Microeconomics Chapter 8

If firms enter a purely competitive industry, then in the long run this change will shift the industry: Demand curve to the left, and the market price will decrease Demand curve to the right, and the market price will increase Supply curve to the right, and the market price will decrease Supply curve to the left, and the market price will increase

Supply curve to the right, and the market price will decrease

Refer to the above diagram for a purely competitive producer. The firm's short-run supply curve is (Hint: The short-run supply curve starts at the shut-down points and includes all points above: the abcd segment and above on the MC curve. the bcd segment and above on the MC curve. the cd segment and above on the MC curve. not shown.

The bcd segment and above on the MC curve. All points above AVC( the shut-down point) is the supply curve

Which of the following industries most closely approximates pure competition? agriculture farm implements clothing steel

agriculture

Refer to the above diagram. At P1, this firm will produce: 47 units and break even. 47 units and realize an economic profit. 66 units and earn only a normal profit. 24 units and earn only a normal profit.

47 units and realize an economic profit. At P1 which is also the MR, you find the quantity to produce to maximize profit is 47 (MR=MC) and you would earn an economic profit since when you produce 47 units the ATC is less than the price.

Refer to the table below for this perfectly competitive firm. If the market price for the firm's product is $140, the competitive firm will produce how much to maximize profit or minimize loss: 5 units 6 units 7 units 8 units

6 units If price is $140 that means MR is $140 and to maximize profit or minimize loss you would produce at the quantity where MR=MC which means 6 units which is where Marginal Cost is $140.

Refer to the above diagram. At P3, this firm will: produce 14 units and realize an economic profit. produce 62 units and earn only a normal profit. produce 40 units and incur a loss. shut down in the short run.

produce 40 units and incur a loss. At P3 which is also the MR, you find the quantity to produce to maximize profit or minimize loss is 40 (MR=MC) and you would incur a loss since ATC is higher than the Price at this point

Refer to the table below for this perfectly competitive firm. If the market price for the firm's product is $140, what would be the profit they would earn at this price. (Hint: Use the quantity produced in previous question). $0 $300 $540 $840

$0 If price is $140 that means MR is $140 and to maximize profit or minimize loss you would produce at the quantity where MR=MC which means 6 units which is where Marginal Cost is $140. To calculate profit at this amount take (P - ATC) x Q.P= $140, ATC = $140, Q =6 Profit = ($140-140) x 6 =0 x 6 = $0

Refer to the above diagram for a purely competitive producer. If product price is P3: the firm will maximize profit at point d. the firm will earn an economic profit. economic profits will be zero. new firms will enter this industry.

economic profits will be zero. P=ATC at this point which means profit will be zero since profit = (P-ATC) xQ

Which of the following is not a characteristic of pure competition? firms being a price-maker a standard product no barriers to entry a larger number of sellers

firms being a price-maker

Refer to the above diagram. At P4, this firm will: shut down in the short run. produce 30 units and incur a loss. produce 30 units and earn only a normal profit. produce 10 units and earn only a normal profit.

shut down in the short run. Shut down since AVC his greater than Price