Chapter 9 Microeconomics
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.
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 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 short-run
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
In a perfectly competitive industry, the industry demand curve is __________.
Downward sloping
When a firm earns zero economic profits, it does which of the following?
Has a positive accounting profit
In a perfectly competitive market, a single firm that sets its price a small amount above the market price will do which of the following?
Have lower revenues but receive zero economic profits
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?
Shut down production
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
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 & long-run average costs
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 ______________ equilibrium quantity in the market.
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
Assume 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
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?
Individual buyers and sellers cannot affect the market price.
Which of the following is NOT true regarding perfectly competitive markets?
It is difficult or impossible for a firm to enter and compete in the market
An effective price ceiling in a competitive industry will mean that which of the following is true?
Marginal cost equal to marginal revenue
A perfectly competitive firm will maximize profits at the output level where which of the following is true?
Marginal cost is equal to marginal revenue
Assume 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 change, increase
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; not change
Which of the following is true for a single firm in a perfectly competitive industry?
P = MR
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 which of the following is true?
Price equals marginal cost
If a perfectly competitive industry is in long-run equilibrium, then which of the following is true?
Price equals minimum average cost.
Regarding perfect competition, what does it mean when the goods sold by the firms in a market are homogeneous?
The good sold by one firm is a perfect substitute of the good sold by another firm in the same market.
For a firm in a perfectly competitive market, average revenue equals ________.
The market price
Why are perfectly competitive markets are considered economically efficient?
The opportunity cost of society for making the good is equal to society's value of the good.
For a firm in a perfectly competitive industry, the demand curve for its own product is _________.
The same as the price
In the theory of firm behavior, we assume that firms attempt to maximize _________.
Total economic profits
