Question 1

The fast-food industry is generally considered to be a constant cost industry in regards to its use of labor as an input.Why?

Accepted Answer

The fast-food industry uses a relatively small share of unskilled labor in most cities, which means that they do not heavily rely on labor as a key input. This makes it a constant cost industry in regards to labor. Factors such as low productivity or labor shortage could influence the cost of labor, but they do not apply to the industry as a whole.

Question 2

Extractive industries such as farming, mining, or lumbering typically:

Accepted Answer

Extractive industries such as farming, mining, or lumbering require specialized resources that are not easily replaceable, making them increasing cost industries. As these industries extract resources, they become more difficult to obtain, leading to higher costs for production.

Question 3

Beginning from a long run equilibrium in an increasing cost industry, if there is a substantial, permanent fall in demand for industry output:

Accepted Answer

In an increasing cost industry, firms will exit the industry if demand falls because the higher costs make it unprofitable for them to produce. As firms exit, the quantity produced will decrease and prices will fall below the initial long run equilibrium level. This is due to the fact that the increasing cost industry requires higher prices to cover increasing costs, and with fewer firms left in the industry, there will be less competition for output.

Question 4

Suppose that a firm in an industry subject to diminishing returns to scale is initially in long run equilibrium.Which of the following will not be part of the industry adjustment process to a permanent increase in demand?

Accepted Answer

All of the above will be consequences.

Question 5

In an increasing cost industry, an unexpected decrease in demand would lead to ____ costs and a ____ price in the long run?

Accepted Answer

In an increasing cost industry, a decrease in demand will lead to higher costs and a higher price in the long run. This is because the fixed costs of production are spread over a smaller number of units, leading to a higher cost per unit. The higher costs will then be passed on to consumers in the form of a higher price.

Question 6

If the long-run industry supply curve in a perfectly competitive market is horizontal, then very likely input prices will ____ as industry output expands.

Accepted Answer

In a perfectly competitive market with a horizontal industry supply curve, all firms in the industry are able to produce and supply goods at the same cost. As industry output expands, the demand for inputs such as labor and raw materials may increase, but the increased demand will be met by an equivalent increase in supply at the same cost. Thus, input prices will remain constant.

Question 7

Which of the following is most likely a constant cost industry?

Accepted Answer

The answer of Which of the following is most likely...

Question 8

Assume that all of the inputs used in a particular perfectly competitive industry can be increased without bidding up their prices.The long run supply curve for that industry will be:

Accepted Answer

In a perfectly competitive industry, all firms have access to the same inputs at the same prices, and there are no barriers to entry or exit. Therefore, in the long run, firms can easily adjust their inputs to produce more output if demand increases. As a result, the long run supply curve for a perfectly competitive industry is horizontal, indicating that firms can produce any amount of output at a constant price.

Question 9

If in the long run, a firm doubles its output and its average cost falls as a result:

Accepted Answer

When a firm's output doubles and its average cost falls, it indicates that the firm is experiencing economies of scale. This means that as the firm produces more, it is able to take advantage of efficiencies and cost savings in production, resulting in lower average costs. This is different from diminishing returns, which occurs when a firm increases its production but experiences a decrease in marginal returns. Technological progress can also lead to lower average costs, but the question does not provide any indication that this has occurred. The firm does not necessarily have to be a natural monopoly for this to happen. Therefore, option C is the best choice.

Question 10

If a particular perfectly competitive industry uses only a small fraction of the supply of any of its inputs, the long run supply curve for that industry will tend to be:

Accepted Answer

In a perfectly competitive market where an industry uses only a small fraction of the supply of any of its inputs, the long run supply curve will tend to be horizontal. This is because the industry can easily expand its output without affecting the price of the inputs it uses due to the abundance of those inputs in the market. As a result, the industry can increase its output without any increase in marginal cost, and thus the long run supply curve will be horizontal.

Question 11

Suppose losses cause industry Z to contract, and as a result, the prices of inputs used intensively in the industry's production process fall.We know, as a result, that industry Z is:

Accepted Answer

The answer of Suppose losses cause industry Z to contract,...

Question 12

Which of the following is true about increasing cost industries?

Accepted Answer

Increasing cost industries require a large portion of specialized input resources, which become more expensive as output expands due to the law of diminishing returns. This leads to a higher equilibrium price in the long run, as firms must cover their increasing costs. Therefore, all of the given options are generally true of increasing cost industries.

Question 13

A perfectly competitive, increasing cost industry is initially in long run equilibrium.Then, there is an increase in demand.Compared with the initial equilibrium, once the new long run equilibrium is reached:

Accepted Answer

In a perfectly competitive industry, an increase in demand will lead to an increase in both price and quantity. Since the industry is increasing cost, the long run average cost curve will shift upwards due to the increased cost of production. As a result, the new long run equilibrium price will be higher than the initial equilibrium price. However, the increase in demand will also lead to an increase in the total output as more firms enter the market to reap the benefits of the higher price. Therefore, A is the correct choice.

Question 14

If the gadget industry is a constant cost industry, one would expect that the long run result of an increase in demand for gadget to include ____ firms and a(n) ____ in price.

Accepted Answer

In a constant cost industry, the entry of new firms in response to increased demand does not affect input prices, so the long-run supply curve is perfectly elastic. This means that while more firms enter the market, the price remains unchanged.

Question 15

If input prices rise as industry output expands, then a perfectly competitive firm's marginal cost and average cost curves will:

Accepted Answer

If input prices rise as industry output expands, the cost of production for the firm will increase. This will cause a shift in the firm's marginal cost and average cost curves upward, indicating that it will cost more for the firm to produce each additional unit of output.

Question 16

If input costs remain the same as industry output expands, what would you expect to be the long-run impact of an increase in demand on an industry currently in long-run equilibrium?

Accepted Answer

In the long run, if input costs remain constant, an increase in demand will lead to more firms entering the market to meet the higher demand, but the price will remain the same due to constant input costs and perfect competition.

Question 17

Which of the following is false about the long run?

Accepted Answer

In an increasing-cost industry, the cost curves of the individual firms actually rise as the total output of the industry increases, not decreases.

Question 18

Which of the following is false of perfectly competitive firms?

Accepted Answer

All the statements provided are true regarding perfectly competitive firms and their behavior in different market conditions.

Question 19

If input prices for perfectly competitive firms increase as the output of its industry expands:

Accepted Answer

The answer of If input prices for perfectly competitive firms...

Question 20

Beginning from a long run equilibrium in a competitive industry, if there is a substantial, permanent increase in demand for industry output:

Accepted Answer

The answer of Beginning from a long run equilibrium in...

Quiz 7: Firms in Competitive Markets