Question 1

In the long run,perfectly competitive firms will exit the market if the price is

Accepted Answer

In the long run, perfectly competitive firms will exit the market if the price is less than average total cost. This is because if the price is less than the cost of producing a good, the firm will not be able to cover its costs and make a profit. If this situation persists, the firm will eventually have to exit the market in order to avoid continued losses.

Question 2

Keith is a perfectly competitive carnation grower.The market price is $2 per dozen carnations.Keith's average total cost to grow carnations is $2.50 per dozen.In the long run,Keith will

Accepted Answer

Keith's cost to grow carnations is higher than the market price, which means he is experiencing an economic loss. In the long run, if he cannot reduce his costs or find a way to increase the price of his carnations, he will not be able to sustain his business and will have to exit the industry. Therefore, choice C is the best choice.

Question 3

If perfectly competitive lawn care firms are making an economic profit,then

Accepted Answer

In a perfectly competitive market, economic profit attracts new firms to enter the industry. As more firms enter, the supply of lawn care services will increase, driving down the price and causing economic profit to decrease until it eventually reaches zero in the long run. Therefore, option C is correct. Options A, B and E are not applicable because they do not reflect the nature of a perfectly competitive market. Option D is also incorrect because if firms are making economic profit, they should be equating their marginal revenue to marginal cost.

Question 4

In a perfectly competitive industry,
i.entry by new firms shifts the market supply curve rightward.
ii.exit by existing firms shifts the market supply curve leftward.
iii.at all times existing firms make only zero economic profit.

Accepted Answer

i is true because entry of new firms increases the number of producers, which in turn increases the total quantity supplied in the market.
ii is true because exit of existing firms reduces the number of producers, which in turn reduces the total quantity supplied in the market.
iii is false because in the short run, firms may make positive or negative economic profit, but in the long run, they will make only normal profit.

Question 5

If firms in a perfectly competitive industry are earning an economic profit,then in the ________,firms will ________ the industry.

Accepted Answer

In a perfectly competitive market, if firms are earning an economic profit in the short run, new firms will be attracted to the industry and enter in the long run, driving down profits to a normal level due to increased competition.

Question 6

The corn market is perfectly competitive,with thousands of corn farmers.In the 2000s,the price of corn soared so that new farmers entered the corn market.Initially,entry ________ the economic profit of the initial corn farmers and in the long run the initial corn farmers ________.

Accepted Answer

In a perfectly competitive market, the entry of new farmers increases supply, leading to a decrease in prices. Initially, this reduces the economic profit of the initial corn farmers. In the long run, the market reaches an equilibrium where firms make zero economic profit, as any economic profit attracts new entrants until profit is driven down to zero.

Question 7

A perfectly competitive market is in equilibrium and then demand decreases.The decrease in demand means the market price will ________ and eventually there will be ________.

Accepted Answer

When demand decreases in a perfectly competitive market, the market price falls because the same quantity of goods is chased by fewer buyers. This lower price can lead to lower profits or losses for existing firms, prompting some to exit the market.

Question 8

When firms in a perfectly competitive market are earning an economic profit,in the long run

Accepted Answer

In a perfectly competitive market, profits attract new firms to enter the market. As more firms enter, the market supply increases, driving down prices and reducing profits. This process continues until all firms earn zero economic profit in the long run. Therefore, if firms in a perfectly competitive market are earning an economic profit in the short run, new firms will enter the market in the long run, reducing profits to zero.

Question 9

Suppose a perfectly competitive market is in a short-run equilibrium.If some firms exit the market,the profit of the remaining firms ________; if some firms enter the market,the profit of each existing firm ________.

Accepted Answer

When firms exit the market, the supply decreases, leading to higher prices and potentially higher profits for the remaining firms. Conversely, when new firms enter, the increased supply can lower prices, reducing profits for existing firms.

Question 10

Catfish farming is a perfectly competitive industry.Catfish farmers suffered tremendous economic losses in the late 2000s.As a result,

Accepted Answer

If catfish farmers suffered economic losses, some of them would exit the market in the long run. This leads to a decrease in the supply of catfish, improving the profitability of remaining catfish farmers. Therefore, some catfish farmers would exit the market.

Question 11

In the long run,existing firms exit a perfectly competitive market

Accepted Answer

In the long run, firms in a perfectly competitive market will exit if they incur an economic loss. This is because they cannot sustain losses indefinitely and will eventually go bankrupt if they continue to operate at a loss. If a firm is making a normal profit, they will continue to operate in the long run, but they may not necessarily exit the market. If a firm is making a positive economic profit, new firms may enter the market, but existing firms may not necessarily exit.

Question 12

In the long run,perfectly competitive firms produce at the output level that has the minimum

Accepted Answer

In the long run, perfectly competitive firms produce at the output level where their average total cost (ATC) is at its minimum. This is because in a perfectly competitive market, firms are price-takers and must produce at the lowest possible cost to stay in business in the long run. At the minimum of the ATC curve, the firm is able to produce efficiently and they achieve productive and allocative efficiency. Thus, answer B, which refers to minimum average total cost, is the best choice.

Question 13

If perfectly competitive firms are making an economic profit,then

Accepted Answer

If perfectly competitive firms are making an economic profit, it signals that there are opportunities to gain profits in the market. As a result, new firms will enter the market in the long run, increasing the supply of goods and services, and driving down prices so that economic profits decrease to zero. Therefore, the market will eventually reach a long-run equilibrium with no economic profits.

Question 14

When firms in a perfectly competitive market incur economic losses,exit by some firms means the market supply will

Accepted Answer

In a perfectly competitive market, firms will exit if they incur economic losses. This will decrease the number of firms in the market, and as a result, the market supply will decrease.

Question 15

If concerns about mad-cow disease impose economic losses on the perfectly competitive cattle ranchers,exit by the ranchers combined with no further changes in the demand for beef will force the price of beef to

Accepted Answer

Exit by ranchers will decrease the supply of beef in the market, which will increase the equilibrium price of beef due to high demand and low supply of beef.

Question 16

Suppose a perfectly competitive market is in long-run equilibrium and then there is a permanent increase in the demand for that product.The new long-run equilibrium will have

Accepted Answer

In a perfectly competitive market, a permanent increase in demand leads to higher prices and profits in the short run, attracting new firms into the market. In the long run, the entry of these new firms increases supply, which lowers prices and profits until they reach a new equilibrium. Thus, the market will have more firms.

Question 17

When new firms enter a perfectly competitive market,the market supply curve shifts ________ and the price ________.

Accepted Answer

When new firms enter a perfectly competitive market, the market supply curve shifts rightward due to an increase in the quantity supplied. This increase in supply causes a decrease in price as an abundance of products floods the market. Therefore, the correct choice is A, where the market supply curve shifts rightward and the price falls.

Question 18

Alice,Bud,and Celia can produce rubber bands in a perfectly competitive market.If they enter the market,the minimum average total cost for a bundle of rubber bands,for the three of them is $2,$3,and $4,respectively.If the market price is $2.10 per bundle,then

Accepted Answer

Only Alice will enter the market because her minimum average total cost ($2) is below the market price ($2.10), allowing her to make a profit. Bud and Celia's costs are above the market price, so they would incur losses if they entered.

Question 19

Suppose a perfectly competitive market is in short-run equilibrium.Firms that are incurring a ________ economic loss ________.

Accepted Answer

Firms incurring persistent economic losses will exit the industry, reducing the total supply in the market, which shifts the market supply curve leftward.

Question 20

To eliminate losses in a perfectly competitive market,firms exit the industry.This exit results in

Accepted Answer

When firms exit the industry, the market supply decreases. This is because there are fewer firms producing the good, and therefore there is less quantity supplied at every given price.

Quiz 15: Perfect Competition

In the long run,perfectly competitive firms will exit the market if the price is

Keith is a perfectly competitive carnation grower.The market price is $2 per dozen carnations.Keith's average total cost to grow carnations is $2.50 per dozen.In the long run,Keith will

If perfectly competitive lawn care firms are making an economic profit,then

In a perfectly competitive industry, i.entry by new firms shifts the market supply curve rightward. ii.exit by existing firms shifts the market supply curve leftward. iii.at all times existing firms make only zero economic profit.

If firms in a perfectly competitive industry are earning an economic profit,then in the ,firms will the industry.

The corn market is perfectly competitive,with thousands of corn farmers.In the 2000s,the price of corn soared so that new farmers entered the corn market.Initially,entry the economic profit of the initial corn farmers and in the long run the initial corn farmers .

A perfectly competitive market is in equilibrium and then demand decreases.The decrease in demand means the market price will and eventually there will be .