Question 1

If a purely competitive firm is facing a situation where the price of its product is lower than the average cost, then all of the following apply, except

Accepted Answer

In a purely competitive market, if the price is lower than the average cost, firms are suffering losses, not earning positive economic profits, so other firms will not want to enter the industry.

Question 2

Suppose that the corn market is purely competitive.If the corn farmers are currently earning negative economic profits, then we would expect that in the long run the market's

Accepted Answer

In a purely competitive market, if firms are earning negative economic profits, some firms will exit the market. This will decrease the market supply, causing the supply curve to shift to the left in the long run.

Question 3

If the representative firm in a purely competitive industry is in short-run equilibrium and, at its current output level, its marginal cost exceeds its average total cost, then we can conclude that

Accepted Answer

When marginal cost exceeds average total cost, the firm is making a profit, which attracts new firms to enter the industry in the long run.

Question 4

Assume that the market for corn is purely competitive.Currently, firms growing corn are suffering economic losses.In the long run, we can expect

Accepted Answer

In a purely competitive market, if firms are suffering economic losses, some will exit the market. This reduction in supply will cause the market price to rise until firms are no longer making losses.

Question 5

The representative firm in a purely competitive industry

Accepted Answer

In a purely competitive industry, firms will earn zero economic profit in the long run due to the entry and exit of firms, which drives the market price to the level of average total cost.

Question 6

The long-run supply curve for a purely competitive industry would be horizontal when

Accepted Answer

In a purely competitive industry, the long-run supply curve is horizontal (perfectly elastic) when changes in product demand do not affect resource prices, indicating constant costs in the industry.

Question 7

Assume the market for ball bearings is purely competitive.Currently, each of the firms in this market is earning positive economic profits.In the long run, as adjustments occur in the industry, we can expect the market price of ball bearings to

Accepted Answer

In a purely competitive market, positive economic profits attract new firms, increasing supply and driving the market price down until firms earn zero economic profit in the long run.

Question 8

Which of the following statements about pure competition in the long run is not true?

Accepted Answer

In pure competition, long-run adjustments occur through shifts in the industry supply curve due to entry and exit of firms, not through shifts in the industry demand curve.

Question 9

Which of the following is not a factor that automatically pushes firms in pure competition to earn only normal profits in the long run?

Accepted Answer

In pure competition, changes in market demand can lead to short-term profits or losses, but they do not automatically push firms to earn only normal profits in the long run. Instead, entry and exit of firms and adjustments in plant size help ensure firms earn normal profits.

Question 10

The long-run supply curve would be upward-sloping if

Accepted Answer

The answer of The long-run supply curve would be upward-sloping...

Question 11

The long-run supply curve under pure competition will be

Accepted Answer

In the long run, firms can enter or exit the industry, so the supply curve will shift to the right or left until the equilibrium price is equal to the minimum average total cost. In a decreasing-cost industry, the minimum average total cost falls as output increases, so the long-run supply curve will be downward-sloping. In an increasing-cost industry, the minimum average total cost rises as output increases, so the long-run supply curve will be upward-sloping.

Question 12

If firms are losing money in a purely competitive industry, then the long-run adjustments in this situation will cause the market supply to

Accepted Answer

In a purely competitive industry, if firms are losing money, some will exit the market, causing the market supply to decrease. This reduction in supply will lead to an increase in market prices, allowing the remaining firms to potentially earn normal profits.

Question 13

The long-run supply curve under pure competition is derived by observing what happens to market price and quantity when market

Accepted Answer

The long-run supply curve under pure competition is derived by observing the effects of changes in market demand after all long-run adjustments, such as entry and exit of firms, have occurred.

Question 14

Assume that the market for soybeans is purely competitive.Currently, firms growing soybeans are earning positive economic profits.In the long run, we can expect

Accepted Answer

In a purely competitive market, positive economic profits attract new firms, increasing supply and causing the market price to fall until firms earn normal profits.

Question 15

The long-run market supply curve would be downward-sloping if the representative firms'

Accepted Answer

The long-run market supply curve would be downward-sloping if the average total cost (ATC) curves shift down as the industry expands, indicating economies of scale where costs decrease with increased production.

Question 16

If firms enter a purely competitive industry, then in the long run this change will shift the industry

Accepted Answer

In a purely competitive industry, the entry of new firms increases the market supply, shifting the industry supply curve to the right. This increased supply leads to a lower market price, causing the individual firm's demand curve to shift down.

Question 17

The long-run supply curve would be perfectly elastic when

Accepted Answer

In the long run, a perfectly elastic supply curve means that any change in demand does not affect the product price, as firms can enter or exit the market freely, maintaining the price at a constant level.

Question 18

Which of the following is true of normal profits?

Accepted Answer

Normal profits are the minimum level of profit needed for a firm to remain competitive in the industry in the long run. They are considered a cost of production and are not zero under pure competition in the long run.

Question 19

If a purely competitive firm is currently facing a situation where the price of its product is lower than the average variable cost, but it believes that the market demand for its product will increase soon, then

Accepted Answer

If the price is below the average variable cost, the firm will shut down in the short run to minimize losses. However, if it expects prices to rise soon, it may stay in the industry and resume production when prices cover variable costs.

Question 20

In pure competition, if the market price of the product is higher than the minimum average cost of the firms, then

Accepted Answer

When the market price is higher than the minimum average cost, firms are making a profit, which attracts new firms to enter the industry, increasing the industry supply.

Quiz 11: Pure Competition in the Long Run