Module 9

Which of the following is NOT an assumption of perfect competition? Firms compete by making their product different from products produced by other firms There are no restrictions on entry into the market Established firms have no advantage over new firms Sellers and buyers are well informed about prices.

Firms compete by making their product different from products produced by other firms

In the long-run equilibrium, perfectly competitive firms produce where marginal cost is minimized average total cost is minimized average revenue is zero All of these are correct

average total cost is minimized

For a perfectly competitive firm, as its output increases its marginal revenue ________ and its marginal cost ________. changes; changes changes; does not change does not change; changes does not change; does not change

does not change; changes

If the price exceeds the average variable cost, by producing the level of output such that marginal revenue equals marginal cost, the firm ensures that it will earn an economic profit not suffer any losses earn the largest profit possible survive in the long run

earn the largest profit possible

The goal of a perfectly competitive firm is to maximize its normal profit revenue output economic profit

economic profit

In a perfectly competitive market, a permanent increase in demand initially brings a higher price, economic loss, and entry into the market loss, and exit from the market profit, and entry into the market profit, and exit from the market

profit, and entry into the market

Marginal revenue is defined as the value of a firm's sales the total revenue from the total amount the firm sells the change in total revenue that results from a one-unit increase in the quantity sold total revenue divided by the total quantity sold

the change in total revenue that results from a one-unit increase in the quantity sold

A perfectly competitive firm has a total revenue curve that is upward sloping with an increasing slope downward sloping with a constant slope upward sloping with a decreasing slope upward sloping with a constant slope.

upward sloping with a constant slope

In the long run, the economic profit of a firm in a perfectly competitive market will be above zero will be below zero will equal zero can be above, below, or equal to zero

will equal zero

In the short run, an increase in demand for a good that is sold in a perfectly competitive market increases the number of firms in the market increases the economic profits of existing firms in the market has no effect on the price causes more firms to shut down

increases the economic profits of existing firms in the market

If Steve's Apple Orchard, Inc. is a perfectly competitive firm, the demand for Steve's apples has zero elasticity unitary elasticity elasticity equal to the price of apples infinite elasticity

infinite elasticity

The economic profit of a perfectly competitive firm is less than its total revenue equals its total revenue is greater than its total revenue is less than its total revenue if its supply curve is inelastic and is greater than its total revenue if its supply curve is elastic

is less than its total revenue

As long as it does not shut down, a profit-maximizing perfectly competitive firm will never set its price equal to its marginal revenue produce so that price equals average cost always earn an economic profit. produce so that marginal revenue equals marginal cost

produce so that marginal revenue equals marginal cost

Suppose a perfectly competitive market is in long-run equilibrium. If there is a permanent increase in demand, at least in the short run, some firms will increase their output at least in the short run, the price will increase initially new firms will enter the market All of these answers are correct

All of these answers are correct

In the long-run equilibrium for a perfectly competitive market the firms' economic profits are zero there is no incentive for entry or exit average total costs of production are minimized All of these are correct

All of these are correct

In the long-run equilibrium, perfectly competitive firms produce the level of output such that marginal cost is minimized average total cost is minimized marginal cost equals the price Both answers average total cost is minimized and marginal cost equals the price are correct

Both answers average total cost is minimized and marginal cost equals the price are correct

In a perfectly competitive market that is in long-run equilibrium, which of the following will NOT occur? Firms make only zero economic profit Firms' owners earn a normal profit The price equals the minimum average total cost Entrepreneurs want to enter this industry

Entrepreneurs want to enter this industry

For a perfectly competitive firm, the shutdown point is the amount of output at which price equals minimum average variable cost amount of output at which price equals minimum average total cost price at which economic profit is zero price at which total opportunity cost is zero

amount of output at which price equals minimum average variable cost

In the long run, perfectly competitive firms make zero economic profit (their owners earn a normal profit) because there are many buyers and sellers any economic loss would increase the demand for the good, thereby raising its price any economic profit would attract newcomers to the industry the firms are incompetent

any economic profit would attract newcomers to the industry

If the donut industry is perfectly competitive and is in long-run equilibrium, then the price of a donut is greater than marginal cost is greater than short-run average cost is greater than long-run average cost equals long-run average cost

equals long-run average cost

In the long-run, if firms in a perfectly competitive market are incurring persistent economic losses, some firms will exit and the price will fall exit and the price will rise enter and the price might either rise or fall exit and the price might either rise or fall

exit and the price will rise

In a perfectly competitive market that is in long-run equilibrium, a permanent leftward shift in the market demand curve raises the price in the short run raises profits in the short run leads to new firms entering the market in the long run lowers the price at first but then raises it as firms leave the market

lowers the price at first but then raises it as firms leave the market

In the long-run equilibrium in a perfectly competitive market, the firms produce at the ________ possible average total cost and the price equals the ________ possible average total cost. highest; highest lowest; lowest highest; lowest lowest; highest

lowest; lowest

The industry that produces zangs is in long-run equilibrium. Then the demand for zangs increases permanently. As a result, firms in the industry will ________. Some firms will ________ the industry, and the industry supply curve will shift ________. make economic an profit; enter; rightward make zero economic profit; exit; leftward incur economic losses; exit; rightward incur economic losses; exit; leftward

make economic an profit; enter; rightward

Bob's Lawn Care Services is a perfectly competitive firm that currently mows 22 lawns a week. Bob's marginal cost exceeds the price he charges. Bob can increase his profit if he charges a lower price mows fewer than 22 lawns a week mows more than 22 lawns a week charges a higher price

mows fewer than 22 lawns a week

In a perfectly competitive market that is in long-run equilibrium, a rightward shift in the market demand curve results in the price falling in the short run the firms' economic profits falling in the short run firms leaving the industry in the long run none of the events listed above

none of the events listed above

The market demand for wheat is ________ and the demand for wheat produced by an individual farm is ________. perfectly elastic; perfectly inelastic not perfectly elastic; perfectly elastic not perfectly inelastic; inelastic elastic; unit elastic

not perfectly elastic; perfectly elastic

In the long run, perfectly competitive firms earn just enough revenue to pay all fixed costs pay all accounting costs pay all opportunity costs attract entry

pay all opportunity costs

Consumer surplus ________. equals total revenue minus marginal cost is maximized when the market outcome is efficient equals total revenue minus opportunity cost plus producer surplus is maximized when resources are used efficiently

plus producer surplus is maximized when resources are used efficiently

In the long-run equilibrium, perfectly competitive firms make zero economic profit because of government regulations the ability of firms to enter and exit inefficient production processes high fixed costs.

the ability of firms to enter and exit

A market is perfectly competitive if each firm in it can influence the price of its product there are many firms in it, each selling a slightly different product there are many firms in it, each selling an identical product there are few firms in the market.

there are many firms in it, each selling an identical product

Homer's Holesome Donuts has determined that its profit-maximizing quantity is 10,000 donuts per year. Homer's earns $12,000 in revenue from the sale of those donuts. Homer's has two costs. First he pays $16,000 in annual rental payments for its five-year lease on its store. Second Homer incurs an additional cost of $5,000 for ingredients. Should Homer's exit the market in the long run? yes, because he is incurring an economic loss yes, because all costs are fixed in the long run no, because he is making an economic profit no, because all costs are variable in the long run

yes, because he is incurring an economic loss

In the long-run equilibrium in a perfectly competitive market, the economic profit of the firms is positive negative zero increasing

zero