Question 1

When firms exit a perfectly competitive industry,the market supply curve shifts to the left.

Accepted Answer

When firms exit a perfectly competitive industry, the total supply of the product in the market decreases, causing the market supply curve to shift to the left. This shift in supply results in an increase in price for the product.

Question 2

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

Accepted Answer

Productive efficiency refers to a situation where a good or service is produced at the lowest possible cost, using the most efficient methods of production. This means that resources are being utilized in the best way possible and there is no wastage.

Question 3

Figure 9-18
 
-Refer to Figure 9-18.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 9-18
 
-Refer to Figure 9-18.Use the...

Question 4

In the long run,perfectly competitive firms earn zero economic profit.Why do firms enter an industry when they know that in the long-run they will not earn any profit?

Accepted Answer

The answer of In the long run,perfectly competitive firms earn...

Question 5

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 is achieved when resources are allocated in a way that maximizes consumer satisfaction, where the last unit produced provides a marginal benefit to consumers that is equal to the marginal cost of production. Productive efficiency refers to producing at the lowest possible cost, while profit maximization is focused on maximizing a firm's profits. Marginal efficiency is not a commonly used term in economics.

Question 6

Figure 9-20
 
-Refer to Figure 9-20.If the market price is P₁,what is the allocatively efficient output level?

Accepted Answer

The allocatively efficient output level is where the demand curve (AR) intersects with the marginal cost curve (MC), which is at point Q₁. This is where society's marginal benefit equals the marginal cost of production. At this output level, the firm is neither overproducing nor underproducing, and resources are allocated efficiently.

Question 7

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

Accepted Answer

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

Question 8

Why would a company continue to operate for many years while never once turning a profit rather than shut down immediately? Using revenue and cost analysis,explain when the company would shut down.

Accepted Answer

The answer of Why would a company continue to operate...

Question 9

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 10

In early 2007,Pioneer and JVC,two Japanese electronics firms,each announced that their profits were going to be lower than expected because they both had to cut prices for LCD and plasma television sets.Which of the following could explain why these firms did not simply raise their prices and increase their profits?

Accepted Answer

Intense competition between the two firms likely pushed prices down and each feared losing customers if they raised prices.

Question 11

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 competitive pressure. This often results in lower prices and higher quality goods for consumers.

Question 12

Writing in the New York Times on the technology boom of the late 1990s,Michael Lewis argues,"The sad truth,for investors,seems to be that most of the benefits of new technologies are passed right through to consumers free of charge." What does Lewis means by the benefits of new technology being "passed right through to consumers free of charge"?

Accepted Answer

The answer of Writing in the New York Times on...

Question 13

A perfectly competitive industry achieves allocative efficiency when

Accepted Answer

Allocative efficiency occurs when the last unit produced provides a marginal benefit to consumers that is equal to the marginal cost of producing it. This means that resources are being allocated in the most efficient way possible, and producing any more or any less would result in a loss of overall welfare. In a perfectly competitive industry, firms are price takers and produce until their marginal cost equals the market price, resulting in allocative efficiency. Choice A is incorrect because producing at the lowest possible cost is necessary for productive efficiency, not allocative efficiency. Choice C is essentially a restatement of the definition of allocative efficiency, and Choice D involves production surpluses, which are irrelevant to efficiency.

Question 14

What is productive efficiency?

Accepted Answer

Productive efficiency occurs when resources are allocated in the most efficient manner, meaning that goods and services are being produced at their lowest possible average total cost. This means that no other combination of resources could be used to produce the same goods or services at a lower cost.

Question 15

Which of the following does not hold true for a perfectly competitive firm in long-run equilibrium?

Accepted Answer

The answer of Which of the following does not hold...

Question 16

Assume that the 4K and OLED television sets industry is perfectly competitive.Suppose a producer develops a successful innovation that enables it to lower its cost of production.What happens in the short run and in the long run?

Accepted Answer

In the short run, the firm will be able to increase its economic profits as it benefits from the lower cost of production due to the successful innovation. However, in the long run, other firms will be able to easily copy the innovation and enter the market, which will increase the supply and lower the price of the product. This will eliminate the economic profits of the innovator firm as it now faces competition from other firms with similar cost structures. Therefore, the best choice is D.

Question 17

Figure 9-19
 
-Refer to Figure 9-19.The figure above shows the cost curves of a perfectly competitive firm in the coffee market.Use the graph in Figure 9-19 to answer the following questions.Assume the market price is $3 per pound.
a.What is the lowest price at which the coffee grower will supply output in the short run?
b.In the diagram draw the firm's demand curve (label this "MR" for marginal revenue).
c.What is the firm's profit-maximizing output?
d.Is the firm earning a profit or a loss? Identify the area in the graph that represents the firm's profit or loss.
e.Explain how entry or exit will occur in the market to ensure that firms will break even in the long run.

Accepted Answer

The answer of Figure 9-19
 
-Refer to Figure 9-19.The figure...

Question 18

What is allocative efficiency?

Accepted Answer

Allocative efficiency occurs when resources are allocated in a way that the last unit produced provides a marginal benefit equal to the marginal cost of producing it. This means that the resources are being used in the most efficient way possible, maximizing overall societal benefit. Choice A refers to productive efficiency, choice B refers to cost efficiency, and choice D does not accurately describe the concept of allocative efficiency.

Question 19

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

Accepted Answer

The U-shape of the long-run average cost curve indicates economies of scale at smaller levels of production and diseconomies of scale at larger levels of production. The minimum efficient scale is the lowest level of production at which the firm can achieve its lowest long-run average cost. This point represents the optimal scale of production from society's viewpoint because it ensures the lowest possible cost of production while still allowing the firm to remain in the industry.

Question 20

Assume that the personal computer industry is perfectly competitive.The fact that the price of personal computers over the last decade has fallen despite increases in demand signifies that the industry is a decreasing-cost industry.

Accepted Answer

In a decreasing-cost industry, firms experience lower average costs as industry output increases. As the demand for personal computers has increased, prices have fallen, suggesting that firms are experiencing lower costs as they produce more computers, making it a decreasing-cost industry.

Quiz 9: Firms in Perfectly Competitive Markets