Question 1

The corn market is perfectly competitive,with thousands of corn farmers.In the 2000s,the price of corn soared so that new farmers entered the corn market.Initially,entry ________ the economic profit of the initial corn farmers and in the long run the initial corn farmers ________.
A)increased;made an even greater economic profit than initially
B)decreased;made zero economic profit
C)increased;made zero economic profit
D)decreased;incurred an economic loss
E)increased;made an economic profit

Accepted Answer

In a perfectly competitive market, the entry of new farmers increases supply, leading to a decrease in price. Initially, this reduces the economic profit of the initial corn farmers. In the long run, the market reaches an equilibrium where firms make zero economic profit, as any economic profit would attract more firms into the market, driving profits down to zero.

Question 2

In a perfectly competitive industry,
I.entry by new firms shifts the market supply curve rightward.
Ii.exit by existing firms shifts the market supply curve leftward.
Iii.at all times existing firms make only zero economic profit.
A)ii and iii
B)ii only
C)i and iii
D)i and ii
E)i,ii,and iii

Accepted Answer

In a perfectly competitive industry, entry by new firms will increase the number of producers, which will shift the market supply curve rightward, thus increasing competition and lowering prices. Exit by existing firms will decrease the number of producers, shifting the market supply curve leftward, which will decrease competition and raise prices. Also, in the long run, in a perfectly competitive market, firms will only make zero economic profits because entry of new firms eventually drives down prices to the point where only normal profits are made. Therefore, both i and ii are correct while iii is also correct.

Question 3

Suppose a perfectly competitive market is in a short-run equilibrium.If some firms exit the market,the profit of the remaining firms ________;if some firms enter the market,the profit of each existing firm ________.
A)decreases;is unchanged
B)increases;decreases
C)increases;is unchanged
D)is unchanged;is unchanged
E)decreases;increases

Accepted Answer

When firms exit the market, the supply decreases, leading to higher prices and potentially higher profits for the remaining firms. Conversely, when new firms enter, the supply increases, leading to lower prices and decreased profits for existing firms.

Question 4

If perfectly competitive firms are making an economic profit,then
A)the market must be in long-run equilibrium but cannot be in a short-run equilibrium.
B)some firms will exit the market.
C)new firms will enter the market.
D)the market might be in a long-run equilibrium but not a short-run equilibrium.
E)the market cannot be in either a short-run or a long-run equilibrium.

Accepted Answer

If perfectly competitive firms are making an economic profit, it indicates that the market price is higher than the average total cost of production. This attracts new firms to enter the market, increasing the supply of the product and leading to increased competition. As a result, market price will decrease to the point where economic profits are reduced to zero. This process continues until the market reaches long-run equilibrium, where all firms earn only a normal profit (zero economic profit). Therefore, the entry of new firms into the market is the most likely outcome when perfectly competitive firms are making an economic profit.

Question 5

Catfish farming is a perfectly competitive industry.Catfish farmers suffered tremendous economic losses in the late 2000s.As a result,
A)some new catfish farmers entered the market.
B)some catfish farmers exited the market.
C)no catfish farmers entered or exited this market.
D)the supply of catfish increased in 2010.
E)new demanders entered the market after some firms had exited.

Accepted Answer

Since catfish farming is a perfectly competitive industry, all firms are price takers and must accept the market price for their product. Economic losses in the late 2000s would have caused some firms to incur losses or even go bankrupt, resulting in a reduction in the number of catfish farmers in the market. This means that some catfish farmers would have exited the market.

Question 6

Keith is a perfectly competitive carnation grower.The market price is $2 per dozen carnations.Keith's average total cost to grow carnations is $2.50 per dozen.In the long run,Keith will
A)raise his price to more than $2.50 per dozen carnations.
B)raise his price to $2.50 per dozen carnations.
C)exit the industry if the price and his costs do not change.
D)incur an economic loss.
E)continue to make an economic profit.

Accepted Answer

Since Keith's average total cost is higher than the market price, he is incurring an economic loss in the short run. In the long run, he will not be able to sustain this loss and will be forced to exit the industry if the price and his costs do not change. Exiting the industry is the best choice for Keith in this situation.

Question 7

To eliminate losses in a perfectly competitive market,firms exit the industry.This exit results in
A)an increase in market supply.
B)a decrease in market supply.
C)an increase in market demand.
D)a decrease in market demand.
E)a decrease in both the market supply and the market demand.

Accepted Answer

When firms exit a perfectly competitive market, the number of firms in the industry decreases, leading to a decrease in market supply. This is because the remaining firms in the market will produce less output, resulting in a decrease in the total amount of goods and services available. Therefore, option B is the correct choice.

Question 8

When firms in a perfectly competitive market are earning an economic profit,in the long run
A)no new firms will enter the market.
B)new firms will enter the market.
C)firms will exit the market.
D)the long-run average cost curve shifts downward.
E)the initial firms continue to earn an economic profit.

Accepted Answer

In a perfectly competitive market, firms cannot sustain an economic profit in the long run because of the entry of new firms. The entry of new firms increases the supply of goods in the market, which reduces the market price and subsequently reduces the profit margin for existing firms. As a result, existing firms may exit the market or new firms may refrain from entering the market until the economic profit returns to zero. Therefore, the entry of new firms is the best choice when firms in a perfectly competitive market are earning an economic profit in the long run.

Question 9

If concerns about mad-cow disease impose economic losses on the perfectly competitive cattle ranchers,exit by the ranchers combined with no further changes in the demand for beef will force the price of beef to
A)decrease.
B)not change.
C)increase.
D)fluctuate,with the trend being lower prices.
E)probably change,but more information about the market supply of beef is needed to answer the question.

Accepted Answer

When cattle ranchers exit the market due to concerns about mad-cow disease, the supply of beef decreases. With demand remaining constant and supply decreasing, the price of beef will increase according to basic principles of supply and demand.

Question 10

When new firms enter a perfectly competitive market,the market supply curve shifts ________ and the price ________.
A)rightward;falls
B)rightward;rises
C)leftward;falls
D)leftward;rises
E)rightward;does not change

Accepted Answer

When new firms enter a perfectly competitive market, the market supply curve shifts rightward, meaning that there is an increase in supply. With more firms producing and selling the same product, the competition among firms will increase, causing the price to fall.

Question 11

Suppose a perfectly competitive market is in long-run equilibrium and then there is a permanent increase in the demand for that product.The new long-run equilibrium will have
A)fewer firms in the market.
B)more firms in the market.
C)the same number of firms in the market.
D)probably a different number of firms,but it is not possible to determine if there will be more or fewer firms.
E)a permanent decrease in supply.

Accepted Answer

In a perfectly competitive market, a permanent increase in demand leads to higher prices and profits in the short run, attracting new firms into the market. In the long run, the entry of new firms increases supply, which lowers prices and profits until they reach a new equilibrium. Thus, there will be more firms in the market.

Question 12

If perfectly competitive lawn care firms are making an economic profit,then
A)wages will be bid up until the economic profit are gone.
B)the firms must be superior and will continue to make an economic profit.
C)new firms will enter the industry.
D)they are not equating marginal revenue to marginal cost.
E)government regulation will be imposed to decrease their profit.

Accepted Answer

In a perfectly competitive market, economic profit attracts new firms to enter the industry. This increases competition and supply in the market, which eventually drives down the price to the point where all firms earn zero economic profit in the long run. Therefore, if perfectly competitive lawn care firms are making an economic profit, new firms will enter the market to share the profits, ultimately driving down the price to the point where economic profit becomes zero.

Question 13

Alice,Bud,and Celia can produce rubber bands in a perfectly competitive market.If they enter the market,the minimum average total cost for a bundle of rubber bands,for the three of them is $2,$3,and $4,respectively.If the market price is $2.10 per bundle,then
A)all three of them will enter the market.
B)only Alice will enter the market.
C)Alice and Bud will enter the market.
D)Bud and Celia will enter the market.
E)Alice and Celia will enter the market.

Accepted Answer

Only Alice will enter the market because her minimum average total cost ($2) is below the market price ($2.10), allowing her to make a profit. Bud and Celia's costs are above the market price, so they would incur losses.

Question 14

In the long run,existing firms exit a perfectly competitive market
A)only if economic profits are zero.
B)if they make a positive economic profit.
C)if normal profits are greater than zero.
D)only if they incur an economic loss.
E)if they either make a normal profit or if they incur an economic loss.

Accepted Answer

In the long run, existing firms will exit a perfectly competitive market if they incur an economic loss. This is because in the long run, new firms are able to enter the market, which increases competition and drives down prices. If a firm is unable to cover its costs at the prevailing market price, it will exit the market. However, if a firm is making a normal profit (covering its costs but not earning an economic profit) it may continue to remain in the market.

Question 15

In the long run,perfectly competitive firms produce at the output level that has the minimum
A)marginal cost.
B)average total cost.
C)average variable cost.
D)average fixed cost.
E)total revenue.

Accepted Answer

Perfectly competitive firms aim to maximize their profits in the long run. This occurs when they produce at the output level where marginal cost equals marginal revenue (MC=MR) and this output level also corresponds to the minimum point on the average total cost (ATC) curve. Therefore, perfectly competitive firms produce at the output level that has the minimum average total cost (ATC) in the long run.

Question 16

If firms in a perfectly competitive industry are earning an economic profit,then in the ________,firms will ________ the industry.
A)short run;enter
B)long run;enter
C)short run;exit
D)long run;exit
E)More information about the firms' costs and the price of the product is needed to determine if firms enter or exit the industry.

Accepted Answer

In a perfectly competitive market, if firms are earning an economic profit in the short run, it attracts new firms to enter the market in the long run. This increases supply, leading to a decrease in the price until economic profits are zero.

Question 17

In the long run,perfectly competitive firms will exit the market if the price is
A)higher than average variable cost.
B)equal to average total cost.
C)less than average total cost.
D)equal to average fixed cost.
E)equal to marginal revenue.

Accepted Answer

In the long run, firms in a perfectly competitive market will only continue to operate if they can make a profit. If the price is less than the average total cost, the firm will be making a loss and will not be able to sustain operations in the long run. Thus, firms would eventually exit the market if the price is less than their average total cost.

Question 18

Suppose a perfectly competitive market is in short-run equilibrium.Firms that are incurring a ________ economic loss ________.
A)persistent;increase their output to increase their profit
B)temporary;exit the industry
C)temporary;decrease their production but definitely stay open
D)persistent;exit the industry and shift the market supply curve leftward
E)persistent;exit the industry and shift the market supply curve rightward

Accepted Answer

In a perfectly competitive market, firms that are incurring a persistent economic loss will eventually exit the industry. This is because they are unable to cover their variable costs and remain profitable in the long run. As these firms exit the market, the market supply curve will shift leftward, reducing the overall supply in the market and potentially leading to higher prices and profits for the remaining firms.

Question 19

A perfectly competitive market is in equilibrium and then demand decreases.The decrease in demand means the market price will ________ and eventually there will be ________.
A)rise;entry by new firms
B)fall;exit by existing firms
C)fall;entry by new firms
D)rise;exit by existing firms
E)fall;neither entry nor exit because the market is perfectly competitive

Accepted Answer

When demand decreases in a perfectly competitive market, the market price falls because the same quantity of goods is chased by fewer buyers. This leads to lower revenues for firms, making the market less attractive. Consequently, some existing firms may find it unprofitable to continue operating and decide to exit the market.

Question 20

When firms in a perfectly competitive market incur economic losses,exit by some firms means the market supply will
A)increase.
B)decrease.
C)not change.
D)become vertical.
E)become the same as the individual producers' supplies.

Accepted Answer

Economic losses will cause some firms to leave the market. This decrease in the number of firms will decrease the overall market supply.

Quiz 11: Perfect Competition

The corn market is perfectly competitive,with thousands of corn farmers.In the 2000s,the price of corn soared so that new farmers entered the corn market.Initially,entry the economic profit of the initial corn farmers and in the long run the initial corn farmers .

In a perfectly competitive industry, I.entry by new firms shifts the market supply curve rightward. Ii.exit by existing firms shifts the market supply curve leftward. Iii.at all times existing firms make only zero economic profit.

Suppose a perfectly competitive market is in a short-run equilibrium.If some firms exit the market,the profit of the remaining firms ;if some firms enter the market,the profit of each existing firm .

If perfectly competitive firms are making an economic profit,then

Catfish farming is a perfectly competitive industry.Catfish farmers suffered tremendous economic losses in the late 2000s.As a result,

Keith is a perfectly competitive carnation grower.The market price is $2 per dozen carnations.Keith's average total cost to grow carnations is $2.50 per dozen.In the long run,Keith will

To eliminate losses in a perfectly competitive market,firms exit the industry.This exit results in

When firms in a perfectly competitive market are earning an economic profit,in the long run

If concerns about mad-cow disease impose economic losses on the perfectly competitive cattle ranchers,exit by the ranchers combined with no further changes in the demand for beef will force the price of beef to

When new firms enter a perfectly competitive market,the market supply curve shifts and the price .

Suppose a perfectly competitive market is in long-run equilibrium and then there is a permanent increase in the demand for that product.The new long-run equilibrium will have

If perfectly competitive lawn care firms are making an economic profit,then

Alice,Bud,and Celia can produce rubber bands in a perfectly competitive market.If they enter the market,the minimum average total cost for a bundle of rubber bands,for the three of them is $2,$3,and $4,respectively.If the market price is $2.10 per bundle,then

In the long run,existing firms exit a perfectly competitive market

In the long run,perfectly competitive firms produce at the output level that has the minimum

If firms in a perfectly competitive industry are earning an economic profit,then in the ,firms will the industry.

In the long run,perfectly competitive firms will exit the market if the price is

Suppose a perfectly competitive market is in short-run equilibrium.Firms that are incurring a economic loss .

A perfectly competitive market is in equilibrium and then demand decreases.The decrease in demand means the market price will and eventually there will be .

When firms in a perfectly competitive market incur economic losses,exit by some firms means the market supply will