Perfectly Competitive

A perfectly competitive producer has the following short-run average cost curve and marginal cost curve: AC = 2Q + 3, MC = 4Q + 3, where costs are measured in dollars and Q represents the firm's output in units. If the market price is $15, the profit-maximizing producer should produce _______ units of output.

3

A perfectly competitive firm is a "price taker" because it cannot sell its product for more than the market price. Select one:

True

The short-run supply curve for the perfectly competitive firm is that part of the marginal cost curve that lies above the average fixed cost curve.

True

The perfectly competitive widget industry is in long-run equilibrium. A profit-maximizing manufacturer receives total revenue of $55,000. He uses his labor, $15,000 worth of wire, and $15,000 worth of steel to make the widgets. The manufacturer _____. Select one:

b. must have an opportunity cost of labor of exactly $25,000. Correct

The most efficient market structure in the long run is _____.

perfect competition. Correct

Sunk costs are created in the short run by _____.

purchasing machinery. b. All of the other answers are correct. Correct c. lease agreement on real estate. d. contract for labor services.

In perfect competition, an increase in fixed cost will eventually cause all EXCEPT _____. Select one:

reduction in a firm's output. Correct

If the opportunity cost of capital is below the rate of return to capital in the perfectly competitive beauty salon industry, _____.

resources will flow into the industry.

At a firm's profit-maximizing level of output, its price is $200 and its short-run average cost is $225. The firm _____.

should shut down if its short-run average fixed cost is less than $25.

Which of the following most resembles a perfectly competitive market?

the stock market

A subsidy to firms intended to reduce pollution in an industry would _____.

likely have the paradoxical effect of increasing pollution in the industry in the long run. Correct

A firm operating at MC = MR must be making a profit.

False

Firms in a perfectly competitive market produce at minimum average cost in the short run and the long run. Select one:

False

If TR < TC, a perfectly competitive firm will always shut down.

False

Perfectly competitive markets are not the best at producing the goods that are desired by consumers. Select one:

False

Perfectly competitive markets have relatively high barriers to entry.

False

Zero economic profit means that the firm's owners receive no compensation for their investment.

False

Which of the following statements concerning equilibrium in the long run is NOT true?

Most firms earn economic profit in the long run.

A firm will shut down in the short run if _____.

P<AVC

The result that perfectly competitive firms produce at the lowest per-unit cost is derived from the assumption of ____

free entry and exit.