chapter 23

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Which of the following is not one of the assumptions of a perfectly competitive​ market?

Better information for producers than consumers.

T/F: Anything that affects the marginal cost curves of the firms in a perfectly competitive industry will influence the industry supply curve.

True

T/F: Firms in perfectly competitive industries will eventually have no customers if they set their prices above the competitive price.

True

T/F: The market clearing price in a perfectly competitive industry is found at the intersection of the​ industry's demand curve and​ short-run supply curve.

True

Two years​ ago, a large number of firms entered a market in which existing firms had been earning positive economic profits. By the end of last​ year, the typical firm in this industry had begun earning negative economic profits. No other events occurred in this market during the past two years. a. During the last​ year, b. All of the following adjustments will take place in this market beginning this year except

a. the firms incurred​ losses, as the market output expanded and the market price fell. b. that price and cost will fall.

If a perfectly competitive firm sells the product for a​ profit-maximizing price of​ $4.76 and has average total cost per unit of​ $5.16, in the short run

all of the above

The​ short-run break-even price is the price at which

all of the above

In a competitive​ market, positive economic profits act to

attract new entrants into the industry.

In the long​ run, all firms in a perfectly competitive industry

break even

The ATC curve measures the​ ________ and the price measures the​ ________.

cost per​ unit; revenue per unit

The decision making process for the perfectly competitive firm boils down to

deciding how much to produce.

In a​ decreasing-cost industry, the​ long-run supply curve is

downward sloping

In the long​ run, a perfectly competitive industry has a tendency to move toward​ equilibrium, a point where

economic profits are zero.

In a perfectly competitive​ market, if P​ > ATC in the short​ run, there is apt to be

entry of new firms into the market.

For a perfectly competitive​ firm, price

equals both average revenue and marginal revenue.

A perfectly elastic​ long-run supply curve

indicates that input prices do not change when firms enter or exit the industry.

A perfectly competitive​ firm's short-run supply curve is

its marginal cost curve at and above the intersection with the AVC curve.

​If, at the​ profit-maximizing level of​ output, average costs are less than average​ revenue, a perfectly competitive firm will be​ ________ and we would expect supply to eventually shift​ ________.

making economic​ profits; outward

At the​ long-run equilibrium the​ firm's average total cost is

minimized

In a perfectly competitive​ market, if P​ = ATC in the long​ run, the firm will

none of the above

A perfectly competitive firm wants higher profits and has decided to raise the price of its product. As an economic consultant you would advise them to

not do this since they would lose all of their sales to competitors.

The perfectly competitive firm is said to be a

price taker — it takes the price given by the market.

The perfect competitor should produce the quantity where

profits are maximized OR marginal revenue equals marginal cost.

The role of profits in the model of perfect competition is to

signal entrepreneurs to enter the industry.

If too many or too few resources are used in the production of a​ good, this is referred to as market failure.

society enjoys an efficient allocation of productive resources.

Zero economic profits means

the firm is covering all of its opportunity costs and will stay in business.

In​ long-run equilibrium in perfect​ competition,

the firm produces at the minimum point of its​ long-run and​ short-run average total cost curves.

T/F: At​ long-run equilibrium for a perfectly competitive​ firm, price equals marginal revenue equals marginal cost equals average cost.

true

T/F: In the long​ run, capital will flow into industries in which profitability is highest and will flow out of industries in which profitability is lowest.

true

The​ short-run break-even price for the perfectly competitive firm occurs where price equals

ATC

In several markets for digital devices that can be viewed as perfectly​ competitive, persistent increases in demand eventually have generated​ long-run reductions in the market prices of these devices. Which of the following explanations best describes the types of adjustments that must have occurred in these markets to have brought about this​ outcome? Such digital device industries can be characterized as

An increase in demand initially leads to an increase in price and profits of the firms. New firms enter the market and the equilibrium quantity increases with a reduction in market price along a downward sloping​ long-run industry supply curve. ​decreasing-cost industries.

In several perfectly competitive markets for minerals extracted from the​ earth, steady increases in demand for the required minerals eventually have generated​ long-run increases in the market prices of these minerals. Which of the following statements best describes the types of adjustments that must have occurred in these markets to have brought about this​ outcome?

An increase in demand initially leads to an increase in price and profits of the firms. New firms enter the market and the equilibrium quantity increases with an increase in market price along an upward rising​ long-run industry supply curve. Increasing-cost industries

A firm will continue to operate in the short​ run, even at an economic​ loss, as long as

P is greater than minimum AVC.

The demand curve for the perfectly competitive firm is

Perfectly elastic

The demand curve for the perfectly competitive industry is

Downward sloping

For each example​ below, identify which statement is not characteristic of a perfectly competitive industry.

One firm produces a large portion of the​ industry's total output. OR The products differ slightly in quality from firm to firm. OR The government also limits the number of taxicab companies that can operate within the​ city's boundaries.

The perfectly competitive firm in​ long-run equilibrium produces a level of output such that

P​ = MC​ = MR​ = short-run ATC​ = long-run ATC.

In​ long-run equilibrium which of the following is true for the firms in a perfectly competitive​ industry?

P​ = MR​ = MC​ = ATC.

When the perfect competitor earns less than normal profits in the long​ run, the firm will

exit the industry

T/F: Along the​ long-run industry supply​ curve, firms in the industry earn zero accounting profits.

false

T/F: The industry supply curve is the vertical summation of all​ firms' average total cost curves.

false

A perfectly competitive industry is initially in a​ short-run equilibrium in which all firms are earning zero economic profits but in which firms are operating below their minimum efficient scale. All of the following statements are true as the industry and the firms make their​ long-run adjustments except that

some firms leave the industry and the existing firms slowly adjust their production to reach their minimum efficient scale.

The lowest profit a firm should ever make in the short run is

the losses associated with the fixed costs of the firm.

The demand curve for the perfect competitor is horizontal because

the market dictates each​ firm's price.

With marginal cost​ pricing,

the price charged is equal to the opportunity cost to society of producing one more unit of the good.

All of the following are characteristics of perfect competition except

the products sold by the firms in the industry are differentiated.

t/f: If too many or too few resources are used in the production of a​ good, this is referred to as market failure.

true

A perfectly competitive firm is charging ​$8and selling 1000units a month. The firm lowers its price by a nickel below the market price. Its profit

will decrease

In​ long-run equilibrium, the perfectly competitive firm makes

zero economic profits.

Suppose that a firm in a perfectly competitive industry finds that at its current output​ rate, marginal revenue exceeds the minimum average total cost of producing any feasible rate of output.​ Furthermore, the firm is producing an output rate at which marginal cost is less than the average total cost at that rate of output. Is the firm maximizing its economic​ profits?

​No, if the firm was maximizing its economic profits the marginal cost would not be less than the average total cost at that rate of output.


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