chapter 23
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.
