9: Perfect Competition: Videos with Questions

In pure competition, if the market price of the product is higher than the minimum average total cost of the firms, then Multiple Choice ◉ some firms will exit the industry and the industry supply will decrease. ◉ other firms will enter the industry and the industry supply will increase. ◉ some firms will exit the industry and the industry supply will increase. ◉ other firms will enter the industry and the industry supply will decrease.

other firms will enter the industry and the industry supply will increase. Explanation Firm entry and exit is driven by the existence of economic profits in an industry. If the market price exceeds the minimum average total cost, economic profits are realized and new firms will enter. Firm entry increases industry supply and firm exit reduces supply.

Required information Short-Run Economic and Normal Profits Video In this video, we explored: Multiple Choice ◉ whether a firm should shut down if the market price is too low. ◉ whether a firm should exit the market if the market price is too low. ◉ how the entry of new firms affectsfirms in a market. ◉ whether a firm has normal profit or positive economic profit.

whether a firm has normal profit or positive economic profit.

Required information Firm Demand and Market Equilibrium Video How much does each pound of output sell for in this video? Multiple Choice ◉ $2 ◉ $4 ◉ $3 ◉ $5

$3

Required information Operations in the Short Run Video Which of the following statements best represents the relationship between output and price explained in the video? Multiple Choice ◉ When the price of output increases, perfectly competitive firms earn more profit by producing less output. ◉ A perfectly competitive firm's output is not dependent on the market price. ◉ A perfectly competitive firm's output moves in the opposite direction as the market price. ◉ A perfectly competitive firm's output moves in the same direction as the market price.

A perfectly competitive firm's output moves in the same direction as the market price.

Use the following graph to answer the next question. Graph: Image At the profit-maximizing level of output, the profit earned by the perfectly competitive firm is given by the area rev: 06_26_2018, 10_07_2021_QC_CS-274325 Multiple Choice ◉ 0AHE. ◉ ACFH. ◉ BCFG. ◉ ABGH.

ABGH.

Use the following graph to answer the next question. Two u-shaped curves labeled ATC and AVC are drawn above an increasing curve, MC that rises high where ATC ends. MC begins from a point labeled E, intersects AVC at a point labeled F, intersects ATC at a point labeled G, and has a point labeled H near its end point. Which point is not on the perfectly competitive firm's short-run supply curve? rev: 06_26_2018 Multiple Choice ◉ E ◉ F ◉ G ◉ H

E

Required information Market Dynamics and Changing Costs in the Long Run - Constant Costs Video Based on the video, which of the following statements is true regarding a constant-cost industry? Multiple Choice ◉ In the long run, the supply curve for a perfectly competitive firm is an upward-sloping line equal to its marginal cost curve. ◉ In the long run, the supply curve for a perfectly competitive firm is a portion of its marginal cost curve. ◉ In the long run, the supply curve for a perfectly competitive firm is a horizontal line at the minimum of average variable cost. ◉ In the long run, the supply curve for a perfectly competitive firm is a horizontal line at the minimum of average total cost.

In the long run, the supply curve for a perfectly competitive firm is a horizontal line at the minimum of average total cost.

Which of the following is true under conditions of perfect competition? rev: 06_26_2018 Multiple Choice ◉ There are differentiated products. ◉ The market demand curve is perfectly elastic. ◉ No single firm can influence the market price. ◉ Each individual firm has the ability to set its own price.

No single firm can influence the market price.

Required information Characteristics of Perfect Competition Video What good was used as an example in this video? rev: 03_31_2016_QC_CS-46206 Multiple Choice ◉ cherry tomatoes ◉ Roma tomatoes ◉ Honeycrisp apples ◉ seedless watermelons

Roma tomatoes

Required information Short-Run Supply Video Based on the video, which of the following statements is true in the short run? Multiple Choice ◉ The supply curve for a perfectly competitive firm is a horizontal line at the market price. ◉ The supply curve for a perfectly competitive firm is a portion of its marginal cost curve. ◉ The supply curve for a perfectly competitive firm is a portion of its average variable cost curve. ◉ The supply curve for a perfectly competitive firm is a portion of its average total cost curve.

The supply curve for a perfectly competitive firm is a portion of its marginal cost curve.

Use the following graph showing the long-run supply and demand curves in a perfectly competitive industry to answer the next question. The horizontal axis lists labels from left to right as Q2, Q0, and Q1. The vertical axis lists labels from bottom to top as P1, P0, and P2. A straight line labeled supply, from P0 at the vertical axis intersects a decreasing line labeled, demand at data point (Q0, P0). Dotted straight lines from P1 and P2 at the vertical axis and Q2, Q0, and Q1 at the horizontal axis connects to the demand curve. The curves suggest that this is rev: 06_26_2018 Multiple Choice ◉ a constant-cost industry. ◉ an increasing-cost industry. ◉ a decreasing-cost industry. ◉ not possible, because the supply curve is always upward sloping.

a constant-cost industry.

Required information Equilibrium, Efficiency and Market Dynamics in the Long Run Video In this video, we explored: Multiple Choice ◉ whether a firm should shut down if the market price is too low. ◉ whether a firm should exit the market if the market price is too low. ◉ how the entry of new firms affects firms in a market. ◉ whether a firm has normal profit or positive economic profit.

how the entry of new firms affects firms in a market.

Farmer Jones is producing wheat and must accept the market price of $7.85 per bushel. At this time, her average total costs and her marginal costs both equal $5.23 per bushel. Her minimum average variable costs are $4.76 per bushel. In order to maximize profits or minimize losses in the short run, Farmer Jones should rev: 05_11_2022_QC_CS-304945 Multiple Choice ◉ increase selling price. ◉ produce zero output and shut down. ◉ continue producing but reduce output. ◉ increase output.

increase output. Explanation As long as the market price is above minimum average variable costs, the firm should produce, as any loss will be smaller than shutting down. Assuming the firm should produce, if MR = MC at its current level of output, it should continue to produce that level of output. If MR > MC, it should expand production; if MR < MC, it should reduce output. If, for example, the market price is $7.85, marginal and average total cost are both $5.23, and average variable cost is $4.76, the firm should increase output..

Assume the XYZ Corporation is producing 30 units of output. It is selling this output in a purely competitive market at $5.00 per unit. Its total fixed costs are $75 and its average variable costs are $4.00 at 30 units of output. This corporation Multiple Choice ◉ is realizing an economic loss of $45.00. ◉ is realizing an economic profit of $75.00. ◉ is realizing an economic profit of $30.00. ◉ is earning zero economic profits.

is realizing an economic loss of $45.00.

A perfectly competitive firm does not try to raise its price above the market price because rev: 06_26_2018 Multiple Choice ◉ its competitors would not permit it. ◉ it would not be able to sell its output. ◉ this would be considered unethical price chiseling. ◉ its demand curve is inelastic, so total revenue will decline.

it would not be able to sell its output.

Required information Short-Run Economic Losses and Shutting Down Video In this video, we explored: Multiple Choice ◉ whether a firm should shut down if the market price is too low. ◉ whether a firm should exit the market if the market price is too low. ◉ how the entry of new firms affects firms in a market. ◉ whether a firm has normal profit or positive economic profit.

whether a firm should shut down if the market price is too low.