Question 1

In an increasing-cost industry,firms can enter and leave in the long run.

Accepted Answer

In an increasing-cost industry, as more firms enter, the cost of production increases due to factors such as scarcity of resources. This makes it more difficult for firms to make a profit and may lead to some firms leaving the market in the long run. Additionally, new firms can still enter if they are able to find ways to reduce costs or differentiate their products to remain competitive. Therefore, firms can enter and leave in the long run in an increasing-cost industry.

Question 2

In an increasing-cost industry,the average cost of production increases as the total output increases due to

Accepted Answer

In an increasing-cost industry, as the total output increases, the demand for inputs like labor, raw material, and other resources also increases. As a result, their prices also increase. This increases the average cost of production, making Option A the correct choice. Option B is incorrect because price equals marginal cost only in perfect competition, which is not always the case in an increasing-cost industry. Option C is incorrect because increasing demand for output may lead to economies of scale and lower average cost, which is contrary to the description of an increasing-cost industry.

Question 3

Which of the following is a good example of an increasing-cost industry?

Accepted Answer

All of the above options represent increasing-cost industries. As production in these industries expands, the costs of production also tend to increase. This can be due to factors such as the depletion of easily accessible resources in mining, the scarcity of desirable locations in real estate for apartments, and the potential for increased costs of raw materials or labor in sugar production.

Question 4

Draw a graph of a perfectly competitive firm's short-run marginal cost,average variable cost,and average total cost curves.On this graph,identify the firm's short-run supply curve.Explain why this is the firm's short-run supply curve.

Accepted Answer

The answer of Draw a graph of a perfectly competitive...

Question 5

Recall the example in the text of the increasing-cost sugar industry.At a price of 11 cents,the world supply of sugar equals the amount produced in the areas with low production costs.If the price of sugar increases,what will happen in the sugar market?

Accepted Answer

As the price of sugar increases, sugar production becomes profitable in areas with higher production costs. This leads to an increase in the quantity supplied. Therefore, both choices A and C are correct. The increase in price may also lead to a decrease in quantity demanded, but this is not mentioned in the question.

Question 6

List the three conditions that must be met when a perfectly competitive industry is in long-run equilibrium.

Accepted Answer

The answer of List the three conditions that must be...

Question 7

Assume the data backup industry,a perfectly competitive industry,is in long-run equilibrium with a market price of $3 per 10GB.If demand for data backup decreases and this industry is a decreasing-cost industry,long-run equilibrium will be reestablished at a price

Accepted Answer

The answer of Assume the data backup industry,a perfectly competitive...

Question 8

Entry of new firms in an increasing-cost industry leads to an downward shift of the LRAC curve.

Accepted Answer

The entry of new firms in an increasing-cost industry leads to an upward shift of the LRAC curve, as additional firms entering the market cause input costs to increase, resulting in higher costs for all firms in the industry.

Question 9

Recall the example in the text of the increasing-cost apartment industry.Why is the supply curve for apartments positively sloped?

Accepted Answer

The increasing-cost apartment industry refers to a situation where the cost of producing apartments increases as more units are produced. This is because as more apartments are built, the price of land increases, making it more expensive to build additional units. Therefore, the supply curve for apartments is positively sloped, reflecting the higher cost of producing additional units.

Question 10

In the long run,if product prices rise,firms will not produce more output.

Accepted Answer

In the long run, if product prices rise, firms are incentivized to produce more output to take advantage of higher profits, assuming other factors remain constant.

Question 11

Recall the Application about the production of coffee in China to answer the following question(s).
-Recall the Application.Chinese farmers switched from growing tea to growing coffee,indicating what about the coffee market?

Accepted Answer

The fact that Chinese farmers switched from growing tea to growing coffee suggests that there is an increase in demand for coffee, and potentially more profitability in the coffee market compared to the tea market.

Question 12

How much economic profit does a firm make in the long-run equilibrium when the price equals the average cost of production?

Accepted Answer

When the price equals the average cost of production, the firm is making normal profits, which means that economic profit is zero.

Question 13

The vertical sum of the marginal cost curves (above minimum AVC)of all the firms in an industry is the long-run industry supply curve.

Accepted Answer

The long-run industry supply curve is determined by the entry and exit of firms in response to economic profit, not by the vertical sum of the marginal cost curves. The vertical sum of the marginal cost curves (above minimum AVC) represents the short-run industry supply curve.

Question 14

Input prices fall as entry occurs in an increasing-cost industry.

Accepted Answer

In an increasing-cost industry, as more firms enter the market, the cost of production for all firms increases, leading to higher input prices and potentially higher prices for the final product.

Question 15

For any an increasing-cost industry,the long-run supply curve has

Accepted Answer

The long-run supply curve of an increasing-cost industry has a positive slope, indicating that as the quantity produced increases, the cost of production also increases. This is because as firms in the industry expand their production, they are likely to encounter higher costs for factors of production like labor and raw materials due to scarcities or increased competition for resources. Thus, firms require a higher price to justify higher production levels, which results in a positively sloped long-run supply curve.

Question 16

Suppose all firms in an industry are earning positive economic profit.We would expect to find that in the future

Accepted Answer

When firms in an industry are earning positive economic profits, it attracts new firms into the market, increasing the market supply. This increased supply, assuming demand remains constant, leads to a decrease in market price.

Question 17

Assume firms in an increasing-cost industry are currently making profits.Which of the following statements describes what will happen in the long run?

Accepted Answer

In an increasing-cost industry, the entry of new firms will cause the price of inputs to increase, leading to higher production costs and a higher LRAC curve for each individual firm. As more firms enter the industry and demand more inputs, the price of inputs will continue to rise, causing the industry supply schedule to shift to the right but also causing each firm's LRAC curve to shift up. Thus, in the long run, the industry supply will increase and the price will decrease, but profits will be eroded for all firms, so they will not be making profits in the long run.

Question 18

The long-run industry supply curve is positively sloped for a decreasing-cost industry.

Accepted Answer

In a decreasing-cost industry, the long-run industry supply curve is typically negatively sloped or horizontal, indicating that as the industry expands, the costs of production decrease, leading to lower prices.

Question 19

-Refer to Figure 9.8.In the long run,

Accepted Answer

In the long run, if a firm in a competitive market is profitable, existing firms will expand and new firms will enter the industry to take advantage of the profit opportunity, leading to an increase in supply.

Question 20

The long-run supply curve for a increasing-cost industry is downward sloping.

Accepted Answer

The long-run supply curve for an increasing-cost industry is actually upward sloping. This is because as demand for the industry's product increases, the cost of production also increases due to factors such as rising input prices and decreasing availability of resources. As a result, the industry needs higher prices to bear these rising costs, and this is reflected in an upward sloping long-run supply curve.

Quiz 9: Perfect Competition