Econ Chapter 11 connect assessment

The diagram shows the average total cost curve for a purely competitive firm. At the long-run equilibrium level of output, this firm's total revenue

is $400

Assume a purely competitive increasing-cost industry is in long-run equilibrium. If a decline in demand occurs, firms will

leave the industry, price will fall, and quantity produced will fall.

Suppose a firm in a purely competitive market discovers that the price of its product is above its minimum AVC point but everywhere below ATC. Given this, the firm

should continue producing in the short run but leave the industry in the long run if the situation persists.

Suppose that the pen-making industry is perfectly competitive. Also suppose that all current firms and any potential firms that might enter the industry have identical cost curves, with minimum ATC = $1.25 per pen. If the market equilibrium price of pens is currently $1.50, what would you expect the equilibrium price to be in the long run?

$1.25

Assume a purely competitive decreasing-cost industry is initially in long-run equilibrium, producing 6 million units at a market price of $25.00. Suppose that an increase in consumer demand occurs. After all economic adjustments have been completed, which output and price combination is most likely to occur?

7 units at a price of $23.50.

Which of the following conditions are true when an average, or representative, firm in a purely competitive industry is in long-run equilibrium?

MR = MC. P = minimum AVC. The MC curve is horizontal. The firm is earning a normal profit.

Which of the following conditions are true when an average, or representative, firm in a purely competitive industry is in long-run equilibrium?

P equals marginal cost P equals lowest ATC

Suppose the table above represents the long-run cost structure for a firm in a perfectly competitive industry. Based on this information we can conclude that this firm operates in

a constant-cost industry.

Consider the following costs of a typical firm in a purely competitive industry. The firm has no fixed costs (average total cost = average variable cost). a. Given only the available information, what would you expect product price to be in the long run? $11.25 $5.00 $12.00 $15.00 b. b. What would you expect price to be in the short run? $9.00 $15.00 $5.00 $7.00

a. $11.25 b. $15.00

A firm in a purely competitive industry is currently producing 1,000 units per day at a total cost of $450. If the firm produced 800 units per day, its total cost would be $300, and if it produced 500 units per day, its total cost would be $275. a. What are the firm's ATC per unit at these three levels of production? At 1,000 units per day, ATC = At 800 units per day, ATC = At 500 units per day, ATC = b. If every firm in this industry has the same cost structure, is the industry in long-run competitive equilibrium? c. From what you know about these firms' cost structures, what is the highest possible price per unit that could exist as the market price in long-run equilibrium? d. If that price ends up being the market price and if the normal rate of profit is 10 percent, then what will each firm's accounting profit per unit be?

a. At 1,000 units per day, ATC = $ .45 At 800 units per day, ATC = $ .37 At 500 units per day, ATC = $ .55 b. no c.$.38 d.

Using diagrams for both the industry and a representative firm, illustrate competitive long-run equilibrium. Assume constant costs. Given the change in demand shown by the left diagram, illustrate how this change in demand affects the representative firm. a. Given this change in demand, the representative firm will produce________output at a________price. b. Long-run equilibrium will be restored by________shifting _____until it is equal to the minimum ATC. In the long run, market (industry) price will _______.

a. more; higher b. supply, out , decrease

Purely competitive industry X has decreasing costs and its product is an inferior good. The industry is currently in long-run equilibrium. The economy now goes into a recession and average incomes decline. The result will be

an increase in output, but not in the price of the product.

In long-run equilibrium under pure competition, all firms will produce at minimum

average total cost

The accompanying graph represents the purely competitive market for a product. When the market is at equilibrium, the producer surplus would be represented by the area

b

The accompanying graph shows the long-run supply and demand curves in a purely competitive market. We know that when this market reaches equilibrium, the marginal

cost equals marginal benefit.

The process by which new firms and new products replace existing dominant firms and products is called

creative destruction.

Assume a purely competitive decreasing-cost industry is in long-run equilibrium. If an increase in demand occurs, firms will

enter the industry, price will fall, and quantity produced will rise.

Long-run adjustments in purely competitive markets primarily take the form of

entry or exit of firms in the market.

The MR = MC rule applies

in both the short run and the long run.

Line (1) in the diagram reflects a situation where resource prices

increase as industry output expands.

Resources are efficiently allocated when production occurs where

price is equal to marginal cost

A firm is producing an output such that the benefit from one more unit is more than the cost of producing that additional unit. This means the firm is

producing less output than allocative efficiency requires.

Augi's Art Shack sells art supplies in a perfectly competitive market. The firm is currently realizing economic profits of $14,000 in the short run. In the long run we would expect Augi's to

realize economic profits of $0.

Creative destruction is

the process by which new firms and new products replace existing dominant firms and products.Correct

In a purely competitive industry,

there may be economic profits in the short run but not in the long run.