Question 1

Figure 9-12 
-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 9-12 
-Use the figure above to...

Question 2

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...

Question 3

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 4

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 5

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, as firms have had sufficient time to adjust their production processes and entry/exit of firms has occurred. It does not show how the government determines the price of the product, how average productivity is changing, or greater than normal profit.

Question 6

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 7

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 the fishing boats have to go farther to harvest tuna, their cost of production will increase. This means that the industry will experience increasing costs as demand increases.

Question 8

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

Accepted Answer

The U-shape of the long-run average cost curve suggests that there is an optimal scale of production from society's viewpoint, where production is neither too small nor too large. This point is known as the minimum efficient scale (MES). At this scale, the firm can produce its output at the lowest possible average cost, which results in efficient production and benefits society by allowing the firm to produce more output at a lower cost. Therefore, A - the minimum efficient scale - is the optimal choice from society's viewpoint.

Question 9

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

Accepted Answer

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

Question 10

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

Accepted Answer

In an increasing-cost industry, as production expands, the cost of production also increases due to limited resources, causing firms to require higher prices to supply the same amount of output. As a result, the long-run supply curve slopes upward.

Question 11

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 supply curve is horizontal in the long run, meaning that firms can enter or exit the market without affecting the market price. Since the farmer in this scenario is making zero economic profit (selling at $15 but producing at an average cost of $12 per bushel), other farmers will have no incentive to enter or exit the industry. Therefore, the market supply curve remains constant, so any increase or decrease in demand will result in a proportional change in the market price. However, if a technological advancement reduces the cost of production, the new supply curve will shift to the right, resulting in a lower equilibrium price. Hence, the market price of wheat will fall to $12 in the long run.

Question 12

What is productive efficiency?

Accepted Answer

Productive efficiency is achieved when goods are produced at the lowest possible average cost, meaning resources are allocated efficiently and wastage is minimized. This leads to lower costs for firms and ultimately lower prices for consumers. A is incorrect because productive efficiency is not necessarily tied to profit maximization. C describes allocative efficiency, which is a related but distinct concept. D is incorrect because firms aim to produce at the point of profit maximization, which may not necessarily coincide with the point of productive efficiency.

Question 13

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 14

In the long run,a perfectly competitive market will

Accepted Answer

In the long run, a perfectly competitive market will supply whatever amount of output consumers demand at a price determined by the minimum point on the typical firm's average total cost curve. This is because in the long run, firms can enter or exit the market, and these movements cause the market price to adjust until it equals the minimum point on the average total cost curve, which is the point where the firm can produce at the lowest cost. At this price, firms in the market will earn only normal profit, which is the minimum amount a firm must earn to stay in business, and it will not earn economic profit. So, in the long run, firms in the market will not operate at a loss, nor will they earn a profit greater than the normal profit.

Question 15

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

This is the definition of allocative efficiency, which occurs when resources are allocated in such a way that every good or service is produced up to the point where the marginal benefit to consumers is equal to the marginal cost of production. Productive efficiency occurs when goods are produced at the lowest cost possible, and profit maximization is a goal of firms but not necessarily indicative of efficiency. Marginal efficiency is not a commonly used term in economics.

Question 16

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 fact that Ethan Nicolas had to drop the price of the iShoot application within five months indicates that the market was very competitive. In a competitive market, firms have little control over the price of their product, since there are many substitutes available. This, in turn, makes it difficult to earn an economic profit in the long run. Therefore, option B is the correct answer.

Question 17

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 in order to remain competitive. This results in lower prices for consumers as firms try to produce goods at the lowest possible cost. This market structure also prevents firms from adding a large markup over average cost, further benefiting consumers. However, the market structure does not guarantee that firms will produce high quality goods at low prices.

Question 18

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 availability of over 25,000 apps in the iTunes store for the iPhone 3G indicates that the ease at which new firms can enter the competitive market is high, as there are a large number of developers competing in the market.

Question 19

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 achieved when a good or service is produced at the lowest possible cost, using the most efficient methods of production. This means that resources are being used in the best possible way to produce the goods and services that people want, which leads to lower prices for consumers and higher profits for producers. Allocative efficiency, on the other hand, refers to producing the right goods and services that people want most based on their willingness to pay, while marginal efficiency relates to the additional benefit or cost of producing one more unit of a good or service, and profit maximization refers to the goal of maximizing profits for a firm.

Question 20

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

Economies of scale imply that the cost of producing each unit decreases as the scale of production increases. Therefore, in a decreasing-cost industry, the cost of production decreases as the industry grows. Thus, if there are economies of scale in the production of the memory chip used in manufacturing microwaves, then the microwave industry is a decreasing-cost industry.

Quiz 9: Firms in Perfectly Competitive Markets