Question 1

If the profit-maximizing quantity of production for a competitive firm occurs at a point where the firm's average total cost of production is falling as production increases,then the firm

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Question 2

The exit of existing firms from a competitive market will

Accepted Answer

When existing firms exit a competitive market, there will be a decrease in the number of suppliers, which will reduce market supply. As a result, the market price will increase due to the increase in demand for the existing firms' products.

Question 3

Carol owns a running shoe store that operates in a perfectly competitive market.If running shoes sell for $120 per pair and the average total cost per pair of shoes is $125 at the profit-maximizing output level,then in the long run

Accepted Answer

Since the average total cost of producing shoes is greater than the price at the profit-maximizing output level, Carol is not earning enough to cover all of her costs. In the long run, this will cause some firms (including Carol's) to exit the market, as they cannot sustain losses indefinitely. As fewer firms remain, the market becomes less competitive and the equilibrium price may rise. Average total costs are unlikely to fall, as they are already above the price.

Question 4

When a profit-maximizing firm in a competitive market has zero economic profit,accounting profit

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Question 5

If occupational safety laws were changed so that firms no longer had to take expensive steps to meet regulatory requirements,we would expect that

Accepted Answer

If firms no longer have to spend money on meeting occupational safety laws, their production costs would decrease, resulting in lower prices for consumers. Over time, competitors in the industry would also lower their prices to remain competitive, passing the savings on to consumers in the long run. This would result in a more efficient market, but not necessarily in long-run economic profits for firms.

Question 6

If there is an increase in market demand in a perfectly competitive market,then in the short run prices will

Accepted Answer

In a perfectly competitive market, the increase in market demand puts upward pressure on prices as firms try to meet the increased demand with their limited supply. As a result, in the short run, prices will rise.

Question 7

Which of the following statements is not correct about competitive firms?

Accepted Answer

In the short run, firms may operate at a level of output where price is below average variable cost, but above average total cost. However, in the long run, firms will exit the industry if they cannot cover their average total cost.

Question 8

Which of the following statements is not correct?

Accepted Answer

To maximize profit, firms should produce at a level of output where price equals marginal cost, not average variable cost.

Question 9

In a perfectly competitive market,the process of entry and exit will end when

Accepted Answer

In a perfectly competitive market, economic profits are driven to zero in the long run due to entry of new firms attracted by the positive profits and exit of existing firms due to negative profits. The process of entry and exit will eventually result in all firms earning zero economic profit, which is when the market achieves the state of long-run equilibrium. Hence, option C is the correct answer.

Question 10

In a competitive market with free entry and exit,if all firms have the same cost structure,then

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Question 11

When managers of firms in a competitive market observe falling profits,they may infer that the market is experiencing

Accepted Answer

Falling profits may indicate the entry of new firms into the market, increasing competition and reducing profits for existing firms. Option A is unlikely as conventional market forces would lead to lower profits in a competitive market. Option B is also possible, but it would likely be accompanied by excess capacity and reduced output, which are not mentioned. Option D is the opposite of what falling profits would imply, as too few firms would result in higher profits.

Question 12

Timmy's Trophies operates in a perfectly competitive market.If trophies sell for $20 each and average total cost per trophy is $15 at the profit-maximizing output level,then in the long run

Accepted Answer

In a perfectly competitive market, firms will continue to enter the market until economic profits are driven down to zero in the long run. The fact that Timmy's Trophies is earning a profit suggests that there are currently not enough firms in the market to reach this zero-profit equilibrium. As a result, more firms will enter the market, increasing competition and driving down prices until firms are earning zero economic profit.

Question 13

When market conditions in a competitive industry are such that firms cannot cover their total production costs,then

Accepted Answer

In a competitive industry, firms that cannot cover their total production costs will experience losses. As a result, some firms may decide to exit the market, causing prices to rise as the supply decreases. Eventually, the remaining firms will be able to cover their total production costs since the market will adjust to the new equilibrium price. This process is known as the "invisible hand" of the market, and it ensures that resources are allocated efficiently. Therefore, choice (C) is the best answer.

Question 14

The textile industry is composed of a large number of small firms.In recent years,these firms have suffered economic losses,and many sellers have left the industry.Economic theory suggests that these conditions will

Accepted Answer

The loss of sellers in the textile industry will cause a decrease in market supply, which will lead to an increase in the price of textiles. This is based on the law of supply and demand, where a decrease in supply will lead to an increase in price assuming demand remains constant. The other options are less likely to occur - the demand curve shifting outward is unlikely given the economic losses, collusion is typically illegal and difficult to coordinate, and the industry suffering long-run economic losses is possible but not directly related to the current conditions described in the question.

Question 15

As a general rule,when accountants calculate profit they account for explicit costs but usually ignore

Accepted Answer

Accountants usually focus on explicit costs such as wages, rent, and materials when calculating profit. However, implicit costs such as opportunity cost, the value of resources used in the next best alternative, are often ignored. Therefore, choice B is the best answer.

Question 16

If there is an increase in market demand in a perfectly competitive market,then in the short run

Accepted Answer

In the short run, an increase in market demand will lead to a higher market price. This higher price will increase the profits of individual firms in the short run. Hence, profits will rise. However, in the long run, new firms will enter the market, increasing supply and driving down profits back to their normal level. Note that the demand curves faced by individual firms will not shift, as they are price-takers and must accept the market price.

Question 17

In calculating accounting profit,accountants typically don't include

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The answer of In calculating accounting profit,accountants typically don't include
...

Question 18

The entry of new firms into a competitive market will

Accepted Answer

When new firms enter a competitive market, it increases market supply because there are more producers offering goods or services. This increased supply puts downward pressure on market price because consumers have more options to choose from. As a result, the market price decreases.

Question 19

In a perfectly competitive market,the process of entry and exit will end when (i)
Accounting profits are zero.
(ii)
Economic profits are zero.
(iii)
Price equals minimum marginal cost.
(iv)
Price equals minimum average total cost.

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Question 20

In a perfectly competitive market,the process of entry and exit will end when firms face

Accepted Answer

In a perfectly competitive market, firms will continue to enter until profits are driven to zero. This occurs when marginal revenue equals long-run average total cost. When firms are no longer earning profits, they will stop entering the market and the process of entry and exit will end. Choice B (total revenue equal to average total cost) and choice C (average revenue greater than marginal cost) are not necessarily relevant in determining the end of entry and exit in a perfectly competitive market. D is also incorrect because firms can earn economic profits in the short run, but in the long run, profits will be driven to zero.

Quiz 14: Firms in Competitive Markets