Question 1

Which of the following will increase a perfectly competitive seller's short-run supply and shift the firm's short-run supply curve rightward?

Accepted Answer

A decrease in marginal cost allows the firm to produce more at each price level, thus increasing supply and shifting the supply curve rightward.

Question 2

If Henry,a perfectly competitive lime grower in Southern California,can sell his limes at a price greater than his average total cost,Henry will

Accepted Answer

If Henry can sell his limes at a price greater than his average total cost, he will make an economic profit. This is because the price he receives for each lime will exceed the cost of producing it, resulting in a positive profit.

Question 3

One part of a perfectly competitive trout farm's supply curve is its

Accepted Answer

In a perfectly competitive market, a firm's supply curve is represented by its marginal cost curve above the shutdown point. The shutdown point is where the price covers the average variable costs. Below this point, the firm would shut down in the short run because it cannot cover its variable costs.

Question 4

The four market types are

Accepted Answer

The four market types are generally recognized as perfect competition, monopoly, monopolistic competition, and oligopoly. These are the most common and widely studied market structures in economics. Option C lists all four of these market types. Option A includes "imperfect competition" as a separate market type, but this is generally considered to be a term that encompasses all market types other than perfect competition and monopoly. Option B includes "monopsony," which is a market structure in which there is only one buyer for a particular product or service, but it is not one of the four most commonly recognized market types. Option D includes "oligopolistic competition," which is not a separate market type but rather a type of market structure that can occur within both oligopoly and monopolistic competition. Option E includes "duopoly," which is a market structure in which there are only two sellers for a particular product or service, but it is not one of the four most commonly recognized market types.

Question 5

The firm's supply curve is its

Accepted Answer

A firm's supply curve is determined by its marginal cost curve above its average variable cost curve. At any given price level, the firm will supply the quantity of output where marginal cost (the cost of producing an additional unit) equals price, as long as the price is above the average variable cost (the cost of producing a unit of output that covers only variable costs). Hence, the supply curve is the portion of the marginal cost curve that lies above the average variable cost curve.

Question 6

The market supply in the short run for the perfectly competitive industry is

Accepted Answer

In a perfectly competitive industry, each firm is a price taker, meaning they cannot influence the market price. Therefore, the market supply in the short run is the sum of the supply schedules of all firms in the industry.

Question 7

For a perfectly competitive sugar producer in Haiti,a short-run economic profit will occur if the price of each ton of sugar sold is

Accepted Answer

In a perfectly competitive market, firms will continue to produce in the short-run as long as the price covers the average variable costs. However, to make an economic profit, the price must exceed the average total cost, which includes both variable and fixed costs. Therefore, a short-run economic profit will occur if the price of each ton of sugar sold is greater than the average total cost of producing sugar.

Question 8

In the short run,a perfectly competitive firm ________ make an economic profit and ________ incur an economic loss.

Accepted Answer

In the short run, a perfectly competitive firm might make an economic profit due to favorable market conditions or efficient operations, and it might also incur an economic loss if the market conditions are unfavorable or costs are too high.

Question 9

If a perfectly competitive firm finds that the price exceeds its ATC,then the firm

Accepted Answer

If the price exceeds the firm's average total cost, it means that the firm is finding it cheaper to produce and sell the goods compared to the price received. Hence, the firm is making an economic profit.

Question 10

The demand curve faced by a perfectly competitive firm is

Accepted Answer

A perfectly competitive firm faces a horizontal demand curve because it is a price taker and can sell all of its output at the market price. If the firm were to charge a higher price than the market price, it would not be able to sell any output as consumers would simply buy from other firms in the industry. Therefore, the firm's demand curve is perfectly elastic (horizontal).

Question 11

A requirement of perfect competition is that
i.many firms sell an identical product to many buyers.
ii.there are no restrictions on entry into (or exit from)the market,and established firms have no advantage over new firms.
iii.sellers and buyers are well informed about prices.

Accepted Answer

Perfect competition requires all three conditions to be met: firms sell an identical product to many buyers (i), there are no restrictions on entry into (or exit from) the market and established firms have no advantage over new firms (ii), and sellers and buyers are well informed about prices (iii).

Question 12

In the short run,a perfectly competitive firm can experience which of the following?
i.an economic profit
ii.an economic loss but it continues to stay open
iii.an economic loss equal to its total fixed cost when it shuts down

Accepted Answer

In the short run, a perfectly competitive firm can experience an economic profit if its total revenue exceeds its total costs, an economic loss but continue to operate if it covers its variable costs (to minimize losses), and an economic loss equal to its total fixed cost when it decides to shut down, as it no longer covers variable costs but must still cover fixed costs.

Question 13

If a perfectly competitive seller is maximizing profit and is making zero economic profit,which of the following will this seller do?

Accepted Answer

If the perfectly competitive seller is making zero economic profit, it means that the seller is earning enough to cover all the costs including opportunity cost of the resources used in the production. Therefore, the seller has no incentive to exit or switch to another opportunity. Also, there is no room to increase production to make an economic profit as the market price is only covering the costs. Hence, the seller will continue at the current output and make zero economic profit. Therefore, the correct option is C.

Question 14

If there are 1,000 identical rice farmers who are each willing to supply 200 bushels of rice at $2 per bushel,what price and quantity combination is a point on the market supply curve for rice?

Accepted Answer

The market supply curve for rice is the horizontal sum of the individual supply curves of all the rice farmers in the market. With 1,000 identical rice farmers each willing to supply 200 bushels of rice at $2 per bushel, the market supply will be the sum of all these individual supplies, which would be 1,000 x 200 = 200,000 bushels at $2 per bushel. Therefore, the correct answer is B) $2 and 200,000 bushels.

Question 15

In the short run,a perfectly competitive firm

Accepted Answer

In the short run, a perfectly competitive firm can adjust its output level to maximize profit, which means it can make an economic profit or incur an economic loss depending on the market price and its cost structure. It is possible for the firm to produce at a level where price is greater than average total cost, resulting in a profit. However, in the long run, new firms will enter the market, increasing supply and driving down the market price until all firms earn zero economic profit.

Question 16

A perfectly competitive firm is a price taker because

Accepted Answer

In a perfectly competitive market, there are many small firms producing the same product or service, and each firm has no control over the market price. Therefore, the firm faces a horizontal demand curve and must accept the prevailing market price as given. Hence, a perfectly competitive firm is a price taker. Choices B, C, D, and E are incorrect because they describe situations that are not characteristic of a perfectly competitive market.

Question 17

For a perfectly competitive corn grower in Nebraska,the marginal revenue curve is

Accepted Answer

In a perfectly competitive market, a firm is a price taker and is unable to influence the market price. Therefore, the demand curve for the firm is perfectly elastic and horizontal, which is also the marginal revenue curve. Thus, the marginal revenue curve for a perfectly competitive corn grower in Nebraska is the same as its demand curve.

Question 18

A perfectly competitive firm's short-run supply curve is

Accepted Answer

In the short run, a perfectly competitive firm's supply curve is its marginal cost (MC) curve above the average variable cost (AVC). This is because the firm will only supply output if the price (which equals MC in perfect competition) covers its AVC, otherwise, it would minimize losses by shutting down.

Question 19

If the market price is lower than a perfectly competitive firm's average total cost,the firm will

Accepted Answer

In a perfectly competitive market, a firm will produce as long as the market price is greater than or equal to its average variable cost. This is because the firm is able to cover its variable costs and some of its fixed costs. If the market price falls below the average variable cost, the firm will not be able to cover its variable costs and will shut down in the short run. However, if the market price is greater than or equal to the average variable cost, the firm will continue to produce and incur losses in the short run, hoping for the market price to increase in the long run. Therefore, option C is the best choice.

Question 20

A perfectly competitive firm maximizes its profit by producing at the point where

Accepted Answer

In perfect competition, the firm is a price-taker and faces a horizontal demand curve. Thus, the firm can sell any quantity at the given market price. To maximize profit, the firm should produce the quantity where marginal revenue (MR) equals the marginal cost (MC). This is because when MR>MC, the firm can increase profit by producing more and when MR<MC, the firm can increase profit by producing less. Therefore, the optimal production quantity is where MR=MC.

Quiz 15: Perfect Competition