Lesson 6.4: Competition in the Long Run

In long-run competitive equilibrium, a firm that owns factors of production will have an

economic profit = $0 and accounting profit > $0.

A decreasing-cost industry has a downward-sloping

long-run industry supply curve.

If there are no barriers to entry into an industry,

long-run economic profits must be zero.

7) Firm A is one of the firms in the long run equilibrium of the competitive industry of good X. What is Firm A's profit?

0

Firm A is one of the firms in the long run equilibrium of the competitive industry of good X. The market demand function is Q = 700 - 20PX. Firm A's total revenue is 570 and PX = 19. How many firms are there in this industry at equilibrium? (Note this number doesn't have to be integer.)

10.6667

Firm A is one of the firms in the long run equilibrium of the competitive industry of good X. The market demand function is Q = 1200 - 7PX. Firm A's total revenue is 350 and PX = 70. How many firms are there in this industry at equilibrium? (Note this number doesn't have to be integer.)

142

Each firm in an industry has long run cost function C = 0.25q3 - 10q2 + 150q. The market demand function of this industry Q = 520 - 3P. What is the equilibrium number of firms in this industry? (Note this number doesn't have to be integer.)

18.5

3) Each firm in an industry has long run cost function C = 0.25q3 - 10q2 + 150q. The market demand function of this industry Q = 150 - 2P. What is the quantity (level of production) that each firm produces in the long run Equilibrium?

20

What happens in a perfectly competitive industry when economic profit is greater than zero? A) There may be pressure on prices to fall. B) New firms may enter the industry. C) Existing firms may get larger. D) Firms may move along their LRAC curves to new outputs. E) All of the above may occur.

E) All of the above may occur.

1) Consider the following statements when answering this question I. If the cost of producing each unit of output falls $5, then the short-run market price falls $5. II. If the cost of producing each unit of output falls $5, then the long-run market price falls $5.

I is false, and II is true.

Consider the following statements when answering this question I. In the long run, if a firm wants to remain in a competitive industry, then it needs to own resources that are in limited supply. II. In this competitive market our firm's long-run survival depends only on the efficiency of our production process.

I is false, and II is true.

2) Consider the following statements when answering this question I. Increases in the demand for a good, which is produced by a competitive industry, will raise the short-run market price. II. Increases in the demand for a good, which is produced by a competitive industry, will raise the long-run market price

I is true, and II is false.

8) In a constant-cost industry, an increase in demand will be followed by

an increase in supply that will bring price down to the level it was before the demand shift.

The industry of good X is cost-constant. At first, the market demand function is Q = 1000 - 15P and the industry is at the long run equilibrium, with each firm producing 30 units and the price of X is P = 20. There is an increase in the demand, that is now Q = 1200 - 15P. What is the price of X at the new long run equilibrium?

20

4) Each firm in an industry has long run cost function C = 0.5q3 - 25q2 + 430q. The market demand function of this industry Q = 1000 - 3.5P. What is the equilibrium number of firms in this industry? (Note this number doesn't have to be integer.)

23.55

Each firm in an industry has long run cost function C = 0.5q3 - 25q2 + 430q. The market demand function of this industry Q = 1000 - 3.5P. What is the quantity (level of production) that each firm produces in the long run Equilibrium?

25

Firm A is one of the firms in the long run equilibrium of the competitive industry of good X. The market demand function is Q = 150 - 3.7P. Firm A produces 15 units of good X and its marginal cost is 25. What is Firm A's total revenue?

375

6) Refer to Figure 8.2. At P = $80, the profit-maximizing output in the short run is

39

Refer to Figure 8.2. If the firm expects $80 to be the long-run price, how many units of output will it plan to produce in the long run?

64

5) Each firm in an industry has long run cost function C = 2q3 - 30q2 + 180q. The market demand function of this industry Q = 150 - 2P. What is the long run Price of Equilibrium?

67.5

Each firm in an industry has long run cost function C = 2q3 - 30q2 + 180q. The market demand function of this industry Q = 150 - 2P. What is the quantity that each firm produces in the long run Equilibrium?

7.5