Question 1

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 long run supply curve is horizontal at the constant cost level of all firms. If the current price is above the minimum point of the long-run average cost curve, firms will be earning profits and new firms will enter the market, increasing supply and pushing the price down towards the minimum point. As a result, the market price will fall to the minimum point of the long-run average cost curve, which is $12 in this case.

Question 2

In the long run,a perfectly competitive market will

Accepted Answer

In the long run, a perfectly competitive market will supply whatever amount consumers demand at a price determined by the minimum point on the typical firm's average total cost curve, also known as the efficient scale. This is because in a perfectly competitive market, there are no barriers to entry and exit, so firms can enter or exit the market as needed to create an equilibrium where firms are earning zero economic profit. At this equilibrium, the price will be equal to the minimum point on the typical firm's average total cost curve, ensuring that firms are earning enough revenue to cover their costs and remain in the market.

Question 3

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

Accepted Answer

The optimal scale of production from society's viewpoint is the minimum efficient scale, which is the level of production where the long-run average cost curve is at its lowest point. At this point, society's resources are being used efficiently and to the greatest benefit of consumers. Producing at a larger or smaller scale would result in higher costs and lower social welfare. Therefore, the minimum efficient scale is the optimal scale of production for society.

Question 4

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 5

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 6

Figure 12-12 
-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 12-12 
-Use the figure above to...

Question 7

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 8

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 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. This means resources are allocated in a way that maximizes societal welfare. A is incorrect because productive efficiency refers to producing goods and services at the lowest possible cost. C is not a recognized term in economics. D is incorrect because profit maximization is a goal of firms, not a description of an efficient allocation of resources.

Question 9

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 even in a successful market with high demand, maintaining high profits in the long run can be difficult. Despite earning $800,000 in just five months, Nicholas was forced to drop the price of his product to maintain sales as competition in the market increased. This suggests that while short-term economic profit may be achievable, long-term economic profit is difficult to maintain in a competitive market. Therefore, option B is the correct answer.

Question 10

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

Accepted Answer

Productive efficiency is a situation in which a good or service is produced at the lowest possible cost. This means that the firm is producing as much as possible with a given set of resources or producing a given amount of output with the least amount of resources.

Question 11

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. It reflects the ability of the industry to increase or decrease production as market conditions change, such as changes in demand or input prices. It is a graphical representation of how much output firms will supply at each price level in the long run, after all the factors of production have been adjusted.

Question 12

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

Accepted Answer

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

Question 13

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

If there are economies of scale in the production of the specialized memory chip used in manufacturing microwaves, it implies that the average cost of producing each chip decreases as more chips are produced. This means that the cost of producing microwaves will also decrease, making the industry a decreasing-cost industry.

Question 14

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

Accepted Answer

In an increasing-cost industry, firms experience higher costs as industry output increases. As a result, firms will require higher prices to cover their higher costs, leading to an upward-sloping long-run supply curve.

Question 15

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 16

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 competition. This means that they must produce goods at a low cost and a high quality, benefiting consumers with lower prices and higher quality products. Therefore, choice B is correct. Choice A is incorrect as it contradicts the characteristics of a perfectly competitive market. Choice C cannot be proven as firms in every market structure may have varying markups. Choice D is too generalized and not exclusively attributed to perfectly competitive market structures.

Question 17

What is productive efficiency?

Accepted Answer

Productive efficiency refers to a situation in which goods are produced at the lowest possible average cost. This means that all resources, including labor, capital, land, and materials, are used in the most efficient way possible to produce goods. As a result, firms are able to produce and sell their products at a lower cost, which can increase their profits and make the goods more affordable for consumers.

Question 18

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

If fishing boats have to go farther into the ocean to harvest tuna, it means that the cost of production is increasing. In a perfectly competitive industry, firms cannot control the price of their product, so if the cost of production increases, the firms will have to accept a lower profit margin or exit the industry. This implies that the supply curve will shift upward, causing the equilibrium price to increase, and the equilibrium quantity to decrease. Therefore, the tuna fishing industry is an increasing-cost industry.

Question 19

Apple introduced its iPhone 3G in July 2008 and within a month sales had topped 3 million units.By April 2009,more than 25,000 apps for the iPhone 3G were available in the iTunes store,an indication that in a competitive market

Accepted Answer

The large number of apps available for the iPhone 3G indicates that the ease at which a new firm can enter the competitive market is high. The availability of a large number of apps suggests that small firms or independent developers can enter the market and offer their own products or services.

Question 20

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...

Quiz 12: Firms in Perfectly Competitive Markets