Question 1

In an increasing-cost industry the long-run supply curve is upward sloping.

Accepted Answer

In an increasing-cost industry, as firms enter and expand production, the cost of producing each additional unit increases. This means that in the long run, a higher price is necessary to cover these higher costs and incentivize firms to continue producing. Therefore, the long-run supply curve is upward sloping.

Question 2

A perfectly competitive wheat farmer in a constant-cost industry produces 1,000 bushels of wheat at a total cost of $50,000.The prevailing market price is $48.What will happen to the market price of wheat in the long run?

Accepted Answer

The answer of A perfectly competitive wheat farmer in a...

Question 3

Which of the following describes a situation in which every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it?

Accepted Answer

Allocative efficiency occurs when resources are allocated in a way that is optimal for society as a whole. This means producing goods and services up to the point where the last unit provides a marginal benefit to consumers that is equal to the marginal cost of producing it. This ensures that resources are not wasted on producing more of a good or service than consumers are willing to pay for, and that society is getting the most value possible from its resources.

Question 4

The perfectly competitive market structure benefits consumers because

Accepted Answer

In a perfectly competitive market structure, firms are forced to be as efficient as possible due to the high level of competition. This results in lower prices for consumers and higher quality goods as firms strive to differentiate themselves from competitors.

Question 5

What is a long-run supply curve? What does a long-run supply curve look like on a perfectly competitive market graph?

Accepted Answer

The answer of What is a long-run supply curve? What...

Question 6

Figure 10.12
 
-Use the figure above to answer the following questions.
a.How can you determine that the figure represents a graph of a perfectly competitive firm? Be specific; indicate which curve gives you the information and how you use this information to arrive at your conclusion.
b.What is the market price?
c.What is the profit-maximizing output?
d.What is total revenue at the profit-maximizing output?
e.What is the total cost at the profit-maximizing output?
f.What is the profit or loss at the profit-maximizing output?
g.What is the firm's total fixed cost?
h.What is the total variable cost?
i.Identify the firm's short-run supply curve.
j.Is the industry in a long-run equilibrium?
k.If it is not in long-run equilibrium, what will happen in this industry to restore long-run equilibrium?
l.In long-run equilibrium, what is the firm's profit maximizing quantity?

Accepted Answer

The answer of Figure 10.12
 
-Use the figure above to...

Question 7

In August 2008, Ethan Nicholas developed the iShoot application for the apple iPhone 3G, and within five months had earned $800,000 from this program.By May 2009, Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales.This example indicates that in a competitive market,

Accepted Answer

The example of iShoot indicates that while it is possible to earn significant profits in the short run, competition can quickly force a business to lower prices and decrease profitability. This suggests that earning an economic profit in the long run, when faced with sustained competition, is extremely difficult.

Question 8

In the long run, a perfectly competitive market will

Accepted Answer

The answer of In the long run, a perfectly competitive...

Question 9

What is productive efficiency?

Accepted Answer

Productive efficiency occurs when goods are produced at their lowest possible average cost, meaning that resources are allocated efficiently and there is no wastage. This is important for firms because it allows them to produce goods at a lower cost, which can increase profitability, and for consumers because it results in lower prices. A and C are related to profit and social efficiency, respectively, but do not directly address productive efficiency. D is not necessarily efficient, as producing more than the optimal quantity can lead to inefficiencies and waste.

Question 10

If in the long run a firm makes zero profit, it should exit the industry.

Accepted Answer

The answer of If in the long run a firm...

Question 11

Which of the following describes a situation in which a good or service is produced at the lowest possible cost?

Accepted Answer

Productive efficiency occurs when a good or service is produced at the lowest possible cost, meaning that all available resources are being used to their fullest potential. This is often achieved through technological advancements, improved production techniques, and the elimination of waste or inefficiencies.

Question 12

Assume that the tuna fishing industry is perfectly competitive.Which of the following best characterizes the industry if, as demand for tuna increases, fishing boats have to go farther into the ocean to harvest tuna?

Accepted Answer

As fishing boats have to go farther into the ocean to harvest tuna, the cost of production for each boat will increase due to the need for more resources (e.g. fuel) and higher wages for longer working hours. This will result in an increase in the industry's average cost curve, indicating an increasing-cost industry.

Question 13

A perfectly competitive wheat farmer in a constant-cost industry produces 3,000 bushels of wheat at a total cost of $36,000.The prevailing market price is $15.What will happen to the market price of wheat in the long run?

Accepted Answer

In a constant-cost industry, the entry of new firms does not affect the cost of production for existing firms. Therefore, new firms can enter the market and produce wheat at the same cost as existing firms. As a result, the supply of wheat will increase, shifting the supply curve to the right, and causing the market price to fall. In the long run, the market price will settle at the lowest point at which the existing firms can just cover their average total cost, which in this case is ($36,000/3,000 bushels) = $12 per bushel. Therefore, the market price will fall to $12.

Question 14

Assume that the medical screening industry is perfectly competitive.Consider a typical firm that is making short-run losses.Suppose the medical screening industry runs an effective advertising campaign which convinces a large number of people that yearly CT scans are critical for good health.How will this affect a typical firm that remains in the industry?

Accepted Answer

The answer of Assume that the medical screening industry is...

Question 15

A perfectly competitive firm in a constant-cost industry produces 1,000 units of a good at a total cost of $50,000.If the prevailing market price is $48, the number of firms and the industry's output will decrease in the long run.

Accepted Answer

The answer of A perfectly competitive firm in a constant-cost...

Question 16

What is meant by the term "long-run competitive equilibrium?

Accepted Answer

The answer of What is meant by the term "long-run...

Question 17

An industry's long-run supply curve shows

Accepted Answer

An industry's long-run supply curve shows the relationship between market price and quantity supplied in the long run, when all inputs and factors of production can be adjusted. It takes into account the availability of resources, technology advancements, and producer adjustments over time to changes in market conditions.

Question 18

If the long-run average cost curve is U-shaped, the optimal scale of production from society's viewpoint is

Accepted Answer

The U-shaped long-run average cost curve indicates that there is an optimal scale of production, where economies of scale are exhausted, and diseconomies of scale start to outweigh them. At this point, the firm reaches its minimum efficient scale (MES), where it produces at the lowest possible average cost of production, leading to allocative efficiency. From society's viewpoint, this is the most desirable outcome as resources are utilized most efficiently. Therefore, the optimal scale of production from society's viewpoint is the minimum efficient scale.

Question 19

BlackBerry Limited (formerly known as Research In Motion)had 16,000 apps for BlackBerry devices available in January of 2011.By January of 2012 over 60,000 apps were available, climbing to over 70,000 in February that same year.There were over 105,000 apps by September of 2012.This is an indication that in a competitive market

Accepted Answer

The increasing number of apps available for BlackBerry devices over a relatively short period of time suggests that the market is open to new firms and competition is not heavily restricted. The ease with which new apps can be developed and added to the app store indicates a low barrier to entry for new firms in the market. Therefore, option B, which states that the ease at which a new firm can enter a competitive market is high, is the best answer.

Question 20

Suppose there are economies of scale in the production of a specialized memory chip that is used in manufacturing microwaves.This suggests that the microwave industry is a decreasing-cost industry.

Accepted Answer

Economies of scale suggest that as the production level increases, the average cost per unit decreases. This leads to decreasing costs in the long run for the microwave industry, indicating that it is a decreasing-cost industry.

Quiz 10: Firms in Perfectly Competitive Markets