Question 1

Under perfect competition, a firm's

Accepted Answer

Under perfect competition, a firm is a price taker, meaning it has no control over the price and must accept the market price. Hence, the demand curve, average revenue curve, and marginal revenue curve are all identical and horizontal. This is because the firm can sell any quantity it wants at the market price, and so the price remains constant regardless of the quantity sold.

Question 2

If the objective of economic policy is to decrease the amount of pollution by an industry in the long run, the

Accepted Answer

A tax on polluting firms would create a higher cost for polluting, incentivizing firms to decrease emissions in the long run. A subsidy may encourage firms to reduce emissions in the short run, but may not be sustainable in the long run. Doing nothing or increasing R&D outlays may not have immediate effects on reducing pollution.

Question 3

Give a complete but concise definition of the following terms. 
a. perfect competition 
b. perfectly competitive firm's demand curve 
c. shutdown point 
d. long-run equilibrium in perfect competition

Accepted Answer

The answer of Give a complete but concise definition of...

Question 4

Define the following terms and explain their importance to the study of economics. 
a. marginal cost 
b. marginal revenue 
c. short-run equilibrium 
d. supply curve of the firm 
e. economic profit

Accepted Answer

The answer of Define the following terms and explain their...

Question 5

A subsidy to firms intended to reduce pollution in an industry would

Accepted Answer

The answer of A subsidy to firms intended to reduce...

Question 6

Why study perfect competition, if it rarely exists?

Accepted Answer

The answer of Why study perfect competition, if it rarely...

Question 7

In long-run equilibrium, the perfectly competitive firm produces

Accepted Answer

In long-run equilibrium, the perfectly competitive firm produces where P = MC = AC, which ensures that the firm is producing at the most efficient point, at the lowest point on its long-run average cost curve, and where its long-run average cost curve is tangent to its horizontal demand curve. Therefore, all of the responses are correct.

Question 8

Under perfect competition, regarding short-run profit, a firm may find itself losing money. This is true because

Accepted Answer

In perfect competition, firms are price takers and have no control over the market price. If the market price is below the average total cost of production, the highest possible profit is negative, meaning the firm is operating at a loss. This situation can occur due to various market conditions such as oversupply or decreased demand.

Question 9

What are the assumptions of the model of perfect competition? Explain why each is important for short-run and long-run equilibrium.

Accepted Answer

The answer of What are the assumptions of the model...

Question 10

Which of the following statements concerning equilibrium in the long run is not true?

Accepted Answer

In the long run, economic profits are competed away as new firms enter the industry, so it is not true that most firms earn economic profits in the long run. B, C, and D are all true statements about long-run equilibrium.

Question 11

Figure 10-9 Figure 10-9 shows supply and demand conditions in a perfectly competitive industry and for a firm in that industry. Assume the industry initially has supply curve S₁ and demand curve D₁. If demand shifts to D₂, then in the short run price will

Accepted Answer

The answer of Figure 10-9 ​

Figure 10-9 shows supply and...

Question 12

A tax on polluting firms

Accepted Answer

A tax on polluting firms would increase the cost of production for these firms, which would shift their Long-Run Average Cost (LRAC) curve upward. This would encourage them to reduce their pollution levels by investing in cleaner technologies or production processes, which would increase their efficiency and lower their LRAC curve over time.

Question 13

The most efficient market structure in the long run is

Accepted Answer

In perfect competition, there are many buyers and sellers, homogeneous products, no barriers to entry or exit, and perfect information. In such a market, firms have no market power and are price takers, which means that they cannot influence the market price. This leads to allocative efficiency, where resources are allocated to their most valuable uses, and productive efficiency, where firms produce at minimum average total cost. Thus, perfect competition promotes the consumer surplus and societal welfare by maximizing output and minimizing costs. In the long run, the firms in perfect competition earn zero economic profits due to free entry and exit, which ensures that the market remains competitive and efficient. Therefore, perfect competition is the most efficient market structure in the long run.

Question 14

The entry of new firms into an industry will very likely

Accepted Answer

When new firms enter an industry, they increase the overall supply of goods or services, thereby shifting the industry supply curve to the right. This greater supply will generally lead to a decrease in the market price, as firms compete to sell their products. Additionally, with more firms in the market, existing firms will likely see a reduction in their profits due to increased competition. Therefore, all of the responses are correct.

Question 15

If government forced a firm to charge a price equal to marginal cost in a situation where there are scale economies,

Accepted Answer

If a firm is forced to charge a price equal to its marginal cost, and there are scale economies, then it means that the average cost is lower than the marginal cost. This implies that the firm is making a loss on every unit it produces and sells, and if it continues to operate in such a situation, it will eventually go bankrupt. Hence, option B is the correct answer. Option A is incorrect because new firms will not enter an industry where existing firms are making a loss. Option C is incorrect because the firm is making a loss, not a profit. Option D is incorrect because in this scenario average cost is lower than marginal cost.

Question 16

In long-run equilibrium under perfect competition,

Accepted Answer

In long-run equilibrium under perfect competition, the demand curves facing individual firms will fall to the level of minimum average cost (AC). This means that firms will produce at the point where their marginal cost (MC) equals their minimum average cost (AC), resulting in zero economic profits. As for the other choices, A may not necessarily be true as different firms may have different cost curves. B is also not necessarily true as some firms may continue to earn economic profits in the short run but not in the long run. D is also not necessarily true as firms may not be able to increase their outputs due to limited resources or technological constraints.

Question 17

Figure 10-8 ​

In the short run, the firm in Figure 10-8 will shut down if the price falls below

Accepted Answer

The answer of Figure 10-8 ​

In the short run, the...

Question 18

Perfect competition displays the market mechanism at its best in many respects, yet most markets in operation today are monopolistic or oligopolistic, composed of a few large firms. Should government regulation break up those large firms into several smaller firms to try to achieve perfect competition? Why or why not?

Accepted Answer

The answer of Perfect competition displays the market mechanism at...

Question 19

The exit of existing firms from an industry will very likely

Accepted Answer

The exit of existing firms from an industry reduces the total supply of the product in the market, which shifts the industry supply curve to the left. This reduction in supply, assuming demand remains constant, typically causes the market price to rise. Additionally, by exiting the industry, firms that were incurring losses eliminate those losses, as they are no longer operating in the market. Therefore, all of the responses are correct.

Question 20

Draw a graph illustrating the relationship between the demand curve of the perfectly competitive firm and the perfectly competitive industry. Label all curves and axes correctly.

Accepted Answer

The answer of Draw a graph illustrating the relationship between...

Quiz 10: The Firm and the Industry Under Perfect Competition

Under perfect competition, a firm's

If the objective of economic policy is to decrease the amount of pollution by an industry in the long run, the

Give a complete but concise definition of the following terms. a. perfect competition b. perfectly competitive firm's demand curve c. shutdown point d. long-run equilibrium in perfect competition

Define the following terms and explain their importance to the study of economics. a. marginal cost b. marginal revenue c. short-run equilibrium d. supply curve of the firm e. economic profit

A subsidy to firms intended to reduce pollution in an industry would

Why study perfect competition, if it rarely exists?

In long-run equilibrium, the perfectly competitive firm produces

Under perfect competition, regarding short-run profit, a firm may find itself losing money. This is true because

What are the assumptions of the model of perfect competition? Explain why each is important for short-run and long-run equilibrium.

Which of the following statements concerning equilibrium in the long run is not true?

Figure 10-9 Figure 10-9 shows supply and demand conditions in a perfectly competitive industry and for a firm in that industry. Assume the industry initially has supply curve S₁ and demand curve D₁. If demand shifts to D₂, then in the short run price will

A tax on polluting firms

The most efficient market structure in the long run is

The entry of new firms into an industry will very likely

If government forced a firm to charge a price equal to marginal cost in a situation where there are scale economies,

In long-run equilibrium under perfect competition,

Figure 10-8 In the short run, the firm in Figure 10-8 will shut down if the price falls below

The exit of existing firms from an industry will very likely

Draw a graph illustrating the relationship between the demand curve of the perfectly competitive firm and the perfectly competitive industry. Label all curves and axes correctly.

Quiz 10: The Firm and the Industry Under Perfect Competition

Under perfect competition, a firm's

If the objective of economic policy is to decrease the amount of pollution by an industry in the long run, the

Give a complete but concise definition of the following terms. a. perfect competition b. perfectly competitive firm's demand curve c. shutdown point d. long-run equilibrium in perfect competition

Define the following terms and explain their importance to the study of economics. a. marginal cost b. marginal revenue c. short-run equilibrium d. supply curve of the firm e. economic profit

A subsidy to firms intended to reduce pollution in an industry would

Why study perfect competition, if it rarely exists?

In long-run equilibrium, the perfectly competitive firm produces

Under perfect competition, regarding short-run profit, a firm may find itself losing money. This is true because

What are the assumptions of the model of perfect competition? Explain why each is important for short-run and long-run equilibrium.

Which of the following statements concerning equilibrium in the long run is not true?

Figure 10-9 ​ Figure 10-9 shows supply and demand conditions in a perfectly competitive industry and for a firm in that industry. Assume the industry initially has supply curve S1 and demand curve D1. If demand shifts to D2, then in the short run price will

A tax on polluting firms

The most efficient market structure in the long run is

The entry of new firms into an industry will very likely

If government forced a firm to charge a price equal to marginal cost in a situation where there are scale economies,

In long-run equilibrium under perfect competition,

Figure 10-8 ​ In the short run, the firm in Figure 10-8 will shut down if the price falls below

The exit of existing firms from an industry will very likely

Draw a graph illustrating the relationship between the demand curve of the perfectly competitive firm and the perfectly competitive industry. Label all curves and axes correctly.

Figure 10-9 Figure 10-9 shows supply and demand conditions in a perfectly competitive industry and for a firm in that industry. Assume the industry initially has supply curve S₁ and demand curve D₁. If demand shifts to D₂, then in the short run price will

Figure 10-8 In the short run, the firm in Figure 10-8 will shut down if the price falls below