ch 10
The equilibrium price in a perfectly competitive industry is $50 and the minimum average cost faced by individual firms is $46.50. This difference in the market clearing price and the minimum average cost faced by firms in the industry will lead to
the entry of new firms in the industry.
The total output in a perfectly competitive industry increases with an increase in market demand due to
the entry of new firms in the industry.
For a perfectly competitive market in the long run, the industry supply curve is
the long-run average cost curve.
Suppose the Baltonian government decides to provide subsidies to steel producers in Baltonia to help reduce the pollution level in the country. This decision of the Baltonian government is likely to lead to a(n)
increase in the level of pollution caused by the steel industry.
The demand curve in a perfectly competitive industry is
downward slop
Identify the impact of a tax imposed on a polluting firm.
An upward shift in the long-run average cost curve
Which of the following characteristics does not fit a perfectly competitive market?
Each individual firm exerts a small degree of control over the market price
Which of the following is true of a perfectly competitive market structure?
In a perfectly competitive market, marginal revenue is always equal to the market price.
Which of the following is true of the long-run supply curve of a perfectly competitive industry?
It is identical to the long-run average cost curve.
In order to maximize profit, a perfectly competitive firm will produce the level of output corresponding to a point where
P = MC.
Which of the following represents the short-run equilibrium in a perfectly competitive market?
P = MR = MC
Which of the following is a possible impact of the entry of a new firm in a perfectly competitive industry?
The entry of a new firm will lead to a fall in the price of the product.
Which of the following is a possible reason for a competitive firm to stay in the industry even after earning zero economic profit in the long run?
The revenue earned by the firm is equal to the cost incurred, including the opportunity cost of capital and labor.
Which of the following markets most closely resembles the characteristics of a perfectly competitive market?
The vendors who operate hot dog carts on city streets
Which of the following is a purpose behind the study of a perfectly competitive market by economists?
To establish a benchmark that can be used to measure the performance of the economy
If a perfectly competitive industry is in long-run equilibrium, firms maximize profits, and the process of entry and exit results in
all firms producing where P = MC = AC.
A price taking firm's short-run supply curve is
identical to the marginal cost curve, above the point where MC = AVC.
The market for a perfectly competitive industry currently has an equilibrium price of $8 and the minimum average cost for the firms in this market is $5. In the long run, we would expect
each firm to produce less output than they currently produce.
The assumption of _____ is essential for the result that perfectly competitive firms produce at the lowest per-unit cost.
free entry and exit
A perfectly competitive firm faces a(n) _____ demand curve.
horizontal
A perfectly competitive firm that earns zero economic profit in the long run
is in equilibrium.
The price of a product in a perfectly competitive industry in the long run cannot exceed the _____ regardless of the quantity of output produced.
long-run average cost of production
Suppose you are the owner of a firm in a perfectly competitive market. You will produce up to the point where
marginal revenue is equal to marginal cost.
There will be a continuous flow of resources into a perfectly competitive industry if the rate of return to capital is
more than the opportunity cost of capital.
Economists examine the _____ in a market in order to determine whether or not a market is perfectly competitive.
num of firms
Firms and customers are well informed about available products and prices in a
perfectly competitive industry.
The supply curve in a perfectly competitive industry _____ with the entry of new firms in the industry.
shifts to the right
If a firm faces a horizontal demand curve, then
the market price is identical to the firm's marginal revenue.
A firm in a perfectly competitive market cannot make decisions regarding
the price to be charged for a product.
For a firm in a perfectly competitive market, its short-run supply curve is
the segment of the marginal cost curve above where it intersects with the average variable cost curve.
A competitive firm incurs losses when
the short-run average cost curve lies above the price of the product.
It is difficult for firms in a perfectly competitive industry to form trade associations or other collusive arrangements because
there are numerous firms and customers in the industry.