Question 1

In the long run,

Accepted Answer

In the long run, competitive firms earn only normal profits, which means they cover all their costs including opportunity costs, but they do not earn any economic profits. In other words, their profits are zero. This is because if a firm earns economic profits, it will attract new entrants to the market, which will increase competition and lower prices until the profits are eroded. Therefore, in the long run, all firms in a perfectly competitive market earn zero economic profits.

Question 2

When all firms and potential firms in a market have the same cost curves, the long-run equilibrium of a competitive market with free entry and exit will be characterized by firms

Accepted Answer

When all firms have the same cost curves, they will all produce at the lowest possible cost, which is at the efficient scale. In the long run, firms will enter or exit the market until economic profits are driven to zero, meaning that firms are only earning enough to cover their costs. This results in a situation where firms are operating at the efficient scale and earning small but positive economic profits, leading to the long-run equilibrium of a competitive market. Therefore, the correct choice is C.

Question 3

The long-run supply curve for a competitive industry

Accepted Answer

The answer of The long-run supply curve for a competitive...

Question 4

When a competitive market experiences an increase in demand that increases production costs for existing firms and potential new entrants, which of the following is most likely to arise?

Accepted Answer

The answer of When a competitive market experiences an increase...

Question 5

If all existing firms and all potential firms have the same cost curves, there are no inputs in limited quantities, and the market is characterized by free entry and exit, then the long-run market supply curve

Accepted Answer

When all firms have the same cost curves, the long-run equilibrium occurs at the minimum of the long-run average cost (LRAC) curve. This means that in the long-run, firms will produce at the level where they are minimizing their costs. Thus, the long-run market supply curve is horizontal and equal to the minimum of the long-run average cost for each firm.

Question 6

Suppose that some firms in a competitive industry are earning zero economic profits, while others are experiencing losses. All else equal, in the long run, we would expect the number of firms in the industry to

Accepted Answer

Firms that are earning zero economic profits are breaking even and may continue to operate in the short run, but if they are not making a profit in the long run, they will leave the industry. The firms experiencing losses will not be able to sustain their operations and will leave the industry as well. This will result in a decrease in the number of firms in the industry in the long run.

Question 7

When some resources used in production are only available in limited quantities, it is likely that the long-run supply curve in a competitive market is

Accepted Answer

When resources used in production are limited, it typically leads to an increase in costs as output increases, which in turn causes the long-run supply curve in a competitive market to slope upward. This reflects the principle that scarcity of resources can lead to higher production costs, which are passed on in the form of higher prices.

Question 8

A competitive market is in long-run equilibrium. If demand increases, we can be certain that price will

Accepted Answer

When demand increases in a competitive market in long-run equilibrium, the price will initially rise in the short run due to the excess demand. This will encourage some firms to enter the market to take advantage of the higher prices. As a result, the market supply will increase, and the price will fall to reach the new long-run equilibrium, where the firms earn normal profits. Therefore, option B is the best choice as it correctly identifies the short- and long-run adjustments in the market.

Question 9

Figure 14-13
Suppose a firm in a competitive industry has the following cost curves: 
-Refer to Figure 14-13. If the price is $6 in the short run, what will happen in the long run?

Accepted Answer

The answer of Figure 14-13
Suppose a firm in a competitive...

Question 10

When firms in a competitive market have different costs, it is likely that

Accepted Answer

In a competitive market, firms will continue to enter until economic profits are zero. However, if firms have different costs, some firms will be able to produce at a lower cost than others and achieve positive economic profits. These profits will attract more firms to enter the market, increasing supply and driving down prices until profits are again reduced to zero. In the long run, some firms will still earn positive economic profits, but the industry as a whole will still be considered competitive.

Question 11

A long-run supply curve is flatter than a short-run supply curve because

Accepted Answer

In the long run, firms have more time to adjust to changes in the market and can enter or exit more easily than in the short run. This means that the supply curve will be flatter and more elastic in the long run as compared to the short run.

Question 12

When entry and exit behavior of firms in an industry does not affect a firm's cost structure,

Accepted Answer

A horizontal long-run market supply curve indicates that entry and exit of firms does not affect the cost structure of existing firms, allowing them to produce at the same cost regardless of industry output.

Question 13

Figure 14-13
Suppose a firm in a competitive industry has the following cost curves: 
-Refer to Figure 14-13. If the price is $2 in the short run, what will happen in the long run?

Accepted Answer

The answer of Figure 14-13
Suppose a firm in a competitive...

Question 14

Consider a competitive market with a large number of identical firms. The firms in this market do not use any resources that are available only in limited quantities. In this market, an increase in demand will

Accepted Answer

In a competitive market with many identical firms and no limited resources, an increase in demand can lead to a short-term price increase as firms adjust production. However, in the long run, the ease of entry and exit in the market and the absence of resource constraints mean that new firms can enter, or existing firms can expand production, increasing supply to meet the higher demand, thus bringing the price back to its original level.

Question 15

In the transition from the short run to the long run, the number of firms in a competitive industry is

Accepted Answer

In the long run, firms in a competitive industry are able to adjust to market conditions by entering or exiting the industry. Therefore, the number of firms in the industry is not fixed, but rather is able to change in response to changes in demand, costs, and profits.

Question 16

Figure 14-13
Suppose a firm in a competitive industry has the following cost curves: 
-Refer to Figure 14-13. If the price is $3.50 in the short run, what will happen in the long run?

Accepted Answer

The firm's average cost curve (AC) is above the price of $3.50, indicating negative economic profits in the short run. This will cause some firms to exit the industry, shifting the market supply curve to the left and increasing the price in the long run. As firms exit, the remaining firms will benefit from less competition and higher prices, eventually leading to zero economic profits in the long run. Therefore, the correct answer is C as some firms will exit the industry in the long run.

Question 17

Figure 14-13
Suppose a firm in a competitive industry has the following cost curves: 
-Refer to Figure 14-13. If the price is $4.50 in the short run, what will happen in the long run?

Accepted Answer

The answer of Figure 14-13
Suppose a firm in a competitive...

Question 18

Suppose that firms in a competitive industry are earning positive economic profits. All else equal, in the long run, we would expect the number of firms in the industry to

Accepted Answer

The answer of Suppose that firms in a competitive industry...

Question 19

A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will

Accepted Answer

In the short run, firms cannot adjust their production capacity, so a decrease in demand leads to excess supply and a fall in price. This will cause some firms to shut down, reducing market supply and shifting the supply curve leftward. As a result, the market price will rise until the new long-run equilibrium is reached, with lower market supply and price compared to the initial equilibrium. The number of firms that exit the industry will depend on the extent of the demand decrease and the cost structure of the firms.

Question 20

The long-run supply curve for a competitive industry may be upward sloping if

Accepted Answer

If some resources are available only in limited quantities, the long-run supply curve for the industry may be upward sloping as production costs increase with increased production. This is because as more firms enter the industry, they compete for the limited resources, driving up their prices and increasing production costs. The other options do not explain a situation where the long-run supply curve for a competitive industry would be upward sloping.

Quiz 14: Firms in Competitive Markets

In the long run,

When all firms and potential firms in a market have the same cost curves, the long-run equilibrium of a competitive market with free entry and exit will be characterized by firms

The long-run supply curve for a competitive industry

When a competitive market experiences an increase in demand that increases production costs for existing firms and potential new entrants, which of the following is most likely to arise?

If all existing firms and all potential firms have the same cost curves, there are no inputs in limited quantities, and the market is characterized by free entry and exit, then the long-run market supply curve

Suppose that some firms in a competitive industry are earning zero economic profits, while others are experiencing losses. All else equal, in the long run, we would expect the number of firms in the industry to

When some resources used in production are only available in limited quantities, it is likely that the long-run supply curve in a competitive market is

A competitive market is in long-run equilibrium. If demand increases, we can be certain that price will

Figure 14-13 Suppose a firm in a competitive industry has the following cost curves: -Refer to Figure 14-13. If the price is $6 in the short run, what will happen in the long run?

When firms in a competitive market have different costs, it is likely that

A long-run supply curve is flatter than a short-run supply curve because

When entry and exit behavior of firms in an industry does not affect a firm's cost structure,

Figure 14-13 Suppose a firm in a competitive industry has the following cost curves: -Refer to Figure 14-13. If the price is $2 in the short run, what will happen in the long run?

Consider a competitive market with a large number of identical firms. The firms in this market do not use any resources that are available only in limited quantities. In this market, an increase in demand will

In the transition from the short run to the long run, the number of firms in a competitive industry is

Figure 14-13 Suppose a firm in a competitive industry has the following cost curves: -Refer to Figure 14-13. If the price is $3.50 in the short run, what will happen in the long run?

Figure 14-13 Suppose a firm in a competitive industry has the following cost curves: -Refer to Figure 14-13. If the price is $4.50 in the short run, what will happen in the long run?

Suppose that firms in a competitive industry are earning positive economic profits. All else equal, in the long run, we would expect the number of firms in the industry to

A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will

The long-run supply curve for a competitive industry may be upward sloping if