Question 1

If the expansion of output in an industry leads to unchanged resource prices, the industry is most likely to be a(n):

Accepted Answer

In a constant cost industry, the expansion of output does not affect resource prices. This means that the industry can increase its production without facing higher costs of production. The reason for this is that when the industry increases demand for resources, the prices of resources increase, but this increase in demand also leads to an increase in the supply of resources as other industries enter to supply the resources required. This increase in supply offsets the increase in demand, and therefore, the prices of resources remain unchanged.

Question 2

What is a firm's short run supply curve?

Accepted Answer

The answer of What is a firm's short run supply...

Question 3

In long-run equilibrium, which of the following is not equal to price for a perfectly competitive firm?

Accepted Answer

The answer of In long-run equilibrium, which of the following...

Question 4

Exhibit 7-13 Price and cost per unit curves In Exhibit 7-13, if the price is P₃, the firm will

Accepted Answer

At P₃, the firm will produce Q₃ where the price is equal to the average variable cost (AVC). This means that the firm will cover its variable costs but will not cover its fixed costs, leading to a loss in the short run. Therefore, the best choice is to produce Q₃ and incur a loss in the short run.

Question 5

Exhibit 7-12 Marginal revenue and cost per unit curves

As shown in Exhibit 7-12, the firm's short-run supply curve is the:

Accepted Answer

The firm's short-run supply curve is determined by the portion of the marginal cost curve that lies above the average variable cost curve, which is the rising part of marginal cost beginning at point E in the given diagram. Thus, option B is the correct answer. The entire marginal cost curve (option A) is not correct because it includes the portion where the marginal cost is below the average variable cost, which is not relevant for determining the short-run supply curve. The rising part of the marginal cost beginning at point F (option C) is not correct because it includes the portion of the marginal cost curve where it is still below the average variable cost, i.e., where the firm would not produce any output. The entire marginal revenue curve (option D) is not correct as it is not related to the determination of the short-run supply curve.

Question 6

Exhibit 7-12 Marginal revenue and cost per unit curves

As shown in Exhibit 7-12, the firm will shut down in the short-run at a price below:

Accepted Answer

The answer of Exhibit 7-12 Marginal revenue and cost per...

Question 7

The long run is a planning period:

Accepted Answer

The long run is a planning period during which the firm can vary its plant size. This means that the firm has the flexibility to adjust its production capacity by adding or decreasing the size of its physical plant in response to changes in demand or other factors. In contrast, the short run is a period during which the firm is constrained by its existing plant size and cannot adjust its capacity in the same way. Thus, the ability to vary plant size is what distinguishes the long run from the short run.

Question 8

Exhibit 7-17 Marginal revenue and cost per unit curves

As shown in Exhibit 7-17, the short-run supply curve for the firm corresponds to which segment of its marginal cost curve?

Accepted Answer

The short-run supply curve for the firm corresponds to the segment of the marginal cost curve where marginal cost is equal to or greater than marginal revenue. In this case, that corresponds to segment B and all points above it. The firm will only supply output at prices that cover at least the variable cost of production, which is reflected in the marginal cost curve.

Question 9

The long-run equilibrium condition for perfect competition is:

Accepted Answer

In perfect competition, the long-run equilibrium occurs when price (P) is equal to the minimum average total cost (ATC) and marginal cost (MC). This is because in the long run, firms can enter or exit the market freely, which drives profits to zero. At the point where P = ATC = MC, firms are earning normal profits, which is the long-run equilibrium condition in perfect competition. MR (marginal revenue) is also equal to MC (marginal cost) in perfect competition, but this is implied by the condition of P = MR in all market structures, so it is not necessary to include it in the equilibrium condition. Therefore, the correct answer is B: P = ATC = MR = MC.

Question 10

In a perfectly competitive industry, assume the short-run average total cost increases as the output of the industry expands. In the long run, the industry supply curve will:

Accepted Answer

In the short run, the increase in average total cost with an expansion of output implies that some firms in the industry are experiencing diminishing marginal returns or increasing input costs. This will cause some firms to exit the industry in the long run, shifting the industry supply curve to the left and resulting in higher prices. Therefore, the long-run industry supply curve will have a positive slope.

Question 11

The short-run supply curve for a perfectly competitive firm is the marginal cost curve

Accepted Answer

The short-run supply curve for a perfectly competitive firm is the portion of the marginal cost curve that lies above the minimum average variable cost (AVC) point. This is because if the price falls below the minimum point of the AVC curve, the firm will not be able to cover its variable costs and will shut down in the short run to minimize its losses. Therefore, the firm will only produce the quantity at which marginal revenue equals marginal cost (MR=MC) if the price is high enough to cover its variable costs, which occurs above the minimum point of the AVC curve.

Question 12

Consider a firm operating with the following: price = 10; MR = 10; MC = 10; ATC = 10. This firm is:

Accepted Answer

The firm is earning zero economic profit since Price (P) = Average Total Cost (ATC). This indicates that the firm is producing at the minimum efficient scale in the long run and is in long-run equilibrium under perfect competition. Therefore, options A, B, and D can be eliminated.

Question 13

Exhibit 7-18 A typical firm in a perfectly competitive market

In Exhibit 7-18, assume the perfectly competitive firm is in long-run equilibrium and there is an increase in demand. As a result, the firm in the short run will increase output along its:

Accepted Answer

In the short run, the firm will increase output along its short-run marginal cost curve (SMC) as long as the price is greater than the minimum point on its SMC. This is because the firm will want to take advantage of the higher price to earn more profit. The short-run average total cost curve (SATC) and long-run average cost curve (LRAC) are not relevant in this situation as they do not determine the firm's optimal output level. However, if the increase in demand results in a price lower than the minimum point on the SATC, the firm will shut down in the short run.

Question 14

What is the largest possible loss that is consistent with a firm producing in a perfectly competitive market in long-run competitive equilibrium?

Accepted Answer

In long-run competitive equilibrium, firms are earning zero economic profit. This means that the revenue earned by the firm is equal to its total cost, including both variable and fixed costs. Therefore, the largest possible loss that a firm can sustain while still remaining in the market is zero. A firm cannot sustain losses greater than its total costs and still choose to produce in a perfectly competitive market in the long run.

Question 15

Suppose the marginal revenue curve for a perfectly competitive firm intersects the average total cost curve at its minimum point. As the marginal revenue curve moves upward from that point along the marginal cost curve,

Accepted Answer

If the marginal revenue curve moves upward along the marginal cost curve, it means that the price of the product has increased. Therefore, producing more will generate additional revenue that exceeds the additional cost, resulting in a higher profit. As a perfectly competitive firm, the profit-maximizing quantity is determined at the intersection of the marginal revenue and marginal cost curve. So, an upward shift in the marginal revenue curve will lead to an increase in the profit-maximizing quantity.

Question 16

Which of the following statements is true ?

Accepted Answer

In the long-run equilibrium, a competitive firm produces at the point where P=MC=minimum ATC. This ensures that the firm is operating at maximum efficiency and earning normal profits. A perfectly competitive firm in the short-run produces where MR=MC, which may or may not be where total cost is minimum. A perfectly competitive firm will only shut down in the short-run if price is less than average variable cost, not average total cost. maximizing total revenue does not necessarily maximize profits, as profits also depend on costs.

Question 17

Exhibit 7-18 A typical firm in a perfectly competitive market
 
As shown in Exhibit 7-18, the perfectly competitive firm is in long-run equilibrium at a price of:

Accepted Answer

In long-run equilibrium, a perfectly competitive firm produces where P = MC and earns zero economic profit. In Exhibit 7-18, this occurs where the firm's supply curve (MC) intersects the market demand curve at a price of $200. At this price, the quantity demanded and supplied is also equal, meaning the market is in equilibrium.

Question 18

Exhibit 7-19 Long-run perfectly competitive industry As shown in Exhibit 7-19, assume that a perfectly competitive industry is in long-run equilibrium at point A. If the demand curve shifts from D₁ to D₂, the adjustment sequence between points will be:

Accepted Answer

When the demand curve shifts from D₁ to D₂, the equilibrium shifts from point A to point B. In the short run, due to the increase in demand, the price will increase to P2, and firms will increase production to Q2. However, in the long run, new firms will enter the industry, causing an increase in supply and a decrease in price to P1. The equilibrium will finally settle at point C, with a higher quantity of output and a lower price than in the initial equilibrium at point A. Therefore, the adjustment sequence will be A to B, then to C.

Question 19

Which of the following is a key characteristic of the long-run competitive equilibrium that distinguishes it from the short-run competitive equilibrium?

Accepted Answer

In the long-run, firms are able to enter or exit the market freely, which allows for adjustments in supply and demand that lead to zero economic profits. This is not possible in the short-run, where firms may continue to operate at a loss in the hope of earning profits in the future, or may be prevented from entering or exiting the market due to various barriers.

Question 20

Suppose that in a perfectly competitive market, firms are making economic profits. In the long run, we can expect to see:

Accepted Answer

In the long run, economic profits will attract new firms to enter the market, increasing supply and driving down the market price. As the price decreases, the economic profits of existing firms will also decrease until they become zero. This process continues until all firms in the market are earning only normal profits. Therefore, we can expect economic profits to become zero in the long run. Choice A is incorrect because some firms leaving is a result of economic profits becoming zero, not a prerequisite. Choice B is incorrect because the market price will actually decrease in the long run, not rise. Choice C is incorrect because market supply will actually shift to the right as new firms enter the market.

Quiz 7: Perfect Competition

If the expansion of output in an industry leads to unchanged resource prices, the industry is most likely to be a(n) :

What is a firm's short run supply curve?

In long-run equilibrium, which of the following is not equal to price for a perfectly competitive firm?

Exhibit 7-13 Price and cost per unit curves In Exhibit 7-13, if the price is P₃, the firm will

Exhibit 7-12 Marginal revenue and cost per unit curves As shown in Exhibit 7-12, the firm's short-run supply curve is the:

Exhibit 7-12 Marginal revenue and cost per unit curves As shown in Exhibit 7-12, the firm will shut down in the short-run at a price below:

The long run is a planning period:

Exhibit 7-17 Marginal revenue and cost per unit curves As shown in Exhibit 7-17, the short-run supply curve for the firm corresponds to which segment of its marginal cost curve?

The long-run equilibrium condition for perfect competition is:

In a perfectly competitive industry, assume the short-run average total cost increases as the output of the industry expands. In the long run, the industry supply curve will:

The short-run supply curve for a perfectly competitive firm is the marginal cost curve

Consider a firm operating with the following: price = 10; MR = 10; MC = 10; ATC = 10. This firm is:

Exhibit 7-18 A typical firm in a perfectly competitive market In Exhibit 7-18, assume the perfectly competitive firm is in long-run equilibrium and there is an increase in demand. As a result, the firm in the short run will increase output along its:

What is the largest possible loss that is consistent with a firm producing in a perfectly competitive market in long-run competitive equilibrium?

Suppose the marginal revenue curve for a perfectly competitive firm intersects the average total cost curve at its minimum point. As the marginal revenue curve moves upward from that point along the marginal cost curve,

Which of the following statements is true ?

Exhibit 7-18 A typical firm in a perfectly competitive market As shown in Exhibit 7-18, the perfectly competitive firm is in long-run equilibrium at a price of:

Exhibit 7-19 Long-run perfectly competitive industry As shown in Exhibit 7-19, assume that a perfectly competitive industry is in long-run equilibrium at point A. If the demand curve shifts from D₁ to D₂, the adjustment sequence between points will be:

Which of the following is a key characteristic of the long-run competitive equilibrium that distinguishes it from the short-run competitive equilibrium?

Suppose that in a perfectly competitive market, firms are making economic profits. In the long run, we can expect to see:

Quiz 7: Perfect Competition

If the expansion of output in an industry leads to unchanged resource prices, the industry is most likely to be a(n) :

What is a firm's short run supply curve?

In long-run equilibrium, which of the following is not equal to price for a perfectly competitive firm?

Exhibit 7-13 Price and cost per unit curves In Exhibit 7-13, if the price is P3, the firm will

Exhibit 7-12 Marginal revenue and cost per unit curves As shown in Exhibit 7-12, the firm's short-run supply curve is the:

Exhibit 7-12 Marginal revenue and cost per unit curves As shown in Exhibit 7-12, the firm will shut down in the short-run at a price below:

The long run is a planning period:

Exhibit 7-17 Marginal revenue and cost per unit curves As shown in Exhibit 7-17, the short-run supply curve for the firm corresponds to which segment of its marginal cost curve?

The long-run equilibrium condition for perfect competition is:

In a perfectly competitive industry, assume the short-run average total cost increases as the output of the industry expands. In the long run, the industry supply curve will:

The short-run supply curve for a perfectly competitive firm is the marginal cost curve

Consider a firm operating with the following: price = 10; MR = 10; MC = 10; ATC = 10. This firm is:

Exhibit 7-18 A typical firm in a perfectly competitive market In Exhibit 7-18, assume the perfectly competitive firm is in long-run equilibrium and there is an increase in demand. As a result, the firm in the short run will increase output along its:

What is the largest possible loss that is consistent with a firm producing in a perfectly competitive market in long-run competitive equilibrium?

Suppose the marginal revenue curve for a perfectly competitive firm intersects the average total cost curve at its minimum point. As the marginal revenue curve moves upward from that point along the marginal cost curve,

Which of the following statements is true ?

Exhibit 7-18 A typical firm in a perfectly competitive market As shown in Exhibit 7-18, the perfectly competitive firm is in long-run equilibrium at a price of:

Exhibit 7-19 Long-run perfectly competitive industry As shown in Exhibit 7-19, assume that a perfectly competitive industry is in long-run equilibrium at point A. If the demand curve shifts from D1 to D2, the adjustment sequence between points will be:

Which of the following is a key characteristic of the long-run competitive equilibrium that distinguishes it from the short-run competitive equilibrium?

Suppose that in a perfectly competitive market, firms are making economic profits. In the long run, we can expect to see:

Exhibit 7-13 Price and cost per unit curves In Exhibit 7-13, if the price is P₃, the firm will

Exhibit 7-19 Long-run perfectly competitive industry As shown in Exhibit 7-19, assume that a perfectly competitive industry is in long-run equilibrium at point A. If the demand curve shifts from D₁ to D₂, the adjustment sequence between points will be: