HW-11: Perfect Competition

In perfect​ competition, long-run equilibrium occurs when the economic profit is A. positive. B. zero. C. negative. D. None of the above.

B. zero.

Why do single firms in perfectly competitive markets face horizontal demand​ curves? A. With many firms selling an identical​ product, single firms have no effect on market price. B. With many​ buyers, single firms can sell as much as they want regardless of price. C. With only a few firms in the market selling an identical ​product, single firms have the ability to charge a constant price. D. With each firm facing a unique demand for its​ product, single firms can sell as much as they want regardless of price. E. Both a and b.

A. With many firms selling an identical​ product, single firms have no effect on market price.

When are firms likely to enter an​ industry? When are they likely to​ exit? A. Firms will enter an industry when price equals marginal​ cost, but firms will exit an industry when price does not equal marginal cost. B. Firms will exit an industry when price is less than the minimum point on the average variable cost​ curve, and firms will enter an industry when price is greater than the minimum point on the average variable cost curve. C. Firms will exit an industry when price is greater than the minimum point on the average total cost​ curve, and firms will enter an industry when price is less than the minimum point on the average total cost curve. D. Accounting profits attract firms to enter an​ industry, and accounting losses cause firms to exit an industry. E. Economic profits attract firms to enter an​ industry, and economic losses cause firms to exit an industry.

E. Economic profits attract firms to enter an​ industry, and economic losses cause firms to exit an industry.

Explain why it is true that for a firm in a perfectly competitive market that P​ = MR​ = AR. In a perfectly competitive​ market, P​ = MR​ = AR because A. firms have market power. B. there are barriers to entry. C. firms face downward sloping demand curves. D. firms are price makers. E. firms can sell as much output as they want at the market price.

E. firms can sell as much output as they want at the market price.

Which of the following terms best describes a state of the economy in which production reflects consumer​preferences? A. allocative efficiency B. consumer equilibrium C. productive efficiency D. socialism ​Long-run equilibrium in perfect competition results in A. productive efficiency. B. allocative efficiency. C. Both A and B. D. Neither A nor B.

A. allocative efficiency C. Both A and B.

The increase in total revenue that results from selling one more unit of output is A. marginal revenue. B. average revenue. C. marginal cost. D. None of the above. What is the relationship between​ price, average​ revenue, and marginal revenue for a firm in a perfectly competitive​market? A. Price is equal to both average revenue and marginal revenue. B. ​Price, average​ revenue, and marginal revenue usually all have different values. C. Price is equal to average revenue and greater than marginal revenue. D. Price is greater than average revenue and equal to marginal revenue.

A. marginal revenue. A. Price is equal to both average revenue and marginal revenue.

How are prices determined in perfectly competitive markets? In perfectly competitive​ markets, prices are determined by A. the interaction of market demand and supply because firms and consumers are price takers. B. firms because they sell differentiated products. C. consumers because firms sell identical products. D. firms because they individually are a sizable portion of the market. E. consumers because firms are price takers.

A. the interaction of market demand and supply because firms and consumers are price takers.

Are perfectly competitive markets productively efficient in the long​ run? A. Yes, because firms produce where the marginal benefit to consumers equals the marginal cost of production. B. Yes, because firms produce at the lowest average cost possible. C. ​No, because firms earn zero economic profits. D. ​No, because firms will not shut down unless price is less than the average variable cost of production. E. Both a and b.

B. Yes, because firms produce at the lowest average cost possible.

How is the market supply curve derived from the supply curves of individual​ firms? The market supply curve is derived A. by adding the individual average variable cost curves. B. by horizontally adding the individual​ firms' supply curves. C. by adding the average total cost curves for the individual firms. D. by vertically adding the individual​ firms' supply curves.

B. by horizontally adding the individual​ firms' supply curves.

Which of the following is an expression of profit for a perfectly competitive​ firm? Profit for a perfectly competitive firm can be expressed as A. Profit=P×​Q, where P is price and Q is output. B. Profit=(P−TC)×Q​, where P is​ price, Q is​ output, and TC is total cost. C. Profit=(P×Q)−(ATC×Q)​, where P is​ price, Q is​ output, and ATC is average total cost. D. Profit=P−​ATC, where P is price and ATC is average total cost. E. Profit=P−​MC, where P is price and MC is marginal cost.

C. Profit=(P×Q)−(ATC×Q)​, where P is​ price, Q is​ output, and ATC is average total cost.

What are the three conditions for a market to be perfectly​ competitive? For a market to be perfectly​ competitive, there must be A. many buyers and​sellers, with all firms selling identical​ products, and substantial barriers to new firms entering the market. B. many buyers and​ sellers, with firms selling similar but not identical​ products, with low barriers to new firms entering the market. C. many buyers and​ sellers, with all firms selling identical​ products, and no barriers to new firms entering the market. D. many buyers and a small number of firms that​ compete, selling identical ​products, and barriers to new firms entering the market. E. many buyers and one​ seller, with the firm producing a product that has no close​ substitutes, and barriers to new firms entering the market.

C. many buyers and​ sellers, with all firms selling identical​ products, and no barriers to new firms entering the market.

Does the market system result in allocative​ efficiency? In the long​ run, perfect competition A. does not result in allocative efficiency because price does not equal the marginal benefit consumers receive from consuming the last unit of the good sold. B. does not result in allocative efficiency because firms enter and exit until they break even where price equals minimum average cost. C. results in allocative efficiency because firms produce where price equals marginal cost. D. results in allocative efficiency because firms produce where the marginal benefit consumers receive from consuming the last unit of the good sold is greater than marginal cost. E. does not result in allocative efficiency because firms produce an identical product that offers consumers no variety.

C. results in allocative efficiency because firms produce where price equals marginal cost.

Does the market system result in productive​ efficiency? In the long​ run, perfect competition A. does not result in productive efficiency because barriers to entry result in firms making a profit. B. does not result in productive efficiency because​ price-taking firms produce where price equals marginal cost. C. results in productive efficiency because firms enter and exit until they break even where price equals minimum average cost. D. results in productive efficiency because production represents consumer preferences. E. results in productive efficiency because every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it.

C. results in productive efficiency because firms enter and exit until they break even where price equals minimum average cost.

What is the relationship between a perfectly competitive​ firm's marginal cost curve and its supply​ curve? A. A​ firm's marginal cost curve is equal to its supply curve for prices above average total cost. B. A​ firm's marginal cost curve is upward sloping with twice the slope of its supply curve. C. A​ firm's marginal cost curve is equal to its supply curve for all prices. D. A​ firm's marginal cost curve is equal to its supply curve for prices above average variable cost. E. A​ firm's marginal cost and supply curves are horizontal lines equal to the market price.

D. A​ firm's marginal cost curve is equal to its supply curve for prices above average variable cost.

Why are consumers so powerful in a market​ system? A. Because there are more consumers than producers. B. Because consumer surplus is larger than producer surplus. C. Because consumers can lobby the government to impose regulations on the businesses. D. Because it is​ consumers' demand that influences the market price and dictates what producers will supply in the market.

D. Because it is​ consumers' demand that influences the market price and dictates what producers will supply in the market.

Which of the following statements is true when the difference between TR and TC is at its maximum positive​ value? A. MR​ = MC B. Slope of TR​ = Slope of TC C. MR​ = 0. D. Both A and B are true.

D. Both A and B are true.

What is a price​ taker? A price taker is A. a firm with a​ downward-sloping demand curve. B. a firm with a perfectly inelastic demand curve. C. a firm that has the ability to charge a price greater than marginal cost. D. a firm that is unable to affect the market price. Your answer is correct. E. a firm that does not seek to maximize profits. When are firms likely to be price​ takers? A firm is likely to be a price taker when A. barriers to entry are substantial. B. firms in the industry collude. C. it sells a product that is exactly the same as every other firm. D. it represents a substantial portion of the total market. E. it has market power.

D. a firm that is unable to affect the market price. C. it sells a product that is exactly the same as every other firm.

Would a firm earning zero economic profit continue to​ produce, even in the long​ run? In​ long-run competitive​ equilibrium, a firm earning zero economic profit A. will not continue to produce because this return is not covering its opportunity costs. B. will not continue to produce because such profit corresponds with negative accounting profit. C. will not continue to produce because it could earn a better return in another industry. D. will continue to produce because such profit is as high a return as could be earned elsewhere. E. will not continue to produce because it would be better off shutting down.

D. will continue to produce because such profit is as high a return as could be earned elsewhere.

Assume the market for oranges is perfectly competitive. If the demand for oranges​ increases, will the market supply additional​ oranges? If the demand for oranges​ increases, then the market A. will not supply additional oranges because consumers are not willing to pay higher prices for fruit. B. will supply additional oranges because government bureaucrats will order additional orange production. C. will not supply additional oranges because oranges produced by different sellers are identical. D. will supply additional oranges because producers seek the highest return on their investments. E. will supply additional oranges because consumers are price takers.

D. will supply additional oranges because producers seek the highest return on their investments.