Econ 2302 Exam 2 lectures 9

Refer to Figure 23.1 for a perfectly competitive firm. In the long runthis firm would stay in this market only if the market price was equal to or higher than

$15

Refer to Figure 23.1 for a perfectly competitive firm. This firm should shut down in the short run if the market price is below

$5

In a competitive market where firms are earning economic losses, which of the following should be expected as the industry moves to long-run equilibrium, ceteris paribus?

A higher price and fewer firms

Which of the following is characterized of a perfectly competitive market?

A large number of firms

Refer to Figure 23.6 for a perfectly competitive fire. If this firm produces the level output corresponding to point B in the short run it will earn

A loss greater than necessary

The equilibrium price of a good or service in a competitive market is

A reflection of the opportunity cost of producing the product.

To determine the market supply, the quantities

A supplied at each price by each supplier are added together

Technology improvements cause

ATC to shift down

If economic profits are earned in a competitive market, then over time

Additional firms will enter the market.

If the products of two firms are homogeneous, then they

Are perfect substitutes.

High profits in a particular industry indicate that

Consumers want more of that industry's goods.

One world view article is titled "competition shrinks India's phone bills" competitive forces typically force companies to

Cut prices, improve product quality, and improve service

Suppose a perfectly competitive firm is experiencing zero economic profits. In an effort to increase profits, the firm decides to initiate an advertising campaign for its product. The most likely short-run result of this campaign, ceteris paribus, would be

Economic losses for the firm.

One World View article is titled "Flat Panels, Thin Margins." New firms continue to enter the industry even though prices are falling because

Economic profits are being earned

For a competitive market in the long run,

Economic profits induce firms to enter until profits are normal.

In long-run perfectly competitive equilibrium, Marginal cost

Equals the minimum of the ATC.

Maximizing profits per unit always leads to the maximization of total profit (True or False)

False

Minimizing average total cost always leads to the maximization of total profit. (True or false)

False

Perfectly competitive firms always earn economic profits in the short-run (true or false)

False

Refer to Figure 23.2 for a perfectly competitive firm. Given the current market price of $100, we expect to see

Firms enter the industry, driving down the market price

In Figure 23.3diagram "a" presents the cost curves that are relevant to a firm's production decision, and diagram "b" shows the market demand and supply curves for the market. Use both diagrams to answer the following question: In the long run, at prices below p3 in Figure 23.3

Firms will exit the market

The price signal the consumer gets in a competitive market

Is an accurate reflection of opportunity cost.

When an athletic shoe company is producing a level of output at which price is greater than MC, from society's standpoint the company is producing too

Little because society would be willing to give up more alternative goods in order to get additional shoes.

The behavior expected in a competitive market includes

Marginal cost pricing

Which of the following is consistent with long-run equilibrium for a perfectly competitive market?

Maximum technical efficiency is achieved.

In a perfectly competitive market, when price is equal to the

Minimum average total cost, economic profit is zero.

In a competitive market

Neither buyers nor sellers have market power

In making an investment decision, an entrepreneur

Only considers variable cost

For a perfectly competitive market , long-run equilibrium is characterized by all of the following but which one?

P = maximum ATC.

In which of the following cases would a firm enter a market?

P > long-run ATC

If a firm decides to make the investment decision to expand its capacity, then it must have discovered that

P>ATC

Example of barriers to entry include

Patents

A perfectly competitive market results in efficiency because

Price is driven down to minimum ATC.

The exit of firms from a market, ceteris paribus,

Reduces the economic losses of remaining firms in the market.

The entry firms into a market, ceteris paribus,

Reduces the economic profit of each firm already in the market.

If someone invents a more cost effective way to produce frozen pizzas, then

The market supply curve for frozen pizzas will shift to right

Which of the following is a determinant of a market supply but NOT the supply curve of an individual firm?

The number of firms in the market.

Perfectly competitive firms cannot individually affect market price because

There are many firms, none of which has a significant share of total output.

In Figure 23.3diagram "a" presents the cost curves that are relevant to a firm's production decisionand diagram "" shows the market demand and supply curves for the market. Use both diagrams to answer the following question: If the market demand curve is in Figure 23.3 , then in the long run

There are zero economic profits, so there will be no entry or exit

When firms in a competitive market are experiencing zero economic profits, this is an indication that

There is currently no better way to use society's scarce resources.

Barriers to entry are obstacles that make it difficult or impossible for would-be producers to enter a particular market (true or false)

True

In a perfectly competitive market, economic losses are the signal for firms to exit from the industry (true or false)

True

In a perfectly competitive market, firms will earn zero economic profits in the long run. (True or false)

True

Sellers in a perfectly competitive market are powerless to affect the market price of their product (true or false)

True

The market supply curve in a perfectly competitive market is usually a

Upward-sloping

In a perfectly competitive industry, economic profit:

Will approach zero in the long-run as prices are driven to the level of average production costs

Refer to Figure 234 for a perfectly competitive market and firm. Which of the following is likely to occur in the market in the long run ceteris paribus?

decrease in supply

Investment decisions are made on the basis of the relationship of price to

long run average total cost

To maximize profits, a competitive firm will seek to expand output until

price equals marginal cost

Refer to Figure 23.5 for a perfectly competitive firm. If this firm produces the level of output corresponding to point B in the short run it will earn

zero economic profit