Ch. 9
A market price is greater than marginal cost in a perfectly competitive market. What will allocative efficiency be at that level of production?
The market would produce too little for allocative efficnecy
Which of the following is true for a single firm in a perfectly competitive industry?
p=mr
Which of the following best represents the order (from lowest to highest) of likely price levels of firms in each of the market structures?
perfect competition 2. monopolistic competition 3. oligopoly 4. monopo
Consider the following table. The market described in the table below is perfectly competitive. The demand curve for any firm in the market is:
perfectly horizonyal for a price of 6
Given all the characteristics of perfect competition, which of the following is the main factor that affects consumers' decisions on which firm to purchase a good from?
price
In the short run, perfectly competitive firms will produce where _____________?
price equal marginal cost
In the short run, a perfectly competitive firm that is maximizing profits will produce where
price is equal to marginal cost
In the short run, a perfectly competitive firm that is maximizing profits will produce where,
price is equal to marginal cost
In the long run, a perfectly competitive firm maximizing profit will produce where:
average cost at a mininume
If a perfectly competitive industry is in long-run equilibrium, then which of the following is true?
price is equal to minm average cost
A firm producing where price equals marginal cost that has variable costs equaling $60 million; fixed costs equaling $40 million; and revenues equaling $50 million should:
shut down now
For a firm in a perfectly competitive market, average revenue equals _____
the market price
n a perfectly competitive industry, the industry demand curve is __________.
downward sloping
The following table below shows the cost of production for a perfectly competitive firm. The market price is $12.00 per unit. If the firm produces at its profit-maximizing level of output, what are its short-run economic profits?
1,290
To make a decision about introducing a new product, what is the relevant cost? $10 million has been spent to date on research and development. The results of the research and development can be sold to another company for $12 million. Additional labor and other costs necessary to complete the project equal $7 million. Remember sunk costs.
19 mil
To make a decision about introducing a new product, what is the relevant cost? $10 million has been spent to date on research and development. The results of the research and development can be sold to another company for $12 million. Additional labor and other costs necessary to complete the project equal $7 million.
19 million
The following graph shows cost information for a firm in a perfectly competitive industry. If the market price is $30.00 per unit, what are the firm's profits if it produces and sells the profit maximizing level of output?
340
he following table shows the cost of production for a perfectly competitive firm. If the market price is $6.80 per unit, what is the profit-maximizing level of output?
500
The following table below shows the cost of production for a perfectly competitive firm. If the market price is $8.80 per unit, what is the profit-maximizing level of output?
600
The perfectly competitive market price of a box of paper clips is $1.49 per box of 100. Chloe sells 50 boxes of paper clips at her store. Her total revenue for selling boxes of paper clips is. Her marginal revenue for selling the 50th box of paper clips is .
74.50;1.79
The perfectly competitive market price of bananas is $0.79 per pound. Marcy sells 100 pounds of bananas. Her total revenue for selling bananas is . Her marginal revenue for selling the 100th pound of bananas is .
79; 0.79
Which of the following is not true regarding a firm in perfect competition?
A single firm can influence the demand for its product by advertising. Advertising would simply increase the cost of the firm, but not change the price. With identical products, the firm acts as a price-taker and cannot control the price it charges for its output.
following graph represents the weekly costs of production for a small firm making office chairs. If the short-run market price for an office chair is $50 per chair, roughly how many chairs should the firm make to either maximize profits or minimize losses?
About 52 chairs per week in the short run but the firm is making economic losses.
The following graph represents the weekly costs of production for a small firm making office chairs. If the short-run market price for an office chair is $60 per chair, (roughly) how many chairs should the firm make to either maximize profits or minimize losses?
About 60 chairs per week in the short run and the firm is making zero economic profit.
Consider the effect on costs of an increase in wages in an economy. What is the increase likely to do?
Increase short-run average costs and long-run average costs. higher wages production is more expensive
Which of the following set of characteristics applies to a firm in a perfectly competitive market?
Many firms with identical products and no control over the market price.
An effective price ceiling in a competitive industry will mean that which of the following is true?
Marginal cost is equal to marginal revenue.
n a perfectly competitive market, a single firm that sets its price a small amount above the market price will do which of the following?
Not sell many units. With products being perfect substitutes (homogenous goods), the price must be the same since the goods are the same. If one person tries to sell at a higher price, he'll sell zero since buyers can buy the same identical good at a lower price from another seller.
A perfectly competitive firm is experiencing the following short-run price and costs: P = $0.80, ATC = $2.20, AVC = $1.30, MC = $0.80. What short-run decision should this firm make?
The firm is attempting to produce at the optimal output level where price is equal to marginal cost. However, at this level of output, AVC > P. This means that the firm cannot even cover its variable expenses by selling output. In fact, the more it produces, the greater its losses! It is better to shut down and not produce any output at all.
Why are perfectly competitive markets considered economically efficient?
The opportunity cost of society for making the good is equal to society's value of the good.
The following graph represents the weekly costs of production for a small firm making office chairs. If the short-run market price for an office chair is $100 per chair, (roughly) how many chairs should the firm make to either maximize profits or minimize losses
c About 82 chairs per week in the short run and the firm is making positive economic profit.
Assume a decreasing-cost industry in a competitive market. What are the long term effects of the following change? An increase in the demand for the good will ______________ the equilibrium price and ______________ equilibrium quantity in the goods' market.
decrease, increase
Assume a constant-cost industry in a competitive market. What are the short-term effects of the following change? A decrease in variable costs in the short run will ______________ the equilibrium price and ______________ equilibrium quantity in the goods' market.
decrease; increase
Assume a constant-cost industry in a competitive market. What are the long-term effects of the following change? A decrease in variable costs in the long run will cause the equilibrium price to ______________ and the equilibrium quantity in the market to _
decrease; increase by more than in the short run
The following table shows the cost of production for a perfectly competitive firm. If the market price is $6.80 per unit, what is the economic profits at the profit-maximizing level of output?
economic profit 1,000
In the theory of firm behavior, we assume that firms attempt to maximize
economic profits
The following graphs represents the weekly costs of production for a small firm making office chairs in a perfectly competitive market. If the market price for office chairs is currently $50 per chair we expect firms to the market and the market price to .
exit and increase
onsider a market where competitive producers are making trucks and SUVs with basically the same resources. The demand for trucks increases. What is likely to happen in the market for SUVs?
he equilibrium quantity will decrease; the equilibrium price will increase.
Following a decrease in demand, the perfectly competitive industry has adjusted to a short run equilibrium. As the firm moves back to a long run equilibrium, the price will ______________ and the typical firm's production will ______________.
increase, increase
A perfectly competitive market is producing a level of production where price is equal to the marginal cost. There are economic profits being earned. What will happen to the firm and the market in the long run? Market production will ______________; firm production will ______________.
increase; decrease
Assume a constant-cost industry in a competitive market. What are the long-term effects of the following change? An increase in fixed costs will ______________ the equilibrium price and ______________ the market equilibrium quantity.
increase; decrease
Assume a constant-cost industry in a competitive market. What are the short-term effects of the following change? An increase in the demand for the good will ______________ the equilibrium price and ______________ equilibrium quantity in the goods' market.
increase; increase
ssume an increasing-cost industry in a competitive market. What are the long term effects of the following change? An increase in the demand for the good will ______________ the equilibrium price and ______________ equilibrium quantity in the goods' market.
increase; increase
Assume the price of coffee increases. If the market for tea is perfectly competitive and a constant cost industry, what will happen to the tea market in the long run? Output will ______________; prices will ______________; and economic profits will ______________Indicate whether increase, decrease, cannot tell, or no change as before the price shift is correct for each blank space.
increase; not change; not change Coffee and tea are substitutes. Thus, if coffee is higher priced, people will buy more tea. The increase in tea demand leads to higher output. Prices will rise in the short run, but then fall again in the long run as more firms enter and compete.
A perfectly competitive firm that chooses to produce will maximize profits at the output level where which of the following is true?
marginal cost is equal to marginal rev. This is the output decision rule for a firm that maximizes profit. Keep expanding production if MC < MR, and then stop at the output level where MC = MR. Doing so will maximize your profit. If you keep producing past this point, you'll start lowering profit since you'll be producing at a point where the MC is greater than the price. Remember that we assume a constant price but upward-sloping MC function. Also remember that in perfect competition, P = MR for a single firm.
The clothing and attire retail market has seen an increased number of firms entering the industry. Thus, there is a lot of competition in markets for many types of clothing. What is the result of this high amount of competition?
ndividual buyers and sellers cannot affect the market price.
ssume a constant-cost industry in a competitive market. What are the long-term effects of the following change? An increase in the demand for the good will ______________ the equilibrium price and ______________ equilibrium quantity in the goods' market.
not cahnge; increase
Which of the following best represents the long-run changes (from the very beginning to the end) in prices and quantities in a perfectly competitive, constant cost industry?If demand in the market increases, the market price will
not change
Assume a constant-cost industry in a competitive market. What are the short-term effects of the following change? An increase in fixed costs will ______________ the equilibrium price and ______________ equilibrium quantity in the market.
not change The change in fixed costs does not affect the marginal costs and variable costs, so there is not a change on output choices (and therefore no change in the price of the good).
Regarding perfect competition, what does it mean when the goods sold by the firms in a market are homogeneous?
omogenous means identical. An example is wheat. After it's cut and dried, it's all the same wheat, so one farmer can't command a different price for his wheat.
Which of the following is NOT true regarding perfectly competitive markets?
t is difficult or impossible for a firm to enter and compete in the market
For a firm in a perfectly competitive industry, the demand curve for its own product is
the same as the market price
If all firms in a perfectly competitive industry are required to adopt antipollution devices, the long-run results would be that the firms would be earning ______________ and the industry will be producing ______________ amounts of output.
zero economic profits; smaller Costs would go up, and the market would adjust back to long run equilibrium with zero economic profits. However, with higher prices, output is reduced.
