HW-11: Perfect Competition
In perfect competition, long-run equilibrium occurs when the economic profit is A. positive. B. zero. C. negative. D. None of the above.
B. zero.
Why do single firms in perfectly competitive markets face horizontal demand curves? A. With many firms selling an identical product, single firms have no effect on market price. B. With many buyers, single firms can sell as much as they want regardless of price. C. With only a few firms in the market selling an identical product, single firms have the ability to charge a constant price. D. With each firm facing a unique demand for its product, single firms can sell as much as they want regardless of price. E. Both a and b.
A. With many firms selling an identical product, single firms have no effect on market price.
When are firms likely to enter an industry? When are they likely to exit? A. Firms will enter an industry when price equals marginal cost, but firms will exit an industry when price does not equal marginal cost. B. Firms will exit an industry when price is less than the minimum point on the average variable cost curve, and firms will enter an industry when price is greater than the minimum point on the average variable cost curve. C. Firms will exit an industry when price is greater than the minimum point on the average total cost curve, and firms will enter an industry when price is less than the minimum point on the average total cost curve. D. Accounting profits attract firms to enter an industry, and accounting losses cause firms to exit an industry. E. Economic profits attract firms to enter an industry, and economic losses cause firms to exit an industry.
E. Economic profits attract firms to enter an industry, and economic losses cause firms to exit an industry.
Explain why it is true that for a firm in a perfectly competitive market that P = MR = AR. In a perfectly competitive market, P = MR = AR because A. firms have market power. B. there are barriers to entry. C. firms face downward sloping demand curves. D. firms are price makers. E. firms can sell as much output as they want at the market price.
E. firms can sell as much output as they want at the market price.
Which of the following terms best describes a state of the economy in which production reflects consumerpreferences? A. allocative efficiency B. consumer equilibrium C. productive efficiency D. socialism Long-run equilibrium in perfect competition results in A. productive efficiency. B. allocative efficiency. C. Both A and B. D. Neither A nor B.
A. allocative efficiency C. Both A and B.
The increase in total revenue that results from selling one more unit of output is A. marginal revenue. B. average revenue. C. marginal cost. D. None of the above. What is the relationship between price, average revenue, and marginal revenue for a firm in a perfectly competitivemarket? A. Price is equal to both average revenue and marginal revenue. B. Price, average revenue, and marginal revenue usually all have different values. C. Price is equal to average revenue and greater than marginal revenue. D. Price is greater than average revenue and equal to marginal revenue.
A. marginal revenue. A. Price is equal to both average revenue and marginal revenue.
How are prices determined in perfectly competitive markets? In perfectly competitive markets, prices are determined by A. the interaction of market demand and supply because firms and consumers are price takers. B. firms because they sell differentiated products. C. consumers because firms sell identical products. D. firms because they individually are a sizable portion of the market. E. consumers because firms are price takers.
A. the interaction of market demand and supply because firms and consumers are price takers.
Are perfectly competitive markets productively efficient in the long run? A. Yes, because firms produce where the marginal benefit to consumers equals the marginal cost of production. B. Yes, because firms produce at the lowest average cost possible. C. No, because firms earn zero economic profits. D. No, because firms will not shut down unless price is less than the average variable cost of production. E. Both a and b.
B. Yes, because firms produce at the lowest average cost possible.
How is the market supply curve derived from the supply curves of individual firms? The market supply curve is derived A. by adding the individual average variable cost curves. B. by horizontally adding the individual firms' supply curves. C. by adding the average total cost curves for the individual firms. D. by vertically adding the individual firms' supply curves.
B. by horizontally adding the individual firms' supply curves.
Which of the following is an expression of profit for a perfectly competitive firm? Profit for a perfectly competitive firm can be expressed as A. Profit=P×Q, where P is price and Q is output. B. Profit=(P−TC)×Q, where P is price, Q is output, and TC is total cost. C. Profit=(P×Q)−(ATC×Q), where P is price, Q is output, and ATC is average total cost. D. Profit=P−ATC, where P is price and ATC is average total cost. E. Profit=P−MC, where P is price and MC is marginal cost.
C. Profit=(P×Q)−(ATC×Q), where P is price, Q is output, and ATC is average total cost.
What are the three conditions for a market to be perfectly competitive? For a market to be perfectly competitive, there must be A. many buyers andsellers, with all firms selling identical products, and substantial barriers to new firms entering the market. B. many buyers and sellers, with firms selling similar but not identical products, with low barriers to new firms entering the market. C. many buyers and sellers, with all firms selling identical products, and no barriers to new firms entering the market. D. many buyers and a small number of firms that compete, selling identical products, and barriers to new firms entering the market. E. many buyers and one seller, with the firm producing a product that has no close substitutes, and barriers to new firms entering the market.
C. many buyers and sellers, with all firms selling identical products, and no barriers to new firms entering the market.
Does the market system result in allocative efficiency? In the long run, perfect competition A. does not result in allocative efficiency because price does not equal the marginal benefit consumers receive from consuming the last unit of the good sold. B. does not result in allocative efficiency because firms enter and exit until they break even where price equals minimum average cost. C. results in allocative efficiency because firms produce where price equals marginal cost. D. results in allocative efficiency because firms produce where the marginal benefit consumers receive from consuming the last unit of the good sold is greater than marginal cost. E. does not result in allocative efficiency because firms produce an identical product that offers consumers no variety.
C. results in allocative efficiency because firms produce where price equals marginal cost.
Does the market system result in productive efficiency? In the long run, perfect competition A. does not result in productive efficiency because barriers to entry result in firms making a profit. B. does not result in productive efficiency because price-taking firms produce where price equals marginal cost. C. results in productive efficiency because firms enter and exit until they break even where price equals minimum average cost. D. results in productive efficiency because production represents consumer preferences. E. results in productive efficiency because every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it.
C. results in productive efficiency because firms enter and exit until they break even where price equals minimum average cost.
What is the relationship between a perfectly competitive firm's marginal cost curve and its supply curve? A. A firm's marginal cost curve is equal to its supply curve for prices above average total cost. B. A firm's marginal cost curve is upward sloping with twice the slope of its supply curve. C. A firm's marginal cost curve is equal to its supply curve for all prices. D. A firm's marginal cost curve is equal to its supply curve for prices above average variable cost. E. A firm's marginal cost and supply curves are horizontal lines equal to the market price.
D. A firm's marginal cost curve is equal to its supply curve for prices above average variable cost.
Why are consumers so powerful in a market system? A. Because there are more consumers than producers. B. Because consumer surplus is larger than producer surplus. C. Because consumers can lobby the government to impose regulations on the businesses. D. Because it is consumers' demand that influences the market price and dictates what producers will supply in the market.
D. Because it is consumers' demand that influences the market price and dictates what producers will supply in the market.
Which of the following statements is true when the difference between TR and TC is at its maximum positive value? A. MR = MC B. Slope of TR = Slope of TC C. MR = 0. D. Both A and B are true.
D. Both A and B are true.
What is a price taker? A price taker is A. a firm with a downward-sloping demand curve. B. a firm with a perfectly inelastic demand curve. C. a firm that has the ability to charge a price greater than marginal cost. D. a firm that is unable to affect the market price. Your answer is correct. E. a firm that does not seek to maximize profits. When are firms likely to be price takers? A firm is likely to be a price taker when A. barriers to entry are substantial. B. firms in the industry collude. C. it sells a product that is exactly the same as every other firm. D. it represents a substantial portion of the total market. E. it has market power.
D. a firm that is unable to affect the market price. C. it sells a product that is exactly the same as every other firm.
Would a firm earning zero economic profit continue to produce, even in the long run? In long-run competitive equilibrium, a firm earning zero economic profit A. will not continue to produce because this return is not covering its opportunity costs. B. will not continue to produce because such profit corresponds with negative accounting profit. C. will not continue to produce because it could earn a better return in another industry. D. will continue to produce because such profit is as high a return as could be earned elsewhere. E. will not continue to produce because it would be better off shutting down.
D. will continue to produce because such profit is as high a return as could be earned elsewhere.
Assume the market for oranges is perfectly competitive. If the demand for oranges increases, will the market supply additional oranges? If the demand for oranges increases, then the market A. will not supply additional oranges because consumers are not willing to pay higher prices for fruit. B. will supply additional oranges because government bureaucrats will order additional orange production. C. will not supply additional oranges because oranges produced by different sellers are identical. D. will supply additional oranges because producers seek the highest return on their investments. E. will supply additional oranges because consumers are price takers.
D. will supply additional oranges because producers seek the highest return on their investments.