Question 1

-The market for milk is perfectly competitive. There are 1,000 farms in the industry and the relationship between a typical farm's output and total costs is the same as in Problem 2. The market demand schedule for milk is shown in the table above.
a) What is a typical farm's supply schedule and what is the market supply schedule?
b) What is the market price? What quantity of milk is sold?
c) What is the output produced by each farm? What type of profit or loss is made by each farm?
d) Do farms enter or exit the market?

Accepted Answer

The answer of 
-The market for milk is perfectly competitive....

Question 2

-Petunia's Farm produces and sells milk. The market for milk is perfectly competitive. The market price of milk is $2.50 per gallon. The relationship between the farm's output and total costs is shown in the table above.
a) Draw Petunia's average variable, average total, and marginal cost curves.
b) Use your graphs to find Petunia's profit-maximizing output.
c) If Petunia maximizes her profit, how much profit does she make?
d) What is Petunia's shutdown point? What is her economic profit at the shut-down point?
e) Should Petunia shut down? Will farms with costs the same as Petunia's enter or exit the milk market? Explain.

Accepted Answer

The answer of 
-Petunia's Farm produces and sells milk. The...

Question 3

-Brennan's Farm produces and sells milk. The market for milk is perfectly competitive. The market price of milk is $2.50 per gallon. The relationship between the farm's output and total costs is shown in the table above.
a) Draw Brennan's average variable, average total, and marginal cost curves.
b) Use your graphs to find Brennan's profit-maximizing output.
c) If Brennan maximizes his profit, how much profit does he make?
d) Should Brennan stay in business? Will other farms with costs the same as Brennan's enter the milk market? Explain.

Accepted Answer

The answer of 
-Brennan's Farm produces and sells milk. The...

Question 4

Easy entry and exit ensure that perfectly competitive firms cannot make a long-run economic profit.

Accepted Answer

In a perfectly competitive market, easy entry and exit allow for new firms to enter and existing firms to exit in response to profits or losses. This competition keeps prices low and prevents firms from making long-run economic profits.

Question 5

In the long run, perfectly competitive firms make zero economic profit, that is, their owners make a normal profit.

Accepted Answer

In the long run, perfectly competitive firms will adjust to a price where their total revenue equals their total cost, including both explicit and implicit costs. This price will only provide for a normal profit, which means that the owners are just earning enough to cover their opportunity cost of investment in the business, but not making any additional economic profit.

Question 6

When the market demand increases in a perfect competition, the long-run result is a larger number of firms, a higher price, and a permanent economic profit for the firms.

Accepted Answer

In a perfect competition, firms can easily enter the market in response to increased demand, leading to an increase in the number of firms. This increase in supply results in a decrease in price, which eliminates any economic profit in the long run. Therefore, the statement is false.

Question 7

In a perfectly competitive market, in the long run a permanent decrease in the market demand results in a smaller number of firms.

Accepted Answer

The answer of In a perfectly competitive market, in the...

Quiz 12: Perfect Competition

Easy entry and exit ensure that perfectly competitive firms cannot make a long-run economic profit.

In the long run, perfectly competitive firms make zero economic profit, that is, their owners make a normal profit.

When the market demand increases in a perfect competition, the long-run result is a larger number of firms, a higher price, and a permanent economic profit for the firms.

In a perfectly competitive market, in the long run a permanent decrease in the market demand results in a smaller number of firms.