Question 1

When firms are neither entering nor exiting a perfectly competitive market,

Accepted Answer

In a perfectly competitive market, firms are price takers and cannot influence the market price. Thus, each firm's revenue is proportional to the quantity of output it sells, and marginal revenue equals the market price. In the long run, firms can freely enter or exit the market, so economic profits are driven to zero. When firms are neither entering nor exiting the market, their profits are zero and total revenue equals total cost (including a normal rate of return on investment). Thus, both options A and B are correct in this situation. Additionally, in a perfectly competitive market, price must equal the minimum of marginal cost in the long run where equilibrium occurs. Therefore, option C is also correct.

Question 2

Figure 13-13
Suppose a firm in a competitive industry has the following cost curves: 
-Refer to Figure 13-13.If the price is P1 in the short run,what will happen in the long run?

Accepted Answer

In the short run, if the price is P1 and firms earn positive economic profits, it will attract new firms to enter the industry in the long run, increasing supply and driving the price down until firms earn zero economic profits.

Question 3

In the long-run equilibrium of a market with free entry and exit,marginal firms are operating

Accepted Answer

In a market with free entry and exit, firms will continue to enter until they reach the efficient scale of production, at which point they are operating at the minimum point on their average total cost curve. This means that the marginal firm, which is operating at the efficient scale, is producing at the point where its marginal cost equals its price, resulting in zero economic profit. Therefore, the correct answer is C) at their efficient scale.

Question 4

A competitive market is in long-run equilibrium.If demand increases,we can be certain that price will

Accepted Answer

In the short run, the increase in demand will lead to an increase in price. Some firms will enter the industry to capture the higher profits. However, as the number of firms increase, the supply will also increase, leading to a fall in price in the long run. The new long-run equilibrium will be at a higher quantity and the same price as before the increase in demand.

Question 5

If all firms have the same costs of production,then in long-run equilibrium,

Accepted Answer

In the long run, firms will enter or exit the market until all firms have zero economic profits and just cover their opportunity costs. Since all firms have the same costs of production, they will all have the same average total cost and marginal cost. Therefore, price will equal average total cost and marginal cost, resulting in zero economic profits for all firms.

Question 6

When firms are neither entering nor exiting a perfectly competitive market,

Accepted Answer

The answer of When firms are neither entering nor exiting...

Question 7

In a long-run equilibrium,the marginal firm has

Accepted Answer

The answer of In a long-run equilibrium,the marginal firm has
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Question 8

A competitive market is in long-run equilibrium.If demand decreases,we can be certain that price will

Accepted Answer

In a competitive market, a decrease in demand leads to a short-run price fall. The impact on firms (shutdown, exit) varies, but some will exit, reducing supply and eventually raising the price to a new equilibrium.

Question 9

Figure 13-13
Suppose a firm in a competitive industry has the following cost curves: 
-Refer to Figure 13-13.If the price is P3 in the short run,what will happen in the long run?

Accepted Answer

The firm's average total cost curve is U-shaped, with the minimum point being at the output level of Q2. At price P3, the firm is only covering its variable costs and earning zero economic profits. Therefore, in the short run, the firm will continue to produce at Q2, but in the long run, other firms might enter the industry, causing the market supply curve to shift to the right, and the price to decrease further. This would result in negative economic profits for firms, leading to some firms exiting the industry in the long run.

Question 10

In the transition from the short run to the long run,the number of firms in a competitive industry is

Accepted Answer

In the long run, firms in a competitive industry can enter or exit the market freely based on their profitability. This means that the number of firms in the industry is able to adjust to market conditions, making choice D the correct answer.

Question 11

In the long-run equilibrium of a market with free entry and exit,if all firms have the same cost structure,then

Accepted Answer

The answer of In the long-run equilibrium of a market...

Question 12

Figure 13-13
Suppose a firm in a competitive industry has the following cost curves: 
-Refer to Figure 13-13.If the price is P2 in the short run,what will happen in the long run?

Accepted Answer

In the long run, firms will enter or exit the industry until the price is consistent with zero economic profits.

Question 13

Suppose that some firms in a competitive industry are earning zero economic profits,while others are experiencing losses.All else equal,in the long run,we would expect the number of firms in the industry to

Accepted Answer

In the long run, firms experiencing losses will exit the industry, causing the number of firms to decrease until economic profits reach zero for all firms.

Question 14

When firms in a perfectly competitive market face the same costs,in the long run they must be operating

Accepted Answer

If firms in a perfectly competitive market face the same costs, they will all be forced to operate at their efficient scale in the long run. This is because if any firms are producing below their efficient scale, they will not be able to compete with their more efficient rivals and will eventually go out of business. On the other hand, if any firms are producing above their efficient scale, they will face higher costs and lower profits than their competitors, and will also be forced to exit the market. Therefore, all firms in the long-run equilibrium of a perfectly competitive market must be operating at their efficient scale.

Question 15

In a long-run equilibrium,the marginal firm has

Accepted Answer

The answer of In a long-run equilibrium,the marginal firm has
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Question 16

In the long-run equilibrium of a competitive market,the number of firms in the market adjusts until the market demand is satisfied at a price equal to the minimum of

Accepted Answer

The answer of In the long-run equilibrium of a competitive...

Question 17

Suppose that firms in a competitive industry are earning positive economic profits.All else equal,in the long run,we would expect the number of firms in the industry to

Accepted Answer

The answer of Suppose that firms in a competitive industry...

Question 18

Regardless of the cost structure of firms in a competitive market,in the long run

Accepted Answer

In the long run, firms in a competitive market are able to adjust their production levels and exit or enter the market as needed. As a result, the market price will adjust to the point where the marginal firm (the firm that is just breaking even) earns zero economic profit. This is because if profits were greater than zero, new firms would enter the market, increasing supply and lowering the price. Similarly, if profits were negative, firms would exit the market, decreasing supply and raising the price until the remaining firms are earning zero economic profit. This process leads to a long-run equilibrium where firms earn only their opportunity costs. Therefore, option B is the correct answer.

Question 19

Consider a competitive market with a large number of identical firms.The firms in this market do not use any resources that are available only in limited quantities.In long-run equilibrium,market price is determined by

Accepted Answer

In a long-run competitive equilibrium, firms produce at their minimum efficient scale, where average total cost is at its minimum point. The market price is equal to this minimum point on the firms' average total cost curve as firms will continue to enter the market until profits are zero. This ensures that all firms are earning normal profits in the long run. Therefore, choice B is the correct answer.

Question 20

Consider a competitive market with a large number of identical firms.The firms in this market do not use any resources that are available only in limited quantities.In this market,an increase in demand will

Accepted Answer

In a competitive market with a large number of identical firms, firms have no control over price and are price takers. Therefore, an increase in demand will lead to a temporary shortage in the short run, which will cause firms to raise their price to reach equilibrium. However, in the long run, firms can adjust their production levels by entering the market or expanding existing businesses, leading to an increase in supply and a decrease in price back to the original level. Therefore, an increase in demand will only affect price in the short run but not in the long run.

Quiz 13: Firms in Competitive Markets

When firms are neither entering nor exiting a perfectly competitive market,

Figure 13-13 Suppose a firm in a competitive industry has the following cost curves: -Refer to Figure 13-13.If the price is P1 in the short run,what will happen in the long run?

In the long-run equilibrium of a market with free entry and exit,marginal firms are operating

A competitive market is in long-run equilibrium.If demand increases,we can be certain that price will

If all firms have the same costs of production,then in long-run equilibrium,

When firms are neither entering nor exiting a perfectly competitive market,

In a long-run equilibrium,the marginal firm has

A competitive market is in long-run equilibrium.If demand decreases,we can be certain that price will

Figure 13-13 Suppose a firm in a competitive industry has the following cost curves: -Refer to Figure 13-13.If the price is P3 in the short run,what will happen in the long run?

In the transition from the short run to the long run,the number of firms in a competitive industry is

In the long-run equilibrium of a market with free entry and exit,if all firms have the same cost structure,then

Figure 13-13 Suppose a firm in a competitive industry has the following cost curves: -Refer to Figure 13-13.If the price is P2 in the short run,what will happen in the long run?

Suppose that some firms in a competitive industry are earning zero economic profits,while others are experiencing losses.All else equal,in the long run,we would expect the number of firms in the industry to

When firms in a perfectly competitive market face the same costs,in the long run they must be operating

In a long-run equilibrium,the marginal firm has

In the long-run equilibrium of a competitive market,the number of firms in the market adjusts until the market demand is satisfied at a price equal to the minimum of

Suppose that firms in a competitive industry are earning positive economic profits.All else equal,in the long run,we would expect the number of firms in the industry to

Regardless of the cost structure of firms in a competitive market,in the long run

Consider a competitive market with a large number of identical firms.The firms in this market do not use any resources that are available only in limited quantities.In long-run equilibrium,market price is determined by

Consider a competitive market with a large number of identical firms.The firms in this market do not use any resources that are available only in limited quantities.In this market,an increase in demand will