Econ 2

Alice, Bud, and Celia can produce rubber bands in a perfectly competitive market. If they enter the market, the minimum average total cost for a bundle of rubber bands, for the three of them is $2, $3, and $4, respectively. If the market price is $2.10 per bundle, then

only Alice will enter the market.

For a syrup producer in central Vermont, profit is maximized at the level of output for which total

revenue exceeds total cost by the largest amount.

In the long run, a perfectly competitive firm earns

zero economic profit, that is, a normal profit.

For a perfectly competitive sugar producer in Haiti, a short-run economic profit will occur if the price of each ton of sugar sold is

greater than the average total cost of producing sugar.

Under what conditions would a perfectly competitive cotton farmer who is incurring an economic loss temporarily stay in business?

if the total revenue exceeds the total variable cost

Suppose a perfectly competitive market is in long-run equilibrium and then there is a permanent increase in the demand for that product. The new long-run equilibrium will have

more firms in the market.

Jennifer's Bakery Shop produces baked goods in a perfectly competitive market. If Jennifer decides to produce her 100th batch of cookies, the marginal cost is $120. She can sell this batch of cookies at a market price of $110. To maximize her profit, Jennifer should

not produce this additional batch.

Bill owns a lawn-care company in Windermere, Florida, whose cost curves are illustrated in the above figure. The market equilibrium price in this perfectly competitive market equals $32 per lawn mowed. At this price, how many lawns will Bill mow per week?

40

The hog market is perfectly competitive, with thousands of hog farmers. In the 1990s, new farmers entered the hog market, driving the price of pork down. Initially, entry ____ the economic profit of the initial hog farmers and in the long run the initial hog farmers ____.

decreased; earned a normal profit

If it does not shut down, a perfectly competitive firm produces where marginal cost is equal to the marginal revenue

always to maximize its profit.

When firms in a perfectly competitive market incur economic losses, exit by some firms means the market supply will

decrease.

Catfish farming is a perfectly competitive industry. Catfish farmers suffered tremendous economic losses in the late 1990s. As a result,

eventually some catfish farmers exited the market.

The above figure shows three possible average total cost curves. If all firms in a perfectly competitive industry each have an average total cost curve identical to ATC2, each produces 40 units, and the market price of the good is $20 per unit, then

firms will enter the industry and the number of firms increases.

For a perfectly competitive syrup producer whose average total cost curve does not change, an economic profit could turn into an economic loss if the

market demand for syrup decreases.

Suppose a perfectly competitive market is in long-run equilibrium with a price of $12. Then there is a permanent increase in demand. As a result, in the short run the market price ____ and in the long run the number of firms ____ and the price is ____ the price was in the short run.

rises; increases; lower than