Question 1

The supply curve found by taking the horizontal summation of the short-run supply curves of all of the firms in a perfectly competitive industry is called the _____ curve.

Accepted Answer

The "short-run market supply" curve represents the total quantity of a good supplied by all firms in a perfectly competitive market at different market prices in the short run. It is derived by horizontally summing the individual firms' short-run supply curves. Marginal cost is the additional cost of producing one more unit, it is not the same as short-run market supply. Interim market supply and competitive curves are not commonly used terms in economics.

Question 2

Suppose that the market for haircuts in a community is a perfectly competitive constant-cost industry and that the market is initially in long-run equilibrium.Subsequently,an increase in population increases the demand for haircuts.In the long run,firms will _____ the market,driving the price of haircuts _____ and the profits of individual firms _____.

Accepted Answer

With an increase in demand, firms will enter the market to meet the increased demand. This will increase the supply of haircuts, driving the price down towards the minimum point of the average cost curve. In the long run, each firm will earn zero profit, as the market returns to long-run equilibrium with a lower price and higher quantity supplied. Therefore, the answer is B: enter;down;back to zero.

Question 3

Suppose economic profits exist in perfect competition in the short run.Firms will enter in the long run because of easy entry,the short-run market _____ curve will shift to the right,and _____ will _____.

Accepted Answer

In perfect competition, if economic profits exist in the short run, new firms will enter the market in the long run due to easy entry. This increases the market supply, shifting the short-run market supply curve to the right, and as a result, output in the market will increase.

Question 4

Use the following to answer questions :
Figure: Short-Run Costs 
-(Figure: Short-Run Costs)Use Figure: Short-Run Costs.This firm's short-run supply curve begins at quantity:

Accepted Answer

The answer of Use the following to answer questions :
Figure:...

Question 5

Suppose that the market for candy canes operates under conditions of perfect competition,that it is initially in long-run equilibrium,that the price of each candy cane is $0.10,and that the market demand curve is downward sloping.The price of sugar rises,increasing the marginal and average total costs of producing candy canes by $0.05.In the short run,a typical producer of candy canes will be making:

Accepted Answer

With the increase in the cost of production by $0.05, the new equilibrium price will be higher than $0.10 to cover the increased cost, but in the short run, the price cannot change. This will cause the average total cost to exceed the price, resulting in a loss for the producer. Therefore, the producer will be making negative economic profit in the short run.

Question 6

Assuming a downward-sloping demand curve,a decrease in production costs for firms in a perfectly competitive market initially in long-run equilibrium will cause a(n):

Accepted Answer

A decrease in production costs will shift the supply curve downward, resulting in a temporary increase in firms' profits in the short run. However, in the long run, new firms will enter the market, causing the supply curve to shift back up, returning the market to long-run equilibrium but with a lower price and higher output than before. Therefore, there will be no permanent increase in price or increase in demand, nor will there be an increase in firms' marginal revenue.

Question 7

In perfect competition,a change in fixed cost will:

Accepted Answer

In perfect competition, firms earn zero economic profits in the long run. A change in fixed cost will not affect the market price in the short run. In the short run, the firms will continue to produce the same amount in the short run as before. However, in the long run, firms may leave the industry if they are not earning any profits due to the increase in fixed costs. This will decrease the supply of the good and increase the price until firms once again earn zero economic profits. Therefore, changes in fixed costs do not affect price or output in the short run, but they do encourage entry or exit in the long run such that price will change enough to leave firms earning zero profits.

Question 8

In perfect competition,the assumption of easy entry and exit implies that,in the _____ run,all firms in the industry will earn _____ economic profits.

Accepted Answer

In perfect competition, there are no barriers to entry or exit in the market, implying that new firms can enter the market easily and existing firms can leave the market quickly. This feature of easy entry and exit prevents any firm from earning long-term economic profits because as soon as a firm earns above-normal profits, new firms will enter the market, increasing competition and lowering prices, leading to a decrease in the firm’s profits. Therefore, in the long run, all firms in the industry will earn zero economic profits.

Question 9

Use the following to answer questions :
Figure: Short-Run Costs 
-(Figure: Short-Run Costs)Use Figure: Short-Run Costs.At the given price,the MOST profitable level of output occurs at quantity:

Accepted Answer

At the most profitable level of output, marginal cost (MC) equals marginal revenue (MR). In the figure, this occurs at quantity S, where the MC curve intersects the MR line.

Question 10

Suppose that some firms in a perfectly competitive industry earn negative economic profits in the short run.In the long run,the:

Accepted Answer

In the long run, if firms in a perfectly competitive industry are earning negative economic profits, some firms will exit the industry. This reduces the total supply of the product, causing the short-run industry supply curve to shift to the left.

Question 11

The short-run industry supply curve:

Accepted Answer

The short-run industry supply curve shows the total quantity supplied by all firms in an industry for each possible price when the number of producers is fixed. Therefore, option A is the correct answer. Option B is incorrect because the short-run industry supply curve does not necessarily assume that the number of firms in an industry is fixed, but rather assumes that the production capacity of the firms in the industry is fixed. Option C is incorrect because the short-run industry supply curve is a meaningful concept even if all firms in the industry are not identical. Option D is incorrect because the short-run industry supply curve is relevant in perfectly competitive markets.

Question 12

Short-run economic profits in a perfectly competitive industry encourage firms to _____ the industry,and short-run losses encourage firms to _____ the industry.

Accepted Answer

In a perfectly competitive market, short-run economic profits attract new firms to enter the industry, increasing supply and driving down prices and profits. Conversely, short-run losses lead existing firms to exit the industry, reducing supply, which can help prices and remaining firms' profitability to recover.

Question 13

In a perfectly competitive market:

Accepted Answer

In a perfectly competitive market, firms are price takers, meaning they cannot influence the price of the product. Therefore, any change in production cost will directly affect the price of the product. If the production cost decreases, the price will decrease; if the production cost increases, the price will increase. This is because there are many firms producing the same product, and consumers have perfect information about price and quality, so they will always choose the producer with the lowest price.

Question 14

Suppose that the market for candy canes operates under conditions of perfect competition,that it is initially in long-run equilibrium,that the price of each candy cane is $0.10,and that the market demand curve is downward sloping.The price of sugar rises,increasing the marginal and average total cost of producing candy canes by $0.05;there are no other changes in production costs.Once all of the adjustments to long-run equilibrium have been made,the price of candy canes will equal:

Accepted Answer

The increase in production costs due to the rise in the price of sugar will lead to a decrease in the supply of candy canes, causing the supply curve to shift to the left. This will result in a new equilibrium where the equilibrium price is higher. The new equilibrium price will be the point where the new supply curve intersects with the original demand curve. Since the increase in production cost has increased the average total cost and marginal cost of candy canes by $0.05, the new equilibrium price will be $0.10 + $0.05 = $0.15. Therefore, the answer is choice (C).

Question 15

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium.Subsequently,an increase in population increases the demand for haircuts.In the short run,the typical firm is likely to:

Accepted Answer

An increase in demand for haircuts will result in a temporary increase in price and quantity demanded in the short run. Since the market is perfectly competitive, each firm will produce at the same price and quantity as before. However, this increase in demand will cause an increase in each firm's revenue, resulting in an economic profit. In the long run, more firms will enter the market and the price will eventually fall back to its initial equilibrium level, eroding the economic profit.

Question 16

The market for beef is in long-run equilibrium at $3.25 per kilogram.The announcement that mad cow disease has been discovered in Alberta reduces the demand for beef sharply,and the price falls to $2.00 per kilogram.If the long-run supply curve is horizontal,when the long-run equilibrium is reestablished,the price will be:

Accepted Answer

Since the long-run supply curve is horizontal, it means that in the long-run, producers can increase or decrease their supply without affecting the price of the product. Therefore, if the demand for beef decreases (due to the announcement of mad cow disease), the price of beef will also decrease (to $2.00 per kilogram) in the short-run. However, in the long-run, producers can adjust their supply and bring the market back to equilibrium. Since the long-run equilibrium price was $3.25 per kilogram, it is expected that the price will return to this level once the market adjusts to the new information. Therefore, the best choice is A) $3.25 per kilogram.

Question 17

If firms are taking economic losses in the short run,then in the long run,firms will leave the industry,industry output will _____,and economic losses will _____.

Accepted Answer

In the long run, firms will leave the industry if they are continuously taking economic losses in the short run. As firms leave, the industry output will decrease, leading to a reduction in competition and a potential increase in profits for the remaining firms. This decrease in output and increase in profits will eventually eliminate economic losses for the remaining firms, which is why economic theory suggests that in the long run, firms in a competitive market will earn normal profits.

Question 18

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium.Subsequently,an increase in population increases the demand for haircuts.In the short run,the market price will _____ and the output of a typical firm will _____.

Accepted Answer

An increase in population will shift the demand curve for haircuts to the right,resulting in a temporary shortage at the original equilibrium price.According to the laws of supply and demand,this shortage will cause the price to rise in the short run.Each firm in the market will experience an increase in the quantity demanded for their services,which will cause them to increase their output. Therefore, both price and output of a typical firm will rise in the short run.

Question 19

Suppose that the market for candy canes operates under conditions of perfect competition,that it is initially in long-run equilibrium,that the price of each candy cane is $0.10,and that the market demand curve is downward sloping.The price of sugar rises,increasing the marginal and average total cost of producing candy canes by $0.05;there are no other changes in production costs.In the long run,we will observe:

Accepted Answer

The increase in production costs will lead to a decrease in profits for candy cane producers. In the long run, this will cause some firms to leave the industry as they are no longer able to cover their costs and make a profit. This will cause the supply curve to shift to the left, leading to a higher price for candy canes. As a result, the equilibrium quantity of candy canes will decrease, and some consumers will switch to other products. This process will continue until the remaining firms are earning only normal profits, and the market is back in long-run equilibrium.

Question 20

If firms are making positive economic profits in the short run,then in the long run:

Accepted Answer

When firms in an industry are making positive economic profits, it attracts new firms into the industry because they are attracted by the opportunity to earn profits. This entry of new firms increases the industry's output and typically leads to a decrease in prices until economic profits are normalized (i.e., reduced to zero).

Quiz 12: Perfect Competition and the Supply Curve

The supply curve found by taking the horizontal summation of the short-run supply curves of all of the firms in a perfectly competitive industry is called the _____ curve.

Suppose economic profits exist in perfect competition in the short run.Firms will enter in the long run because of easy entry,the short-run market ___ curve will shift to the right,and _ will ___.

Use the following to answer questions : Figure: Short-Run Costs -(Figure: Short-Run Costs) Use Figure: Short-Run Costs.This firm's short-run supply curve begins at quantity:

Assuming a downward-sloping demand curve,a decrease in production costs for firms in a perfectly competitive market initially in long-run equilibrium will cause a(n) :

In perfect competition,a change in fixed cost will:

In perfect competition,the assumption of easy entry and exit implies that,in the _ run,all firms in the industry will earn _ economic profits.

Use the following to answer questions : Figure: Short-Run Costs -(Figure: Short-Run Costs) Use Figure: Short-Run Costs.At the given price,the MOST profitable level of output occurs at quantity:

Suppose that some firms in a perfectly competitive industry earn negative economic profits in the short run.In the long run,the:

The short-run industry supply curve:

Short-run economic profits in a perfectly competitive industry encourage firms to _ the industry,and short-run losses encourage firms to _ the industry.

In a perfectly competitive market:

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium.Subsequently,an increase in population increases the demand for haircuts.In the short run,the typical firm is likely to:

If firms are taking economic losses in the short run,then in the long run,firms will leave the industry,industry output will _,and economic losses will _.

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium.Subsequently,an increase in population increases the demand for haircuts.In the short run,the market price will _ and the output of a typical firm will _.

If firms are making positive economic profits in the short run,then in the long run: