econ 101 exam 3

Luis operates a cherry orchard in Northern Oregon and sells the cherries in a perfectly competitive market at a price of $1.70 per pound. Last month Luis sold 2,000 pounds of cherries. His fixed cost of production was $800 and his average variable cost was $1.00 per pound. What was his profit?

$600

For the perfectly competitive firm, economic profit equals:

(Price - average total cost) x quantity

Which of the following is NOT true about long-run equilibrium in a perfectly competitive industry

Each firm has zero accounting profit.

How does the long-run industry supply curve compare to the short-run industry supply curve?

The long-run curve is always flatter than the short-run curve.

Suppose that the long-run industry supply in the production of synthetic fabrics is perfectly elastic. Which of the following statements then is TRUE?

The long-run industry supply for synthetics is horizontal.

In the calculation of economic profit, a firm's total cost incorporates

both implicit and explicit costs

The long-run industry supply curve can slope downward if costs are:

decreasing.

.Suppose a perfectly competitive industry is in long-run equilibrium and no economic profits are being earned. If demand increases, firms will ________ the industry in response, and until exiting firms earn _________ economic profits.

enter; zero

. In the long-run equilibrium of a perfectly competitive industry

every consumer who is willing to pay the cost of producing the good gets it.

The quantity supplied by a perfectly competitive firm at a given market price is determined by the

firm's marginal cost curve

The two necessary conditions necessary for perfect competition to exist are:

many producers each with a small market share and a standardized product.

The optimal output rule says that firms maximize profits by choosing output such that:

marginal revenue = marginal cost.

In the case of a price taking firm:

marginal revenue = price.

The short-run industry supply curve is the sum of the individual ________ cost curves, assuming that there is _____ entry and exit to and from the industry.

marginal; no

When a perfectly competitive firm is in long-run equilibrium, the firm is producing at a point that corresponds to:

minimum long-run average total cost.

The demand curve for an individual firm in a perfectly competitive industry is

perfectly elastic

A firm breaks even when:

price = average total cost.

A perfectly competitive firm earns an economic profit when:

price is above average total cost.

Assume that the market for gasoline in a community is perfectly competitive and that the market is initially in long-run equilibrium. Now suppose that an increase in population increases the demand for gasoline. In the short run, we expect that the market price will ________ and the output of a typical firm will ________.

rise; increase

The relationship between the long-run industry supply curve and the short-run industry supply curve is such that:

the long-run supply curve is more elastic than the short-run supply curve