Question 1

Explain how a perfectly competitive market promotes productive efficiency (minimum average costs).

Accepted Answer

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Question 2

When resources are earning zero economic profits for a firm,the resources could earn more in their next best alternative use.

Accepted Answer

Zero economic profit means a firm is covering all its costs, including opportunity costs, so the resources are earning exactly what they would in their next best alternative use.

Question 3

Diagram a model of a perfectly competitive market and a separate model of a firm experiencing economic profits.Explain and illustrate on your models the changes that take place in the long run.Be sure to explain why any changes take place.

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Question 4

As in other industries,the market structure of the computer industry has evolved over time.It began as a monopoly and then became perfectly competitive.

Accepted Answer

The computer industry did not evolve from a monopoly to perfect competition; instead, it has generally been characterized by oligopolistic competition, where a few large firms dominate the market.

Question 5

Explain how the market supply curve is derived in a perfectly competitive market.Identify five factors that would cause the market supply curve to shift.

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Question 6

Explain why economic profits in all perfectly competitive markets will tend toward zero in the long run.

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Question 7

Explain why technological progress will,at best,only temporarily allow a perfectly competitive firm to earn an economic profit.

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Question 8

The marginal cost pricing characteristic of competitive markets permits society to efficiently answer the WHAT to produce question.

Accepted Answer

In a competitive market with marginal cost pricing, firms produce at the point where marginal cost is equal to market price. This results in efficient allocation of resources as the goods produced reflect consumers' willingness to pay, and resources are not wasted on producing goods that do not have enough demand to cover their costs. Therefore, the market efficiently answers the question of WHAT to produce based on consumer demand and production costs.

Question 9

The price consumers pay for a product in a perfectly competitive market is an inaccurate reflection of opportunity cost.

Accepted Answer

In a perfectly competitive market, the price consumers pay for a product is an accurate reflection of opportunity cost. This is because in a perfectly competitive market, all producers are selling identical products and consumers have access to all available information about prices and quality. As a result, consumers are able to make informed purchasing decisions based on their own individual preferences and budget constraints, and the price they pay reflects the true opportunity cost of choosing one product over another.

Question 10

In order to attain the optimal mix of output,we must know the opportunity cost of producing different goods.

Accepted Answer

Opportunity cost refers to the value of the next best alternative forgone in order to produce a certain good. By understanding the opportunity cost of producing different goods, we can determine the most efficient allocation of resources to achieve the optimal mix of output.

Quiz 23: Competitive Markets