Question 1

When firms are neither entering nor exiting a perfectly competitive market,

Accepted Answer

In a perfectly competitive market, firms will continue to enter until economic profits are driven to zero. Similarly, firms will exit if they are experiencing economic losses. When firms are neither entering nor exiting, it indicates that economic profits are zero, as all firms are earning normal profits (covering opportunity cost but not earning any additional profit). Furthermore, in a perfectly competitive market, price is determined by the intersection of supply and demand, and each firm is a price taker with no ability to influence price. This means that each firm produces at the point where price equals marginal cost, which is also the minimum point on the average cost curve, ensuring that total revenue equals total cost for each firm.

Question 2

Suppose that some firms in a competitive industry are earning zero economic profits,while others are experiencing losses.All else equal,in the long run,we would expect the number of firms in the industry to

Accepted Answer

The firms that are experiencing losses will eventually exit the market as they cannot sustain their operations. This will decrease the number of firms in the industry. On the other hand, firms that are earning zero economic profits may continue to operate but they will not attract any new entrants into the industry. Therefore, the total number of firms in the industry is likely to decrease in the long run.

Question 3

In the long-run equilibrium of a market with free entry and exit,marginal firms are operating

Accepted Answer

In the long-run equilibrium of a market with free entry and exit, firms will continue to enter the market until all remaining firms are operating at their efficient scale. This is the point where each firm produces at the lowest average total cost possible, which is the point of minimum efficient scale. At this point, each firm is producing as much as possible while still minimizing their costs, resulting in maximum economic efficiency. Therefore, choice C is the best answer. Choices A, B, and D may apply in the short-run, but in the long-run, firms will adjust their production to reach their efficient scale.

Question 4

Figure 14-13
Suppose a firm in a competitive industry has the following cost curves:
 
-Refer to Figure 14-13.If the price is P1 in the short run,what will happen in the long run?

Accepted Answer

In the short run, firms earning positive economic profits will attract new firms to enter the industry, increasing supply and driving the price down to the point where firms earn zero economic profits in the long run.

Question 5

Figure 14-13
Suppose a firm in a competitive industry has the following cost curves:
 
-Refer to Figure 14-13.If the price is P2 in the short run,what will happen in the long run?

Accepted Answer

In the long run, firms will enter or exit the industry until the price is consistent with zero economic profits.

Question 6

In the long-run equilibrium of a market with free entry and exit,if all firms have the same cost structure,then

Accepted Answer

The answer of In the long-run equilibrium of a market...

Question 7

If all firms have the same costs of production,then in long-run equilibrium,

Accepted Answer

In long-run equilibrium, firms will have adjusted their production to reach a point where they just cover their opportunity costs, meaning they earn zero economic profits. This occurs because firms in the industry have the same costs of production, so any positive economic profits earned by one firm will attract new entrants into the industry, increasing supply and driving down prices until economic profits are eliminated. Therefore, all firms will have zero economic profits and just cover their opportunity costs in long-run equilibrium.

Question 8

The long-run supply curve for a competitive industry

Accepted Answer

The answer of The long-run supply curve for a competitive...

Question 9

A competitive market is in long-run equilibrium.If demand decreases,we can be certain that price will

Accepted Answer

In a competitive market, if demand decreases, the price will fall in the short run as firms will try to sell off excess inventory. If the price falls below firms' average total cost, then all, some, or no firms will shut down depending on their individual cost structures. Some firms will exit the industry, reducing supply and causing the price to rise back to the new long-run equilibrium. Therefore, C is the best choice as it covers all possible outcomes.

Question 10

Consider a competitive market with a large number of identical firms.The firms in this market do not use any resources that are available only in limited quantities.In long-run equilibrium,market price is determined by

Accepted Answer

In long-run equilibrium, firms in a perfectly competitive market will produce at the minimum point on their average total cost curve because they have had sufficient time to adjust their inputs and the market has had sufficient time to adjust to any changes in supply or demand. At this point, the firm is maximizing its profits and cannot further reduce its costs of production. The market price will be equal to the minimum point on the average total cost curve, ensuring that all firms in the market earn only normal profits. Therefore, the correct answer is B - the minimum point on the firms' average total cost curve.

Question 11

Suppose that firms in a competitive industry are earning positive economic profits.All else equal,in the long run,we would expect the number of firms in the industry to

Accepted Answer

The answer of Suppose that firms in a competitive industry...

Question 12

Regardless of the cost structure of firms in a competitive market,in the long run

Accepted Answer

In the long run, firms will enter or exit the market based on their economic profits. If a firm earns positive economic profits in the short run, it will attract new firms into the market, increasing competition and driving down prices. On the other hand, if a firm incurs losses in the short run, it will exit the market, reducing competition and allowing the remaining firms to earn positive economic profits. This process will continue until the marginal firm earns zero economic profit, which means that its revenue covers all its costs, including opportunity costs. Thus, in the long run, all firms in a competitive market will earn zero economic profit, and the market price will be equal to the minimum average total cost of production. This implies that firms in a competitive market cannot earn above-normal profits or charge higher prices over the long run.

Question 13

Figure 14-13
Suppose a firm in a competitive industry has the following cost curves:
 
-Refer to Figure 14-13.If the price is P3 in the short run,what will happen in the long run?

Accepted Answer

At P3, the price is below the firm's minimum average total cost, indicating the firm is incurring negative economic profits in the short run. As a result, some firms will exit the industry in the long run, which will decrease industry supply and increase the market price. This process will continue until the price is equal to the minimum average total cost, where all firms will earn zero economic profits in the long run. Therefore, choice C is the correct answer.

Question 14

When firms are neither entering nor exiting a perfectly competitive market,

Accepted Answer

The answer of When firms are neither entering nor exiting...

Question 15

When firms in a perfectly competitive market face the same costs,in the long run they must be operating

Accepted Answer

In a perfectly competitive market, firms must operate at their efficient scale in the long run in order to obtain normal profits. This means they are producing at the point where average total cost is minimized and they are using their resources in the most efficient way possible. If they were operating under diseconomies of scale, they would be experiencing higher costs as they expand production, making it inefficient to operate. If they were making small but positive profits, then new firms would enter the market, driving down profits. If they were producing where price is equal to average fixed cost, they would be operating at the break-even point, where they are only covering their fixed costs but not generating profits.

Question 16

Consider a competitive market with a large number of identical firms.The firms in this market do not use any resources that are available only in limited quantities.In this market,an increase in demand will

Accepted Answer

In a competitive market with many identical firms and no limited resources, an increase in demand can lead to a short-term price increase as firms adjust production. However, in the long run, the ease of entry and exit in the market and the absence of resource constraints mean that new firms can enter, or existing firms can expand production, increasing supply to meet the higher demand, thus bringing the price back to its original level.

Question 17

In the transition from the short run to the long run,the number of firms in a competitive industry is

Accepted Answer

In the short run, the number of firms in a competitive industry is fixed, but in the long run, new firms can enter or existing firms can exit the industry. Therefore, in the long run, the number of firms is able to adjust to market conditions.

Question 18

A competitive market is in long-run equilibrium.If demand increases,we can be certain that price will

Accepted Answer

The answer of A competitive market is in long-run equilibrium.If...

Question 19

In a long-run equilibrium,the marginal firm has

Accepted Answer

The answer of In a long-run equilibrium,the marginal firm has
...

Question 20

In a long-run equilibrium,the marginal firm has

Accepted Answer

The answer of In a long-run equilibrium,the marginal firm has
...

Quiz 14: Firms in Competitive Markets.

When firms are neither entering nor exiting a perfectly competitive market,

Suppose that some firms in a competitive industry are earning zero economic profits,while others are experiencing losses.All else equal,in the long run,we would expect the number of firms in the industry to

In the long-run equilibrium of a market with free entry and exit,marginal firms are operating

Figure 14-13 Suppose a firm in a competitive industry has the following cost curves: -Refer to Figure 14-13.If the price is P1 in the short run,what will happen in the long run?

Figure 14-13 Suppose a firm in a competitive industry has the following cost curves: -Refer to Figure 14-13.If the price is P2 in the short run,what will happen in the long run?

In the long-run equilibrium of a market with free entry and exit,if all firms have the same cost structure,then

If all firms have the same costs of production,then in long-run equilibrium,

The long-run supply curve for a competitive industry

A competitive market is in long-run equilibrium.If demand decreases,we can be certain that price will

Consider a competitive market with a large number of identical firms.The firms in this market do not use any resources that are available only in limited quantities.In long-run equilibrium,market price is determined by

Suppose that firms in a competitive industry are earning positive economic profits.All else equal,in the long run,we would expect the number of firms in the industry to

Regardless of the cost structure of firms in a competitive market,in the long run

Figure 14-13 Suppose a firm in a competitive industry has the following cost curves: -Refer to Figure 14-13.If the price is P3 in the short run,what will happen in the long run?

When firms are neither entering nor exiting a perfectly competitive market,

When firms in a perfectly competitive market face the same costs,in the long run they must be operating

Consider a competitive market with a large number of identical firms.The firms in this market do not use any resources that are available only in limited quantities.In this market,an increase in demand will

In the transition from the short run to the long run,the number of firms in a competitive industry is

A competitive market is in long-run equilibrium.If demand increases,we can be certain that price will

In a long-run equilibrium,the marginal firm has

In a long-run equilibrium,the marginal firm has