Question 1

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 2

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

Accepted Answer

If an industry relies on resources that are limited in quantity, then as output expands, the industry's cost curves will shift upward, resulting in an upward-sloping long-run supply curve. This is because as the industry grows, firms must resort to using higher-cost resources.

Question 3

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 4

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 easily exit the market, so the supply curve is relatively fixed. A decrease in demand will cause a surplus, leading to lower prices. In the long run, some firms will exit the industry, causing the supply curve to shift leftward. This will cause prices to rise again to the new long-run equilibrium. In the short run, however, prices will fall, regardless of whether firms shut down or not.

Question 5

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 6

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 7

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 8

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

Accepted Answer

When entry and exit behavior of firms in an industry does not affect a firm's cost structure, the long-run market supply curve must be horizontal. This is because firms can enter and exit the market without affecting the equilibrium price in the long run, meaning that the supply curve remains constant regardless of the number of firms in the market.

Question 9

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

Accepted Answer

In the long run, firms have more flexibility to enter or exit a market or to adjust production levels. This means that if the market price is high, new firms will have an incentive to enter the market, increasing the overall supply and causing the long-run supply curve to be flatter than the short-run supply curve. Similarly, if the market price is low, firms may choose to exit the market, decreasing supply and causing the long-run supply curve to be flatter. In the short run, firms may be constrained by fixed inputs or other factors that limit their ability to adjust production levels and respond to changes in market conditions.

Question 10

In the long run,

Accepted Answer

In the long run, competitive firms' profits are driven to zero due to free entry and exit of firms in the market. As profits are driven to zero, firms are forced to produce at minimum efficient scale, where ATC is at its lowest point, in order to remain in the market. This results in consumers being able to purchase goods and services at a lower price, and all demand being satisfied at the market price. Therefore, choice A is the best answer.

Question 11

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

At a price of $3.50, the firm's average total cost is above the price, meaning the firm is earning negative economic profits. In the long run, some firms will exit the industry as a result, which will shift the industry supply curve to the left and eventually drive the price up to the minimum of the average total cost curve, where firms earn zero economic profit. Therefore, choice C is correct. Choice A is incorrect because although firms are earning zero economic profits, the question states that the price is $3.50, which implies negative economic profits for the firm. Choice B is incorrect because positive economic profits would entice other firms to enter the industry, not the other way around. Choice D is incorrect because although the firm is earning negative economic profits, it is still covering its variable costs, so it will not shut down in the short run.

Question 12

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 13

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

In a perfectly competitive market with free entry and exit, when all firms have the same cost curves, the long-run equilibrium will be achieved at the point where firms operate at the efficient scale. At this point, each firm is producing the optimal quantity of output at the minimum possible average cost, and there are no incentives for new firms to enter the market or for existing firms to exit. Therefore, there will be no economic profits or losses in the long-run equilibrium.

Question 14

The long-run supply curve for a competitive industry

Accepted Answer

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

Question 15

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 16

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 experiencing losses will eventually exit the industry in the long run since they cannot sustain their operations without generating economic profits. This, in turn, reduces the number of firms in the industry, enabling the remaining firms to potentially earn economic profits. Therefore, we would expect the number of firms in the industry to decrease in the long run.

Question 17

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

In the long run, all firms will enter or exit the market until each firm is producing at the minimum of its long-run average cost curve. This means that the long-run market supply curve will also be horizontal and equal to the minimum of long-run average cost for each firm. Therefore, the correct choice is D.

Question 18

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

Accepted Answer

An increase in demand will cause a short-run increase in price as quantity demanded exceeds quantity supplied. This will attract new firms to the industry in the long run, increasing market supply and causing price to fall. The new long-run equilibrium will be at a higher quantity and price than the original equilibrium, but lower than the short-run high price caused by the demand increase. Therefore, price will initially rise in the short run but then fall to reach the new long-run equilibrium.

Question 19

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 20

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 are able to enter or exit the market based on market conditions. Therefore, the number of firms in a competitive industry is able to adjust to market conditions, making choice D the most accurate.

Quiz 14: Firms in Competitive Markets

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?

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

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

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

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?

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

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

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

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

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 $3.50 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

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

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 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

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

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 $2 in the short run, what will happen in the long run?

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