is producing an output level at which price equals marginal cost,it is

Accepted Answer

When a firm is producing at a level where price equals marginal cost, it's not possible to determine its profitability without additional information about average total cost and market price.

Question 5

Exhibit 23-4 -Refer to Exhibit 23-4.The firm sells its product at P₁ and produces Q₁.Given this situation,

Accepted Answer

The answer of Exhibit 23-4
 
-Refer to Exhibit 23-4.The firm...

Question 6

When the perfectly competitive firm produces the quantity of output at which marginal revenue equals marginal cost,it naturally

Accepted Answer

For a perfectly competitive firm, the price they can sell their output for is equal to their marginal revenue. Thus, at the quantity of output where MR=MC, they are also producing at the quantity of output where price=MC. It does not necessarily guarantee a profit, as this would depend on whether price is above or below average total cost.

Question 7

Why must profits be zero in long-run competitive equilibrium?

Accepted Answer

In long-run competitive equilibrium, firms are earning only normal profit, which means that their total revenue is just enough to cover their total costs, including opportunity costs. If firms in the industry are earning supernormal profits, new firms will be attracted to the industry, leading to an increase in supply and a fall in prices. This will continue until all firms are earning only normal profit and no more firms are entering the industry. Similarly, if firms are making losses, some firms will exit the industry, which will reduce supply and increase prices. This will continue until all firms are earning only normal profit and no more firms are leaving the industry. Therefore, in the long run, profits must be zero for the industry to be in equilibrium.

Question 8

Assume the following for a certain industry: (l)there is no incentive for firms to enter or exit the industry; (2)for some firms in the industry,short-run average total cost is greater than long-run average total cost at the level of output where marginal revenue equals marginal cost; (3)all firms in the industry are currently producing the quantity of output at which marginal revenue equals marginal cost.Is the industry in long-run competitive equilibrium?

Accepted Answer

The industry is not in long-run competitive equilibrium because of statement 2, which indicates that some firms can reduce costs by adjusting their scale of operation, implying that the current situation is not the most efficient or sustainable in the long run.

Question 9

Firm X is producing the quantity of output at which marginal revenue equals marginal cost.It is

Accepted Answer

There is not enough information to determine the firm's profit status because while MR=MC indicates profit maximization, it doesn't specify the relationship between price and average total cost, which determines profit or loss.

Question 10

Which of the following conditions does not characterize long-run competitive equilibrium?

Accepted Answer

In long-run competitive equilibrium, price is equal to marginal cost, not greater than marginal cost. This condition ensures that firms are not overcharging consumers and using excess profits to enter the market, thereby driving down the price.

Question 11

The short-run industry supply curve is the

Accepted Answer

The short-run industry supply curve is the horizontal summation of the short-run supply curves for all firms in the industry. This is because in the short run, the number of firms in the industry is fixed, and each firm has a unique short-run supply curve based on their individual costs and production levels. The industry supply curve reflects the quantity that all firms in the industry are willing to supply at various market prices.

Question 12

As firms exit an industry,the industry supply curve shifts __________ and the equilibrium price __________ until long-run competitive equilibrium is established and the surviving firms are earning __________ economic profits.

Accepted Answer

When firms exit an industry, the industry supply curve shifts leftward because there are fewer firms producing the good. As a result, the equilibrium price rises until long-run competitive equilibrium is established, where the remaining firms are earning zero economic profits. Therefore, the correct answer is A where the supply curve shifts leftward, the equilibrium price rises, and the surviving firms earn zero economic profits.

Question 13

Exhibit 23-4 -Refer to Exhibit 23-4.Where can you find the lowest price that will motivate the firm to produce Q₁ in the short run?

Accepted Answer

The lowest price that will motivate the firm to produce Q₁ in the short run can be found at the horizontal line running to "AVC," which represents the minimum price necessary to cover variable costs. At any price below this, the firm will not be able to cover its variable costs and will shut down in the short run. The points at P1 and $0 are not relevant in this case.

Question 14

Resource allocative efficiency occurs when a firm

Accepted Answer

Resource allocative efficiency is achieved when a firm produces at a level where the price of the good equals the marginal cost of production. This condition ensures that resources are allocated in a way that maximizes the overall welfare in the economy, as it indicates that the value consumers place on a good is equal to the cost of producing an additional unit of it.

Question 15

Exhibit 23-4 -Refer to Exhibit 23-4.The firm sells its product at P₁and produces Q₁.Given this situation,

Accepted Answer

Total cost is equal to fixed cost plus total variable cost. In this case, fixed cost is represented by area 1, and total variable cost (including both AVC and AFC) is represented by areas 2 and 3. Therefore, total cost is equal to areas 1+2+3.

Question 16

Is it possible for a perfectly competitive firm to be maximizing profits,but not achieving resource allocative efficiency?

Accepted Answer

In a perfectly competitive market, a firm maximizes profits where marginal revenue (MR) equals marginal cost (MC). This condition also ensures resource allocative efficiency, as it corresponds to the output level where the price (P), which represents the value consumers place on the good, equals the marginal cost of producing it, indicating that resources are being allocated efficiently.

Question 17

Assume a constant-cost industry that is initially in long-run competitive equilibrium.An increase in demand will cause a(n)__________ in prices and profits,and as a result,firms will __________ the industry,causing the market supply curve to shift __________,which,in turn,will eventually cause the equilibrium price to be __________ before.

Accepted Answer

In a constant-cost industry, when demand increases, prices and profits initially rise, attracting new firms to enter the industry. This entry shifts the market supply curve rightward. Over time, the increased supply drives the price back down to its original level, restoring the long-run competitive equilibrium.

Question 18

Resources are allocated efficiently when

Accepted Answer

Allocative efficiency is achieved when both consumer and producer surplus are maximized. This occurs when the exchange value of resources to demanders is equal to the opportunity cost of resources (choice A) and when the marginal benefit to demanders of the resources in the goods they purchase is equal to the marginal cost to suppliers of the resources they use in producing the goods (choice B). Additionally, firms producing the quantity of output at which price is equal to marginal cost (choice C) is another condition for allocative efficiency. Therefore, the best choice(s) is E which includes all three conditions.

Question 19

A constant-cost industry has a long-run (industry)supply curve that is

Accepted Answer

In a constant-cost industry, firms can enter or exit the industry at the same cost per unit of output, which means that the long-run supply curve will be horizontal. This is because as demand increases or decreases, firms can enter or exit the industry without affecting the cost of production. Therefore, the quantity supplied can adjust without any change in cost.

Question 20

Assume a decreasing-cost industry that is initially in long-run competitive equilibrium.A decrease in demand will cause a(n)__________ in prices and profits,and as a result,firms will __________ the industry,causing the market supply curve to shift __________,which,in turn,will eventually cause the equilibrium price to be __________ before.

Accepted Answer

In a decreasing-cost industry, a decrease in demand leads to lower prices and profits, prompting firms to exit. This exit reduces supply, shifting the market supply curve leftward. The reduced supply, against lower demand, eventually raises the equilibrium price above its initial level.

Quiz 23: Perfect Competition

Demand increases in an increasing-cost industry that is initially in long-run competitive equilibrium.After full adjustment,price will be

If an industry is in long-run competitive equilibrium and experiences a decrease in demand,then as a result the equilibrium price will ,which will cause the representative firm's curve to shift downward and some firms will __ the industry.

If firms are earning zero economic profits,they must be producing at an output level at which

If the perfectly competitive firm is producing an output level at which price equals marginal cost,it is

Exhibit 23-4 -Refer to Exhibit 23-4.The firm sells its product at P₁ and produces Q₁.Given this situation,

When the perfectly competitive firm produces the quantity of output at which marginal revenue equals marginal cost,it naturally

Why must profits be zero in long-run competitive equilibrium?

Firm X is producing the quantity of output at which marginal revenue equals marginal cost.It is

Which of the following conditions does not characterize long-run competitive equilibrium?

The short-run industry supply curve is the

As firms exit an industry,the industry supply curve shifts and the equilibrium price until long-run competitive equilibrium is established and the surviving firms are earning __ economic profits.

Exhibit 23-4 -Refer to Exhibit 23-4.Where can you find the lowest price that will motivate the firm to produce Q₁ in the short run?

Resource allocative efficiency occurs when a firm

Exhibit 23-4 -Refer to Exhibit 23-4.The firm sells its product at P₁and produces Q₁.Given this situation,

Is it possible for a perfectly competitive firm to be maximizing profits,but not achieving resource allocative efficiency?

Assume a constant-cost industry that is initially in long-run competitive equilibrium.An increase in demand will cause a(n) in prices and profits,and as a result,firms will the industry,causing the market supply curve to shift ,which,in turn,will eventually cause the equilibrium price to be before.

Resources are allocated efficiently when

A constant-cost industry has a long-run (industry) supply curve that is

Assume a decreasing-cost industry that is initially in long-run competitive equilibrium.A decrease in demand will cause a(n) in prices and profits,and as a result,firms will the industry,causing the market supply curve to shift ,which,in turn,will eventually cause the equilibrium price to be before.

Quiz 23: Perfect Competition

Demand increases in an increasing-cost industry that is initially in long-run competitive equilibrium.After full adjustment,price will be

If an industry is in long-run competitive equilibrium and experiences a decrease in demand,then as a result the equilibrium price will __________,which will cause the representative firm's __________ curve to shift downward and some firms will __________ the industry.

If firms are earning zero economic profits,they must be producing at an output level at which

If the perfectly competitive firm is producing an output level at which price equals marginal cost,it is

Exhibit 23-4 -Refer to Exhibit 23-4.The firm sells its product at P1 and produces Q1.Given this situation,

When the perfectly competitive firm produces the quantity of output at which marginal revenue equals marginal cost,it naturally

Why must profits be zero in long-run competitive equilibrium?

Firm X is producing the quantity of output at which marginal revenue equals marginal cost.It is

Which of the following conditions does not characterize long-run competitive equilibrium?

The short-run industry supply curve is the

As firms exit an industry,the industry supply curve shifts __________ and the equilibrium price __________ until long-run competitive equilibrium is established and the surviving firms are earning __________ economic profits.

Exhibit 23-4 -Refer to Exhibit 23-4.Where can you find the lowest price that will motivate the firm to produce Q1 in the short run?

Resource allocative efficiency occurs when a firm

Exhibit 23-4 -Refer to Exhibit 23-4.The firm sells its product at P1 and produces Q1.Given this situation,

Is it possible for a perfectly competitive firm to be maximizing profits,but not achieving resource allocative efficiency?

Resources are allocated efficiently when

A constant-cost industry has a long-run (industry) supply curve that is

If an industry is in long-run competitive equilibrium and experiences a decrease in demand,then as a result the equilibrium price will ,which will cause the representative firm's curve to shift downward and some firms will __ the industry.

Exhibit 23-4 -Refer to Exhibit 23-4.The firm sells its product at P₁ and produces Q₁.Given this situation,

As firms exit an industry,the industry supply curve shifts and the equilibrium price until long-run competitive equilibrium is established and the surviving firms are earning __ economic profits.

Exhibit 23-4 -Refer to Exhibit 23-4.Where can you find the lowest price that will motivate the firm to produce Q₁ in the short run?

Exhibit 23-4 -Refer to Exhibit 23-4.The firm sells its product at P₁and produces Q₁.Given this situation,