Question 1

If a firm in a perfectly competitive industry introduces a lower-cost way of producing an existing product, the firm will be able to earn economic profits in the long run.

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Question 2

Firms in perfect competition produce the allocatively efficient output in the short run and in the long run.

Accepted Answer

In perfect competition, firms produce where MC (marginal cost) = AR (average revenue). This is the allocatively efficient output level. In the long run, firms adjust their production to LRAC (long run average cost) = AR, which is also the allocatively efficient output level. Therefore, firms in perfect competition produce the allocatively efficient output level in both the short and long run.

Question 3

Which of the following describes a difference between allocative efficiency and productive efficiency in a perfectly competitive market?

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Question 4

Using two graphs, illustrate how a positive technological change in the market for notebook computers could eliminate short-run economic profit for a firm in that market.On the first graph, use a supply and demand graph to illustrate the positive technological change.On the second graph, use demand, ATC, MC, and MR curves to illustrate the elimination of economic profit resulting from the positive technological change.Explain what is taking place in each graph.

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Question 5

Perfectly competitive firms produce up to the point where the price of the good equals the marginal cost of producing the last unit.This condition is referred to as

Accepted Answer

Allocative efficiency occurs when resources are allocated in such a way that the marginal benefit of producing a good or service is equal to the marginal cost of producing it. In a perfectly competitive market, firms will produce at the point where price equals marginal cost, which ensures allocative efficiency. Productive efficiency (A) refers to producing a good at the lowest possible cost, while constant returns to scale (B) refers to a situation where doubling all inputs used in production results in a proportional increase in output. Perfectly competitive efficiency (D) is not a widely used term in economics.

Question 6

In long-run competitive equilibrium, the perfectly competitive firm produces where price equals minimum average total cost.
a.What is this efficiency criterion called?
b.How does it benefit consumers?

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Question 7

If productive efficiency characterizes a market

Accepted Answer

Productive efficiency means producing output at the lowest possible cost, which implies that marginal cost is minimized and firms are likely using the best technology available for production. However, there is no guarantee that the goods being produced are the ones that consumers desire most. Therefore, option C is the best choice.

Question 8

A perfectly competitive firm in long-run equilibrium produces output at the lowest possible average total cost.

Accepted Answer

In long-run equilibrium, a perfectly competitive firm produces at the minimum point of its average total cost curve, which represents the lowest possible cost of producing a given amount of output. This is because if a firm were producing at a higher cost than its competitors, it would not be able to survive in the long-run due to competitive pressures. Therefore, in order to remain competitive and earn normal profits, a firm must produce at the lowest possible average total cost.

Question 9

If a perfectly competitive firm achieves productive efficiency then

Accepted Answer

Productive efficiency means that the firm is producing the good at the lowest possible cost, which is achieved when the firm is producing at the point of minimum average total cost, or minimum efficient scale. It does not necessarily mean that the firm will raise its price or that the price is equal to the benefit consumers receive.

Question 10

Firms in perfect competition produce the productively efficient output level in the short run and in the long run.

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Question 11

New York Times writer Michael Lewis wrote that "The sad truth, for investors, seems to be that most of the benefits....are passed through to consumers free of charge." To which of the following did Lewis refer?

Accepted Answer

The context suggests that the benefits being referred to are related to new technologies developed in the 1990s. Additionally, the phrase "passed through to consumers free of charge" suggests that these benefits are not being captured by investors or companies, but are instead being enjoyed by consumers.

Question 12

What is meant by productive efficiency? How does a perfectly competitive firm achieve productive efficiency?

Accepted Answer

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Question 13

Allocative efficiency is achieved in an industry when firms supply those goods and services that provide consumers with a marginal benefit equal to the marginal cost of producing those goods and services.

Accepted Answer

Allocative efficiency occurs when resources are allocated in a way that maximizes the overall satisfaction or welfare of consumers, which is achieved when the marginal benefit of a good or service equals its marginal cost. This ensures that resources are used in the most productive manner, and no one can be made better off without making someone else worse off.

Question 14

A teenaged babysitter is similar to a firm in a perfectly competitive industry in that, for both

Accepted Answer

A perfectly competitive industry is characterized by a large number of firms producing identical products, meaning that there are many other suppliers of similar goods or services. Similarly, a teenaged babysitter may face competition from other babysitters in the area, which drives the market price down and makes it difficult for any one babysitter to make a higher profit. Therefore, B is the correct choice. The other choices do not accurately reflect the characteristics of either a teenaged babysitter or a perfectly competitive industry.

Question 15

When plasma television sets were first introduced prices were high and few firms were in the market.Later, economic profits attracted new firms and the price of plasma televisions fell.This example illustrates

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The answer of When plasma television sets were first introduced...

Question 16

What is meant by allocative efficiency? How does a perfectly competitive firm achieve allocative efficiency?

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The answer of What is meant by allocative efficiency? How...

Quiz 12: Firms in Perfectly Competitive Markets