Question 1

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 2

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

Accepted Answer

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

Question 3

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

Accepted Answer

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

Question 4

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

Accepted Answer

Both a teenaged babysitter and a firm in a perfectly competitive industry face many other suppliers of similar goods or services. In a perfectly competitive industry, many firms supply identical products, and in the market for babysitting services, there are often many other teenagers available to babysit for families. This means that both the babysitter and the firm must compete for business, and price is often a key factor in determining who is hired or who sells the most product.

Question 5

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.

Accepted Answer

The answer of If a firm in a perfectly competitive...

Question 6

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 at the point where marginal cost equals price, which is also the point where social marginal cost equals social marginal benefit. This is the condition for allocative efficiency. In the short run, firms may earn supernormal profits or face losses due to fixed costs, but in the long run, entry and exit of firms will drive profits to zero and the market will produce at the minimum average cost, which also corresponds to the allocatively efficient output level.

Question 7

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 marginal benefit equals marginal cost, meaning that resources are allocated efficiently to meet consumer demand for goods and services.

Question 8

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

Accepted Answer

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

Question 9

A perfectly competitive industry achieves allocative efficiency in the long run.What does allocative efficiency mean?

Accepted Answer

Allocative efficiency means that resources are allocated in a way where the price of the good is equal to the marginal cost of producing the last unit. In a perfectly competitive industry, each firm produces up to the point where the price of the good is equal to the marginal cost. This results in allocative efficiency.

Question 10

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

Accepted Answer

In long-run equilibrium, all firms in a perfectly competitive market produce at minimum average total cost (ATC) because of competition driving prices and outputs to the efficient scale. If a firm is producing above this efficient level, it will have a higher ATC and be driven out of the market in the long-run. If a firm is producing below this level, it is not taking advantage of economies of scale and could increase profits by increasing production. Therefore, in the long-run, all firms in a perfectly competitive market produce at the lowest possible ATC.

Question 11

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?

Accepted Answer

The answer of In long-run competitive equilibrium,the perfectly competitive firm...

Question 12

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

Accepted Answer

The answer of Firms in perfect competition produce the productively...

Question 13

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

Accepted Answer

The answer of Which of the following describes a difference...

Question 14

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.

Accepted Answer

The answer of Using two graphs,illustrate how a positive technological...

Question 15

If productive efficiency characterizes a market

Accepted Answer

If productive efficiency characterizes a market, it means that firms are producing the output at the lowest possible cost, meaning that they are minimizing their production costs while producing a given output level. This is achieved by using the best available technology and optimizing the use of resources. This results in lower prices for consumers and higher profits for firms.

Question 16

If a perfectly competitive firm achieves productive efficiency then

Accepted Answer

If a perfectly competitive firm achieves productive efficiency, it means it is producing the good it sells at the lowest possible cost, which is the definition of productive efficiency. It does not necessarily mean the firm will raise its price or that the price is equal to the benefit consumers receive or that it is producing at minimum efficient scale.

Question 17

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 to produce the goods and services that society values the most. In a perfectly competitive market, this occurs when the price of the good is equal to the marginal cost of production, meaning that there is no opportunity to reallocate resources to increase the production of one good without decreasing the production of another, more valuable good. Therefore, the correct answer is C, allocative efficiency. The other options, productive efficiency and constant returns to scale, do not fully capture the concept of allocative efficiency in a perfectly competitive market.

Question 18

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

Michael Lewis referred to new technologies developed in the 1990s, as stated in the quote "The sad truth, for investors, seems to be that most of the benefits....are passed through to consumers free of charge."

Quiz 12: Firms in Perfectly Competitive Markets