Question 1

Suppose a perfectly competitive market is in long-run equilibrium with a price of $12.Then there is a permanent increase in demand.As a result,in the short run the market price ________ and in the long run the number of firms ________ and the price is ________ the price was in the short run.

Accepted Answer

In the short run, the demand increase will cause a shortage and push the price up. Therefore, the price will rise. However, in the long run, new firms will enter the market to take advantage of the higher price, causing an increase in supply and a decrease in price. The new long-run equilibrium price will be higher than the original $12 price, but lower than the short-run price increase. Therefore, the price in the long run will be higher than the original price in the short run but lower than the short-run price increase.

Question 2

The rutabaga market is perfectly competitive.Research is published claiming that eating rutabagas leads to gaining weight and so the demand for rutabagas permanently decreases.The permanent decrease in demand results in a

Accepted Answer

With the permanent decrease in demand, there will be a surplus of rutabagas in the market leading to lower prices. As a result, rutabaga farmers will incur economic losses and may have to exit the market. There will be no incentive for new farmers to enter the market as it is already perfectly competitive with low profits or losses. Therefore, the best choice is B.

Question 3

In the long run,a perfectly competitive firm will

Accepted Answer

In the long run, a perfectly competitive firm will adjust its inputs to produce at the point where marginal cost equals price, which means it will be making zero economic profit. If the firm was able to make an economic profit, it would attract new entrants to the market, leading to an increase in supply and a decrease in price until the profit is driven to zero. Similarly, if the firm was incurring an economic loss, some firms would exit the market, leading to a decrease in supply and an increase in price until the loss is driven to zero. Therefore, in the long run, a perfectly competitive firm will make zero economic profit.

Question 4

When a firm adopts new technology,generally its

Accepted Answer

Adopting new technology allows firms to improve efficiency and productivity, leading to lower costs and a downward shift in cost curves.

Question 5

In a market undergoing technological change,firms that

Accepted Answer

Firms that adopt the new technology may face temporary costs of adjusting to and implementing the new technology, but they are more likely to reap the benefits of increased efficiency and productivity, leading to an economic profit. Firms that do not adopt the new technology are likely to face decreasing market share and may eventually even face economic losses as their competitors adopt the new technology and become more efficient.

Question 6

Suppose the cost of a CD is $20.As online retailers enter the market with new technology,the price of CDs ________,and traditional music stores find that ________.

Accepted Answer

The introduction of online retailers typically leads to a decrease in the price of CDs due to increased competition and lower overhead costs. Traditional music stores, with higher average variable costs (AVC) due to physical storefronts, staffing, etc., may find that these costs exceed the new, lower price of CDs, leading them to exit the industry.

Question 7

A market is initially in a long-run equilibrium and there is a permanent increase in demand.After the new long-run equilibrium is reached,there

Accepted Answer

In response to a permanent increase in demand, the market adjusts by attracting more firms to enter due to higher profit opportunities. This leads to a new long-run equilibrium with more firms in the market to meet the increased demand.

Question 8

Technological change

Accepted Answer

Technological change often requires an investment in a new plant or equipment. This investment can lead to long-term cost savings or increased production efficiency, but it can also be initially costly for the firm.

Question 9

In the long run,a perfectly competitive firm makes

Accepted Answer

In the long run, a perfectly competitive firm operates with zero economic profit, also known as a normal profit. This is because the industry will adjust to the point where price equals the minimum average total cost, leading to firms earning enough revenue to cover all their costs, including opportunity costs. Therefore, the best choice is B, zero economic profit.

Question 10

In the long run,new firms enter a perfectly competitive market when

Accepted Answer

In a perfectly competitive market, new firms are attracted to enter when they observe existing firms earning economic profits greater than zero. This indicates the potential for profit beyond the normal return on investment, making entry appealing.

Question 11

The cranberry market is perfectly competitive.Reports that consuming cranberries can lead to improved health result in a permanent increase in the demand for cranberries and an immediate upward jump in the price of cranberries.As time passes,the price of cranberries ________ and the initial firms' economic ________.

Accepted Answer

In a perfectly competitive market, an increase in demand leads to a temporary rise in price and profits, attracting new firms. Over time, the entry of these new firms increases supply, which reduces the price and eliminates the initial economic profits, restoring normal profit levels.

Question 12

If perfectly competitive firms are making an economic profit,then

Accepted Answer

In a perfectly competitive market, the firms earn only normal profit in the long-run equilibrium. If firms are making an economic profit, it indicates that there is an excess demand for the goods and services they produce. This attracts new firms to enter the market, which increases the supply and reduces the market price. As the market price decreases, the economic profit of the existing firms decreases until they are earning only normal profit in the long-run equilibrium. Thus, new firms entering the market reduces the equilibrium profit of the firms already in the market.

Question 13

In the long run,a perfectly competitive firm

Accepted Answer

In the long run, a perfectly competitive firm will produce at the point where price equals marginal cost, resulting in zero economic profit. This is because new firms can easily enter or exit the market in the long run, which ensures that firms cannot earn economic profits. Therefore, the correct choice is C.

Question 14

Technology reduces the average cost of production,so in the long run
I.perfectly competitive firms produce at a lower average cost.
Ii.the market price of the good falls.
Iii.firms with older plants either exit the market or adopt the new technology.

Accepted Answer

Technology advancements lead to lower production costs, causing competitive firms to produce more efficiently (i). This efficiency drives down the market price (ii), and firms with outdated technology must adapt or exit the market to remain competitive (iii).

Question 15

If the technology associated with producing fiber-optic cable continues to advance,over time the cost of producing fiber-optic cable will

Accepted Answer

As the technology associated with producing fiber-optic cable continues to advance, the cost of producing fiber-optic cable will decrease. This means that firms that use the new technology will be able to produce fiber-optic cable at a lower cost, which will allow them to make an economic profit. In the long run, new firms will enter the market because the lower cost of production will make it cheaper to start a new firm.

Question 16

If perfectly competitive firms are making an economic profit,the economic profit

Accepted Answer

Economic profit attracts entry by more firms, which increases the supply of the product and lowers the price. This will continue until the economic profit is zero, and firms earn only a normal profit. Therefore, in the long run, perfectly competitive firms can earn only a normal profit.

Question 17

If perfectly competitive firms are maximizing their profit and are making an economic profit,the market ________ in a short-run equilibrium and ________ in a long-run equilibrium.

Accepted Answer

In a short-run equilibrium, perfectly competitive firms can make economic profits, indicating the market is in equilibrium as firms are maximizing profit. However, in the long-run, economic profits attract new firms, increasing supply and driving down prices until economic profits are zero, indicating the market is not in equilibrium as firms adjust.

Question 18

A permanent decrease in demand definitely

Accepted Answer

The answer of A permanent decrease in demand definitely
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Question 19

If it does not shut down,a perfectly competitive firm produces where marginal cost is equal to the marginal revenue

Accepted Answer

The goal of a perfectly competitive firm is to maximize its profits, which occurs when marginal cost is equal to marginal revenue. This holds true in both the short run and the long run. If a firm can produce where price equals average variable cost or price is greater than average total cost, it would do so, but this is not a necessary condition for profit maximization.

Question 20

Technological change allows perfectly competitive firms to ________ and leads to ________.

Accepted Answer

Technological change allows firms to lower their costs by becoming more efficient and productive. This leads to lower prices for consumers, as firms can afford to charge less while still making a profit. In a perfectly competitive market, if one firm lowers its prices, other firms will have to follow suit in order to remain competitive, resulting in lower prices for consumers overall.

Quiz 11: Perfect Competition

Suppose a perfectly competitive market is in long-run equilibrium with a price of $12.Then there is a permanent increase in demand.As a result,in the short run the market price and in the long run the number of firms and the price is the price was in the short run.