Question 1

In the long run,firms in a competitive market make zero economic profit.This induces most firms to leave the industry.

Accepted Answer

Those firm cannot make themselves better off by moving their resources into another industry because they cover all opportunity cost.

Question 2

Producer surplus is equal to
A)the area under the supply curve.
B)the difference between price and average cost for all units sold.
C)the difference between price and marginal cost for all units sold.
D)the firm's profit when fixed costs exist.

Accepted Answer

Producer surplus is the difference between the price at which a producer is willing to sell a certain quantity of output and the minimum price he or she would have been willing to accept for that output. This is represented by the area above the supply curve and below the market price. Since marginal cost represents the additional cost of producing one more unit of output, the difference between price and marginal cost reflects the producer's willingness to supply that additional unit. Therefore, the sum of all such differences for all units sold represents the total producer surplus.

Question 3

The difference between producer surplus and profit is always the associated
A)opportunity costs.
B)total costs.
C)variable costs.
D)fixed costs.

Accepted Answer

Producer surplus is the difference between what producers are willing to accept for a good versus what they actually receive, while profit accounts for total revenue minus total costs, including fixed costs. Therefore, the difference between producer surplus and profit is the fixed costs.

Question 4

Suppose the market supply curve is p = 5 + Q.At a price of 10,producer surplus equals
A)50.
B)25.
C)12.50.
D)10.

Accepted Answer

To calculate producer surplus, we need to find the area below the market price and above the supply curve.

At a price of 10, the quantity supplied can be found by setting p = 10:

10 = 5 + Q

Q = 5

So at a price of 10, 5 units are supplied.

To find the producer surplus, we need to find the area of the triangle formed by the price of 10, the quantity of 5, and the vertical intercept of the supply curve (which is 5):

(1/2) x 5 x (10 - 5) = 12.50

Therefore, the producer surplus at a price of 10 is $12.50, which corresponds to choice C.

Question 5

A firm that generates zero economic profit usually faces
A)negative business profit.
B)zero business profit.
C)positive business profit.
D)business profit equal to half the total revenue.

Accepted Answer

A firm generating zero economic profit means it covers all its explicit (accounting/business) and implicit (opportunity) costs. This implies it still makes a positive business profit, which is the accounting profit not accounting for the opportunity costs.

Question 6

Mister Jones was selling his house.The asking price was $220,000,and Jones decided he would take no less than $200,000.After some negotiation,Mister Smith purchased the house for $205,000.Jones' producer surplus is
A)$5,000.
B)$15,000.
C)$20,000.
D)Not able to be calculated from the information given.

Accepted Answer

Producer surplus is the difference between what a seller is willing to accept and what they actually receive. Jones was willing to accept no less than $200,000 but sold the house for $205,000, so his producer surplus is $5,000.

Question 7

Firms are ________ with an economic profit of zero,they will ________ in the industry because they ________ be better off in another industry.
A)satisfied,stay,won't
B)unsatisfied,leave,will
C)satisfied,leave,will
D)unsatisfied,stay,won't

Accepted Answer

When firms have an economic profit of zero, it means they are covering all their costs, including opportunity costs, so they have no incentive to move to another industry as they wouldn't be better off elsewhere.

Question 8

Producer surplus equals
A)total revenue minus total variable cost.
B)total revenue minus the sum of all marginal cost.
C)profit plus fixed cost.
D)All of the above.

Accepted Answer

Producer surplus is the difference between what producers are willing to accept for a good versus what they actually receive. It can be calculated in different ways but essentially reflects the area above the supply curve and below the market price. All the given options (A, B, C) are different ways of conceptualizing or calculating this surplus, taking into account the costs involved in production and the revenue received.

Question 9

In the short run,if a firm operates,it earns a profit of $500.The fixed costs of the firm are $100.This firm has a producer surplus of
A)$500.
B)$100.
C)$400.
D)$600.

Accepted Answer

The answer of In the short run,if a firm operates,it...

Question 10

Long-run economic rent or profit do not exist for fixed factors like land because
A)bidding drives up the price of the factor until no economic rent exists.
B)there is no market for such factors.
C)these factors have L-shaped isoquants.
D)these factors will earn economic profits.

Accepted Answer

In a competitive market, the price of a factor of production like land will be bid up until it reaches its economic rent, which is the maximum amount that can be paid while still earning a normal profit. In the long-run, this economic rent will disappear as more land becomes available or as new technologies are developed that make it possible to produce more with less land. Therefore, long-run economic rent does not exist for fixed factors like land.

Question 11

Does a competitive long-run equilibrium require cost-minimization?
A)Yes,if firms fail to be as efficient as their competitors they are driven out of the market.
B)No,in the long-run firms make zero profits.
C)Yes,if they didn't even less efficient firms would enter the industry.
D)No,because competition ensures their survival.

Accepted Answer

The answer of Does a competitive long-run equilibrium require cost-minimization?
A)Yes,if...

Question 12

If entry is limited due to a limited input,firms in that market earn long run economic profit.

Accepted Answer

The price of the limited input will be bid up until zero economic profits result in the market that uses the input.

Question 13

Suppose the market supply curve is p = 5Q.If price increases from 10 to 15,the change in producer surplus is
A)25.
B)5.
C)12.5.
D)20.

Accepted Answer

To calculate the change in producer surplus, we need to find the area between the new equilibrium price (15) and the old equilibrium price (10), and below the supply curve.

Old equilibrium:
p = 10
5Q = 10
Q = 2

New equilibrium:
p = 15
5Q = 15
Q = 3

The area between the two equilibria is a trapezoid with base 1 (the difference in quantity) and heights of 10 (the old price) and 15 (the new price).

[(10+15)/2]*1 = 12.5

Therefore, the change in producer surplus is $12.50 [(12.5-0) = 12.5]. Thus, the correct answer is C.

Question 14

Even if two competitive firms in the same market have different production technologies,they will each earn long-run zero profits.Why?

Accepted Answer

The answer of Even if two competitive firms in the...

Question 15

In the long run,competitive firms MUST be profit maximizers because if they do not maximize profits,
A)they will not survive.
B)they will not be price takers.
C)they will attract entry.
D)the profits that they do earn will only cover variable costs.

Accepted Answer

In the long run, competitive firms must be profit maximizers because if they are not able to generate enough profits to cover their costs and earn a return on their investment, they will eventually go out of business. This is because other firms in the market will be able to produce the same goods or services at a lower cost and can therefore offer them at a lower price. In order to remain competitive, a firm must find ways to reduce its costs, increase its efficiency, and find new ways to differentiate its products or services from those of its competitors. Ultimately, the firms that are able to generate the highest profits will be the ones that survive and thrive in the market.

Question 16

Suppose the market supply curve is p = 5 + Q.If price increases from 10 to 15,the change in producer surplus is
A)12.5.
B)5.
C)50.
D)37.5.

Accepted Answer

To find the change in producer surplus, we need to find the area between the original supply curve (p = 5 + Q) and the new supply curve (p = 15 + Q) for Q values between where the two curves intersect.

The original supply curve intersects with the demand curve at p = 10 - 5Q, which means Q = 1. The new supply curve intersects with the demand curve at p = 15 - 5Q, which means Q = 1.

Therefore, the change in producer surplus is the area between the two curves for Q values between 1 and 2. This area is equal to:

(1/2) * (10 - 5) * (2 - 1) + (1/2) * (15 - 10) * (2 - 1) = 7.5

So the change in producer surplus is $7.50.

However, this is a partial equilibrium analysis and does not take into account any externalities or general equilibrium effects that may occur from the change in price.

Question 17

Competitive firms earn zero profit in the long run when
A)entry is completely free.
B)entry is limited.
C)Both A and B.
D)Neither A nor B.

Accepted Answer

The answer of Competitive firms earn zero profit in the...

Question 18

Suppose the inverse supply curve in a market is Q = 6p².If price decreases from 5 to 4,the change in producer surplus is A)150. B)-54. C)-6. D)-122.

Accepted Answer

The answer of Suppose the inverse supply curve in a...

Question 19

Suppose the market supply curve is p = 5Q.At a price of 10,producer surplus equals
A)50.
B)25.
C)12.50.
D)10.

Accepted Answer

To calculate the producer surplus, we need to find the area below the price line and above the supply curve. At a price of 10, the quantity supplied by the market can be found by setting p = 10 in the supply curve:

10 = 5 + Q

Q = 5

Therefore, at a price of 10, the quantity supplied by the market is 5 units.

To find the producer surplus, we need to find the area below the price line (10) and above the supply curve (which is a straight line with intercept 5 and slope 1):

Producer surplus = (10 - 5) * 5 / 2

Producer surplus = 12.50

Therefore, the correct answer is (C).

Question 20

Suppose the inverse supply curve in a market is Q = 6p².What is the producer surplus when price is equal to 4? A)96 B)128 C)28 D)48

Accepted Answer

The answer of Suppose the inverse supply curve in a...

Quiz 9: Properties and Applications of the Competitive Model

In the long run,firms in a competitive market make zero economic profit.This induces most firms to leave the industry.

Producer surplus is equal to

The difference between producer surplus and profit is always the associated

Suppose the market supply curve is p = 5 + Q.At a price of 10,producer surplus equals

A firm that generates zero economic profit usually faces

Mister Jones was selling his house.The asking price was $220,000,and Jones decided he would take no less than $200,000.After some negotiation,Mister Smith purchased the house for $205,000.Jones' producer surplus is

Firms are with an economic profit of zero,they will in the industry because they be better off in another industry.

Producer surplus equals

In the short run,if a firm operates,it earns a profit of $500.The fixed costs of the firm are $100.This firm has a producer surplus of

Long-run economic rent or profit do not exist for fixed factors like land because

Does a competitive long-run equilibrium require cost-minimization?

If entry is limited due to a limited input,firms in that market earn long run economic profit.

Suppose the market supply curve is p = 5Q.If price increases from 10 to 15,the change in producer surplus is

Even if two competitive firms in the same market have different production technologies,they will each earn long-run zero profits.Why?

In the long run,competitive firms MUST be profit maximizers because if they do not maximize profits,

Suppose the market supply curve is p = 5 + Q.If price increases from 10 to 15,the change in producer surplus is

Competitive firms earn zero profit in the long run when

Suppose the inverse supply curve in a market is Q = 6p².If price decreases from 5 to 4,the change in producer surplus is

Suppose the market supply curve is p = 5Q.At a price of 10,producer surplus equals

Suppose the inverse supply curve in a market is Q = 6p².What is the producer surplus when price is equal to 4?

Quiz 9: Properties and Applications of the Competitive Model

In the long run,firms in a competitive market make zero economic profit.This induces most firms to leave the industry.

Producer surplus is equal to

The difference between producer surplus and profit is always the associated

Suppose the market supply curve is p = 5 + Q.At a price of 10,producer surplus equals

A firm that generates zero economic profit usually faces

Mister Jones was selling his house.The asking price was $220,000,and Jones decided he would take no less than $200,000.After some negotiation,Mister Smith purchased the house for $205,000.Jones' producer surplus is

Firms are ________ with an economic profit of zero,they will ________ in the industry because they ________ be better off in another industry.

Producer surplus equals

In the short run,if a firm operates,it earns a profit of $500.The fixed costs of the firm are $100.This firm has a producer surplus of

Long-run economic rent or profit do not exist for fixed factors like land because

Does a competitive long-run equilibrium require cost-minimization?

If entry is limited due to a limited input,firms in that market earn long run economic profit.

Suppose the market supply curve is p = 5Q.If price increases from 10 to 15,the change in producer surplus is

Even if two competitive firms in the same market have different production technologies,they will each earn long-run zero profits.Why?

In the long run,competitive firms MUST be profit maximizers because if they do not maximize profits,

Suppose the market supply curve is p = 5 + Q.If price increases from 10 to 15,the change in producer surplus is

Competitive firms earn zero profit in the long run when

Suppose the inverse supply curve in a market is Q = 6p2.If price decreases from 5 to 4,the change in producer surplus is

Suppose the market supply curve is p = 5Q.At a price of 10,producer surplus equals

Suppose the inverse supply curve in a market is Q = 6p2.What is the producer surplus when price is equal to 4?

Firms are with an economic profit of zero,they will in the industry because they be better off in another industry.

Suppose the inverse supply curve in a market is Q = 6p².If price decreases from 5 to 4,the change in producer surplus is

Suppose the inverse supply curve in a market is Q = 6p².What is the producer surplus when price is equal to 4?