ECO112 Ch. 8

Which of the following conditions always characterizes a firm that is in short-run competitive equilibrium where profits are maximized? a. Price equals minimum ATC b. Price equals marginal cost c. Price is greater that marginal cost d. Price equals minimum average fixed cost.

b. Price equals marginal cost

In a competitive market, if the market demand curve is tangent to the minimum point of the ATC curve, a firm may seek to earn economic profits by: a. Producing at the rate of output where price equals demand. b. Decreasing production cost through technological improvements. c. Decreasing Price. d. Increasing price.

b. Decreasing production cost through technological improvements.

In which of the following cases would a firm enter a market? a. P = short-run ATC b. P > long-run ATC c. P < short-run ATC d. P < long-run ATC

b. P > long-run ATC

T or F. If a perfectly competitive firm raises its price above the market price, it will lose some but not all of its sales.

False. A perfectly competitive firm will lose all of its sales if it raises price.

T or F. As long as an economic profit is available, firms will exit the market.

False. As long as an economic profit is available, a market will continue to attract to new firms.

T or F. Perfectly competitive firms are forced to be technically efficient by government regulations.

False. Competition forces perfectly competitive firms to be technically efficient.

T or F. In a competitive market, firms sell their products at a price greater than MC.

False. In a competitive market, firms sell their products at a price equal to MC.

T or F. In the long-run equilibrium for a perfectly competitive market, the price of the product will equal the minimum marginal cost.

False. The price of the product will equal the minimum ATC.

In a competitive market, competition forces firms to continually search for more efficient methods of production.

True.

T of F. The Market supply curve is a horizontal summation of the MC curves above minimum AVC of the individual firms.

True.

T or F. A competitive firm maximizes profit at the production rate where price (or marginal revenue) equals marginal cost.

True.

T or F. For perfectly competitive markets, once economic profits reach zero there is no incentive for firms to enter or exit the industry.

True.

T or F. In competitive markets, economic losses are a signal to firms that better options are available for its resources.

True.

In a competitive market where firms are experiencing economic losses, which of the following would NOT be expected? a. A decrease in MR for the remaining firms. b. A decrease in market supply c. An increase in total revenue for the remaining firms d. An increase in output for the remaining firms

a. A decrease in MR for the remaining firms.

In a competitive market where firms are incurring losses, which of the following should be expected as the industry moves to long-run equilibrium, ceteris paribus? a. A higher price and fewer firms. b. A lower price and fewer firms. c. A higher price and more firms. d. A lower price and more firms.

a. A higher price and fewer firms.

When economic profits exist in the market for a particular product, this is a signal that: a. Consumers want more of this product. b. There is a surplus of this product c. Consumers are satisfied with the current mix of output d. Consumers find the price of the product too high to purchase

a. Consumers want more of this product.

Which of the following conditions is NOT characteristic of a perfectly competitive market? a. High barriers to entry. b. Identical products. c. Perfect information. d. Many firms.

a. High barriers to entry.

In long-run competitive equilibrium: a. Price equals the minimum of the long-run average total cost curve. b. Economic profit is maximized. c. Price equals the minimum of the long-run marginal cost curve. d. Total revenue is maximized

a. Price equals the minimum of the long-run average total cost curve.

Ceteris paribus, when firms leave a competitive market: a. The equilibrium price increase b. Profits for the existing firms in the market decrease. c. The equilibrium level of output increases d. The market supply curve shifts to the right

a. The equilibrium price increase

A competitive firm: a. Is able to keep other potential producers out of the market. b. Would like to keep other potential producers out of the market but cannot do so. c. Is powerless to alter its own rate of production. d. Will not care if more producers enter the market.

b. Would like to keep other potential producers out of the market but cannot do so.

A competitive market promotes technical efficiency in the long run by pushing prices to the minimum of: a. Short-run AVC b. Short-run MC c. Long-run ATC d. Long-run TC

c. Long-run ATC

Which of the following is consistent with a competitive market? a. A small number of firms. b. Exit of small firms when profits are high for large firms. c. Price equals marginal cost. d. Marginal revenue lower than price for each firm.

c. Price equals marginal cost.

The exit of firms from a market: a. Shifts the market supply curve to the right. b. Reduces profits of existing firms in a market. c. Reduces the equilibrium output in the market. d. Shifts the market demand curve to the left.

c. Reduces the equilibrium output in the market.

Ceteris paribus, the market supply curve will NOT shift as a result of a change in: a. Technology b. The number of firms in the industry c. The current income of buyers. d. Expectations about potential profits in an industry.

c. The current income of buyers.

The constant quest for profits in competitive markets results in: a. Price equaling average fixed cost b. A shortage of goods. c. Zero economic profits in the long run d. A misallocation of resources

c. Zero economic profits in the long run

When a computer firm is producing an output where the price is greater than the MC, then from society's standpoint the firm is producing too: a. Much because society is giving up more to produce additional computers than the computers are worth. b. Much because society would be willing to give up more alternative goods in order to get additional computers. c. Little because society is giving up more to produce additional computers than the computers are worth. d. Little because society would be willing to give up more alternative goods in order to get additional computers.

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

In a perfectly competitive market in the long run, economic: a. Profits cause consumers to increase demand. b. Losses cause consumers to decrease demand. c. Profits cause firms to decrease supply. d. Losses cause firms to exit the industry.

d. Losses cause firms to exit the industry.

The entry of new firms into a market: a. Pushes the equilibrium price upwards. b. Increases profits for existing firms in the market . c. Shifts the market supply curve to the left. d. Pushes the equilibrium price downward.

d. Pushes the equilibrium price downward.

In a perfectly competitive market, efficiency in production occurs because: a. Economic profits are high. b. Price is equal to total revenue c. There are high barriers to entry. d. There are many competing firms selling an identical product.

d. There are many competing firms selling an identical product.