Econ Unit 8 Quizes
Which of the following is NOT true about long-run equilibrium in a perfectly competitive industry?
Each firm has zero accounting profit.
Which of the following is not a characteristic of a perfectly competitive industry?
Each firm seeks to undercut the price of its competitors.
Suppose that Prince Pückler's Ice Cream sells 100 cones each day. It sells the cones for $3, its average variable cost is $3.10, marginal cost is $3, and the average total cost is $3.50. From this we know:
the firm should shut down.
Suppose that a monopolistically competitive firm is currently producing at the point where marginal revenue equals marginal cost and is not covering the variable cost of producing the last unit. In this situation, economic theory would predict that:
the firm will exit the industry.
The relationship between the long-run industry supply curve and the short-run industry supply curve is such that:
the long-run supply curve is more elastic than the short-run supply curve.
The perfectly competitive firm's short-run supply curve is:
the marginal cost curve above the minimum of average variable cost.
A perfectly competitive tomato industry is in long-run equilibrium. Now suppose that a study shows that eating too many tomatoes can be harmful. In the long run:
the supply of tomatoes will decrease and the market price will increase.
Monopoly arises when:
there are barriers to the entry of other firms.
Which of the following would be considered a perfectly competitive industry?
there are barriers to the entry of other firms.
The firm incurs a loss when the firm produces a quantity at which:
total revenue < total cost.
The long-run industry supply curve can slope downward if costs are:
decreasing.
Monopolistic competitors engage in product differentiation in order to:
enhance their market power.
Suppose a perfectly competitive industry is in long-run equilibrium and no economic profits are being earned. If demand increases, firms will ________ the industry in response, and until exiting firms earn _________ economic profits.
enter; zero
In the long-run equilibrium of a perfectly competitive industry:
every consumer who is willing to pay the cost of producing the good gets it.
The quantity supplied by a perfectly competitive firm at a given market price is determined by the:
firm's marginal cost curve.
Suppose that Prince Pückler's Ice Cream sells 100 cones each day. It sells the cones for $3, its average variable cost is $2.50, marginal cost is $3 and the average total cost is $3.20. From this we know:
firms will exit the industry in the long run.
Since a monopolistic competitor produces a product with many close substitutes, it:
has some degree of market power.
Assume that some firms in a perfectly competitive industry are incurring negative economic profits. In the long run, the:
industry supply curve will shift to the left.
The short-run individual supply curve of the perfectly competitive firm is:
its marginal cost (MC) curve above average variable cost (AVC).
The two necessary conditions necessary for perfect competition to exist are:
many producers each with a small market share and a standardized product.
The optimal output rule says that firms maximize profits by choosing output such that:
marginal revenue = marginal cost.
In the case of a price taking firm:
marginal revenue = price.
The short-run industry supply curve is the sum of the individual ________ cost curves, assuming that there is _____ entry and exit to and from the industry.
marginal; no
Monopoly is a type of:
market structure.
In order to maximize net gains, the perfectly competitive firm will seek to do which of the following?
maximize profit
When a perfectly competitive firm is in long-run equilibrium, the firm is producing at a point that corresponds to:
minimum long-run average total cost.
The existence of profit in a perfectly competitive industry means that:
new producers will seek to enter the industry.
Which of the following is NOT one of the three conditions for monopolistic competition?
no close product substitutes
Which market structures are characterized by imperfect competition?
oligopoly and monopolistic competition
Monopoly describes a market structure in which there is/are ________ producer(s) and the product(s) is/are ________.
one; unique
If costs are constant in the industry so that each firm faces the same cost structure, then the long-run industry supply curve is:
perfectly elastic.
The demand curve for an individual firm in a perfectly competitive industry is:
perfectly elastic.
In today's U.S. economy, which of the following industries has firms that typically act as a monopoly for an extended period of time?
pharmaceuticals
Luis operates a cherry orchard in Northern Oregon and sells the cherries in a perfectly competitive market at a price of $1.70 per pound. Last month Luis sold 2,000 pounds of cherries. His fixed cost of production was $800 and his average variable cost was $1.00 per pound. What was his profit?
$600
For the perfectly competitive firm, economic profit equals:
(Price - average total cost) x quantity.
Why does economic theory predict that the perfectly competitive firm will produce at the point where price equals marginal cost?
Because this point maximizes profit for the firm.
Which of the following statements is true?
In the long run, the level of fixed costs is an important component of the entry/exit decision.
Suppose that firms in the perfectly competitive potato-growing industry are earning economic profits. According to economic theory, what is likely to happen?
More firms will enter the market, thereby increasing the industry supply and lowering the market price.
Which of the following statements about oligopolies is not correct?
Oligopolistic firms are always large.
Tara sells her organic carrots in a perfectly competitive market for a price that is just higher than her minimum average variable cost (AVC) of production, but lower than her minimum average total cost (ATC) of production. Which of the following statements is then TRUE?
She is incurring a loss because price is less than ATC.
A profit-maximizing, perfectly competitive firm is charging the market price of $18 to sell its product. The firm is producing and selling the profit-maximizing quantity of 50 units at this price. Its average total cost (ATC) is $17 and its average variable cost is $15. Which of the following statements is then TRUE?
The firm is earning an economic profit of $50.
How does the long run differ from the short run in perfect competition?
The long run is long enough to allow for the entry of new firms into the industry.
How does the long-run industry supply curve compare to the short-run industry supply curve?
The long-run curve is always flatter than the short-run curve.
Suppose that the long-run industry supply in the production of synthetic fabrics is perfectly elastic. Which of the following statements then is TRUE?
The long-run industry supply for synthetics is horizontal.
Why do monopolistic competitors not collude to form a monopoly?
There are too many firms to allow for successful collusion.
The long-run market equilibrium of a perfectly competitive industry is efficient, which means that all of the following are true statements EXCEPT:
There may be some mutually beneficial transactions that go unexploited.
Which of the following is not an example of a barrier to entry?
an innovative product
The U.S. beer industry is characterized by market power for only a few firms, with the largest one enjoying a fifty percent market share. One reason for this is economies of scale. This means that:
as beer production increases, the average total cost of production falls.
In the calculation of economic profit, a firm's total cost incorporates:
both implicit and explicit costs.
A firm breaks even when:
price = average total cost.
A perfectly competitive firm earns an economic profit when:
price is above average total cost.
A firm will choose to shut down in the short run when:
price is below the minimum point of AVC.
A perfectly competitive firm will shut down when:
price is less than average variable cost.
The ______ says that a price-taking firm's profit is maximized by producing the quantity of output at which the ______ is equal to the marginal cost of the last unit produced.
price-taking firm's optimal output rule; market price
The oil change market can be described as a market in which monopolistic competition prevails. This means that collusion among oil change suppliers is ____________ and firms engage in _________ behavior.
rare; uncooperative
Assume that the market for gasoline in a community is perfectly competitive and that the market is initially in long-run equilibrium. Now suppose that an increase in population increases the demand for gasoline. In the short run, we expect that the market price will ________ and the output of a typical firm will ________.
rise; increase
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 given.
A perfectly competitive firm is currently selling its product at the market price of $6. Its average total cost (ATC) is $5.50. In this case:
the firm has positive economic profits.
Suppose that Prince Pückler's Ice Cream sells 100 cones each day. It sells the cones for $3, its average variable cost is $2.50, marginal cost is $3 and the average total cost (ATC) is $3.00. From this we know:
the firm is making zero economic profits.
Suppose that Prince Pückler's Ice Cream sells 100 cones each day. It sells the cones for $3, its average variable cost is $2.50, marginal cost is $3, and the average total cost is $3.10. From this we know:
the firm is suffering a loss.
