Question 1

With regard to its profits and losses, how is the short run different from the long run for a perfectly competitive firm?

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Question 2

Suppose the bobby pin industry is perfectly competitive. The price of a packet of bobby pins is $2.00. Pins and Needles, Inc. is a firm in this industry and is producing 1,000 packets of bobby pins per day at the point where the MC = MR. The average cost of production at this output level is $1.50 per packet.
a. What is the marginal cost of the 1,000th packet?
b. Is this firm making an economic profit, zero economic profit, or an economic loss?
 How much?
c. Is the firm in long-run equilibrium?
 Why or why not?

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Question 3

When will new firms enter a perfectly competitive market?
 When does entry stop?

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Question 4

In the long run, perfectly competitive firms cannot make an economic profit. Why?

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Question 5

"For a perfectly competitive market, an economic profit attracts new firms. But when these firms enter the market, the price falls and the economic profit is eliminated." Are the previous statements correct or incorrect?
 What is the long-run profit or loss outcome for firms in a perfectly competitive market?

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Question 6

Entry by competitive firms decreases the market price, while exit by competitive firms increases the market price. Explain why firms enter or exit an industry and why these price changes occur.

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Question 7

In the long run, a perfectly competitive firm makes zero economic profit. What incentive does the firm have to stay in business if it is making zero economic profit?

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Question 8

The U-pick berry market is perfectly competitive. Suppose that all U-pick blueberry farms have the same cost curves and all are making an economic profit. What happens as time passes?
 What is the long-run equilibrium outcome?

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Question 9

-The above figure shows the cost curves of a profit-maximizing perfectly competitive firm. If the price equals $7,
a. how much will the firm produce?
b. how much is the firm's average total, average variable, and marginal costs?
c. how much is the firm's total, total variable, and total fixed costs?
d. how much is the firm's total revenue and economic profit?
e. what will happen in this market in the long run?

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-The above figure shows the cost curves...

Question 10

Suppose a farmer raising beef is making a normal profit. Then, because of a scare about mad cow disease, the demand for beef decreases drastically. What happens to the profits of the beef farmer in the short run and in the long run?

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Question 11

-American restaurants receive their supply of baby back-ribs from American farms and from farms in Denmark. In the figures above, the left diagram shows the perfectly competitive market for baby back ribs in the United States. The right figure shows the situation at Premium Standard Farm in Kansas, one of the many U.S. farms supplying these ribs.
Now assume that the United States imposes a ban on European meat in response to the foot-and-mouth disease that has infected livestock in Europe. (Which the United States did a few years ago.)In particular, suppose that the U.S. ban decreases the supply by 40 tons a year. Using the figure on the left, show the impact of this ban on the baby back rib market. Using the figure on the right, show the impact on Premium Standard Farm in Kansas.

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-American restaurants receive their supply...

Question 12

Describe how economic losses are eliminated in a perfectly competitive industry.

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Question 13

Pumpkin growing is a perfectly competitive industry. Suppose that pumpkin growers are all incurring an economic loss. What happens as time passes?
 What is the long-run equilibrium outcome?

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Question 14

During the middle of the 2000s, the price of gasoline soared and there was a movement to switch to fuels made from a mixture of gasoline and ethanol. Ethanol can be made from corn. The price of corn skyrocketed and then, after a couple of years, the price decreased. What might have led to these price changes in the corn market?

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Question 15

How does a decrease in the demand for wheat ultimately lead to normal profits for wheat growers in the long run?

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Quiz 11: Perfect Competition