Question 1

Which of the following is true when a firm in a perfectly competitive market is earning zero economic profits?

Accepted Answer

When a firm in a perfectly competitive market is earning zero economic profits, it means that the firm is covering all its costs, including opportunity costs. This implies that the income the business owners are earning from the firm is equivalent to what they could earn from their next best alternative use of their time and resources. Zero economic profit is a normal condition in the long run for a perfectly competitive market, indicating that resources are being allocated efficiently.

Question 2

Which of the following is NOT true in the long-run equilibrium in a perfectly competitive market?

Accepted Answer

In the long-run equilibrium of a perfectly competitive market, firms have no incentive to exit or enter the market because economic profits are zero, meaning firms earn just enough to cover their opportunity costs.

Question 3

When perfectly competitive firms are in long-run equilibrium:

Accepted Answer

In long-run equilibrium, perfectly competitive firms produce at the point where price (P) equals marginal revenue (MR), marginal cost (MC), and average total cost (ATC), ensuring no economic profits or losses.

Question 4

A perfectly competitive market is in long-run equilibrium. If the market demand curve shifts to the right, what do we expect to occur in this market?

Accepted Answer

In a perfectly competitive market, an increase in demand (shift to the right of the demand curve) leads to higher prices and positive economic profits in the short run. These profits attract new firms into the market, increasing supply and thus driving the price down until it equals the average total cost, restoring long-run equilibrium.

Question 5

A perfectly competitive market is in long-run equilibrium. If the market demand curve shifts to the left, what do we expect to occur in this market?

Accepted Answer

In a perfectly competitive market, a leftward shift in the market demand curve reduces the quantity demanded at any given price, leading to lower prices and sales for firms. This can result in negative economic profits, prompting some firms to exit the market. As firms exit, the supply decreases, leading to an increase in price. The process continues until the price stabilizes at a point where price equals average total cost, restoring long-run equilibrium without economic profits.

Question 6

Use the figure A Perfectly Competitive Market in the Short Run II. If every firm in this market has the same costs, what will be the market price in the long run?
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Figure: A Perfectly Competitive Market in the Short Run II

Accepted Answer

The answer of Use the figure A Perfectly Competitive Market...

Question 7

Use the figure A Perfectly Competitive Market in the Short Run I. If every firm in this market has the same costs, what will be the market price in the long run?
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Figure: A Perfectly Competitive Market in the Short Run I

Accepted Answer

The answer of Use the figure A Perfectly Competitive Market...

Question 8

Use the table Costs for Alina's Apple Pies. Alina's Apple Pies operates in a perfectly competitive market where the price of a pie is currently $18. What will happen in the market in the long run?
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Accepted Answer

The answer of Use the table Costs for Alina's Apple...

Question 9

Use the table Costs for Alina's Apple Pies. Alina's Apple Pies operates in a perfectly competitive market. If Alina has no incentive to exit this market and no other firms have incentive to enter this market, what must the price be?
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Accepted Answer

The answer of Use the table Costs for Alina's Apple...

Question 10

In a perfectly competitive market, the market price is $5, and firms are producing 100 units. At a quantity of 100 units, average total cost is $4, and average variable cost is $3. In the long run, price will:

Accepted Answer

The answer of In a perfectly competitive market, the market...

Question 11

In a perfectly competitive market the market price is $4, and firms are producing 100 units. At a quantity of 100 units, average total cost is $4, and average variable cost is $3. In the long run, price will:

Accepted Answer

In a perfectly competitive market, firms enter and exit the market until economic profits are zero. Since the price equals the average total cost ($4), firms are making zero economic profit, indicating no incentive for firms to enter or exit, thus the price will remain at $4 in the long run.

Question 12

In a perfectly competitive market, the market price is $3.50, and firms are producing 100 units. At a quantity of 100 units, average total cost is $4, and average variable cost is $3. In the long run, price will:

Accepted Answer

In a perfectly competitive market, if the price is below the average total cost but above the average variable cost, firms are covering their variable costs but not their total costs, leading to losses. Over time, this situation will cause some firms to exit the market. As firms exit, the supply decreases, leading to an increase in the market price. The price will rise towards the average total cost ($4 in this case) to eliminate losses, encouraging no further exits.

Question 13

Suppose that Magma Motor Company has total revenue of $400,000, fixed costs of $100,000, and variable costs of $200,000. If Magma Motor company is known to be in a perfectly competitive market, which of the following is true?

Accepted Answer

In a perfectly competitive market, if a firm is making a profit (total revenue greater than total costs), it signals other firms to enter the market. Magma Motor Company's profit is calculated as total revenue ($400,000) minus total costs (fixed costs of $100,000 plus variable costs of $200,000), which equals $100,000. This profit indicates that firms will enter the market.

Question 14

Suppose that Pumice Motor Company has total revenue of $800,000, fixed costs of $200,000, and variable costs of $900,000. If Pumice Motor company is known to be in a perfectly competitive market, which of the following is true?

Accepted Answer

Pumice Motor Company is experiencing a loss because its total costs ($200,000 fixed + $900,000 variable = $1,100,000) exceed its total revenue ($800,000). In a perfectly competitive market, firms experiencing losses will exit the market in the long run.

Question 15

Lotus Airways is a passenger carrying airline and has total revenue of $900,000, fixed costs of $500,000, and variable costs of $400,000. What is true if Lotus Airways operates in a perfectly competitive industry?

Accepted Answer

Lotus Airways is making a normal profit, which means that it is in long-run equilibrium.

Question 16

Orchid Movers is a price taker in the market for cross-country moving services. The current price to move a two-bedroom house is $1,000, and given the number of homes that it is currently moving, the average cost of providing this service to Orchid Movers is $900. What statement best describes what is likely to happen in the market for moving services?

Accepted Answer

Given that Orchid Movers is making a profit (price of $1,000 is greater than the average cost of $900), it is likely that new firms will enter the market to take advantage of these profit opportunities, which will increase supply and drive down prices.

Question 17

Suppose that Pumice Motor Company has total revenue of $800,000, fixed costs of $200,000, and variable costs of $600,000. If Pumice Motor company is known to be in a perfectly competitive market, which of the following is true?

Accepted Answer

In a perfectly competitive market, long-run equilibrium occurs when firms are earning zero economic profit, which happens when total revenue equals total costs (fixed costs + variable costs). Here, Pumice Motor Company's total revenue ($800,000) equals its total costs ($200,000 fixed + $600,000 variable), indicating it is in long-run equilibrium.

Question 18

When a perfectly competitive market is in long-run equilibrium, a firm in that market produces the quantity where _____ is lowest.

Accepted Answer

In long-run equilibrium, a perfectly competitive firm produces at the quantity where average total cost is lowest. This point ensures the firm is operating at its most efficient scale, neither making economic profits nor incurring losses.

Question 19

Chrysanthemum Industries has fixed costs of $10,000 and variable costs of $20,000 when it produces 1,000 units. The 1,000th unit costs Chrysanthemum industries $30. This perfectly competitive industry:

Accepted Answer

In long-run equilibrium, firms earn zero economic profit. In this case, Chrysanthemum Industries is earning zero economic profit, so the industry is in long-run equilibrium.

Question 20

The decision to shut down a firm depends on whether the market price allows the firm to cover its:

Accepted Answer

The decision to shut down a firm in the short run depends on whether the market price covers its average variable cost. If the price is below the average variable cost, the firm cannot even cover its variable costs, so it's better to shut down and minimize losses.

Quiz 9: Perfect Competition

Which of the following is true when a firm in a perfectly competitive market is earning zero economic profits?

Which of the following is NOT true in the long-run equilibrium in a perfectly competitive market?

When perfectly competitive firms are in long-run equilibrium:

A perfectly competitive market is in long-run equilibrium. If the market demand curve shifts to the right, what do we expect to occur in this market?

A perfectly competitive market is in long-run equilibrium. If the market demand curve shifts to the left, what do we expect to occur in this market?

Use the figure A Perfectly Competitive Market in the Short Run II. If every firm in this market has the same costs, what will be the market price in the long run? Figure: A Perfectly Competitive Market in the Short Run II

Use the figure A Perfectly Competitive Market in the Short Run I. If every firm in this market has the same costs, what will be the market price in the long run? Figure: A Perfectly Competitive Market in the Short Run I

Use the table Costs for Alina's Apple Pies. Alina's Apple Pies operates in a perfectly competitive market where the price of a pie is currently $18. What will happen in the market in the long run?

Use the table Costs for Alina's Apple Pies. Alina's Apple Pies operates in a perfectly competitive market. If Alina has no incentive to exit this market and no other firms have incentive to enter this market, what must the price be?

In a perfectly competitive market, the market price is $5, and firms are producing 100 units. At a quantity of 100 units, average total cost is $4, and average variable cost is $3. In the long run, price will:

In a perfectly competitive market the market price is $4, and firms are producing 100 units. At a quantity of 100 units, average total cost is $4, and average variable cost is $3. In the long run, price will:

In a perfectly competitive market, the market price is $3.50, and firms are producing 100 units. At a quantity of 100 units, average total cost is $4, and average variable cost is $3. In the long run, price will:

Suppose that Magma Motor Company has total revenue of $400,000, fixed costs of $100,000, and variable costs of $200,000. If Magma Motor company is known to be in a perfectly competitive market, which of the following is true?

Suppose that Pumice Motor Company has total revenue of $800,000, fixed costs of $200,000, and variable costs of $900,000. If Pumice Motor company is known to be in a perfectly competitive market, which of the following is true?

Lotus Airways is a passenger carrying airline and has total revenue of $900,000, fixed costs of $500,000, and variable costs of $400,000. What is true if Lotus Airways operates in a perfectly competitive industry?

Suppose that Pumice Motor Company has total revenue of $800,000, fixed costs of $200,000, and variable costs of $600,000. If Pumice Motor company is known to be in a perfectly competitive market, which of the following is true?

When a perfectly competitive market is in long-run equilibrium, a firm in that market produces the quantity where _____ is lowest.

Chrysanthemum Industries has fixed costs of $10,000 and variable costs of $20,000 when it produces 1,000 units. The 1,000th unit costs Chrysanthemum industries $30. This perfectly competitive industry:

The decision to shut down a firm depends on whether the market price allows the firm to cover its:

Quiz 9: Perfect Competition

Which of the following is true when a firm in a perfectly competitive market is earning zero economic profits?

Which of the following is NOT true in the long-run equilibrium in a perfectly competitive market?

When perfectly competitive firms are in long-run equilibrium:

A perfectly competitive market is in long-run equilibrium. If the market demand curve shifts to the right, what do we expect to occur in this market?

A perfectly competitive market is in long-run equilibrium. If the market demand curve shifts to the left, what do we expect to occur in this market?

Use the figure A Perfectly Competitive Market in the Short Run II. If every firm in this market has the same costs, what will be the market price in the long run? ​ Figure: A Perfectly Competitive Market in the Short Run II

Use the figure A Perfectly Competitive Market in the Short Run I. If every firm in this market has the same costs, what will be the market price in the long run? ​ Figure: A Perfectly Competitive Market in the Short Run I

Use the table Costs for Alina's Apple Pies. Alina's Apple Pies operates in a perfectly competitive market where the price of a pie is currently $18. What will happen in the market in the long run? ​

Use the table Costs for Alina's Apple Pies. Alina's Apple Pies operates in a perfectly competitive market. If Alina has no incentive to exit this market and no other firms have incentive to enter this market, what must the price be? ​

In a perfectly competitive market, the market price is $5, and firms are producing 100 units. At a quantity of 100 units, average total cost is $4, and average variable cost is $3. In the long run, price will:

In a perfectly competitive market the market price is $4, and firms are producing 100 units. At a quantity of 100 units, average total cost is $4, and average variable cost is $3. In the long run, price will:

In a perfectly competitive market, the market price is $3.50, and firms are producing 100 units. At a quantity of 100 units, average total cost is $4, and average variable cost is $3. In the long run, price will:

Suppose that Magma Motor Company has total revenue of $400,000, fixed costs of $100,000, and variable costs of $200,000. If Magma Motor company is known to be in a perfectly competitive market, which of the following is true?

Suppose that Pumice Motor Company has total revenue of $800,000, fixed costs of $200,000, and variable costs of $900,000. If Pumice Motor company is known to be in a perfectly competitive market, which of the following is true?

Lotus Airways is a passenger carrying airline and has total revenue of $900,000, fixed costs of $500,000, and variable costs of $400,000. What is true if Lotus Airways operates in a perfectly competitive industry?

Suppose that Pumice Motor Company has total revenue of $800,000, fixed costs of $200,000, and variable costs of $600,000. If Pumice Motor company is known to be in a perfectly competitive market, which of the following is true?

When a perfectly competitive market is in long-run equilibrium, a firm in that market produces the quantity where _____ is lowest.

Chrysanthemum Industries has fixed costs of $10,000 and variable costs of $20,000 when it produces 1,000 units. The 1,000th unit costs Chrysanthemum industries $30. This perfectly competitive industry:

The decision to shut down a firm depends on whether the market price allows the firm to cover its:

Use the figure A Perfectly Competitive Market in the Short Run II. If every firm in this market has the same costs, what will be the market price in the long run? Figure: A Perfectly Competitive Market in the Short Run II

Use the figure A Perfectly Competitive Market in the Short Run I. If every firm in this market has the same costs, what will be the market price in the long run? Figure: A Perfectly Competitive Market in the Short Run I

Use the table Costs for Alina's Apple Pies. Alina's Apple Pies operates in a perfectly competitive market where the price of a pie is currently $18. What will happen in the market in the long run?

Use the table Costs for Alina's Apple Pies. Alina's Apple Pies operates in a perfectly competitive market. If Alina has no incentive to exit this market and no other firms have incentive to enter this market, what must the price be?