Micro chap 8

Which is an important aspect of the perfectly competitive market that leads to long-run equilibrium?

freedom of entry and exit

Firms that exhibit price-taking behavior

have outputs that are too small to influence market price and thus take it as given

Suppose the long-run supply curve for a perfectly competitive industry is horizontal at a price of $12, and the minimum short-run average variable cost for each of the identical N firms in the industry is $8. If the demand curve for the industry decreases so that it intersects the short-run supply curve of the industry at $10,

in the short-run the price will decrease to $10, and the number of firms will still be N. in the long-run the price will return to $12, and the number of firms will be less than N

If a profit-maximizing firm finds that, at its current level of production, MR>MC, it will

increase output

If all conditions for a perfectly competitive market are met,

firms' demand curves are horizontal

In the long-run, profits will equal zero in a competitive market because of

free entry and exit

A small business owner earns $50,000 in revenue annually. The explicit annual cost equals $30,000. The owner could work for someone else and earn $25,000 annually. The owner's business profit is _______ and the economic profit is ________

$20,000, -$5,000

In a competitive market where the elasticity of the market demand curve is -0.5, there are 100 identical firms, and the elasticity of the supply curve to the other 99 firms is 4. What is the elasticity of the demand curve of the 100th firm?

-446

Suppose that for each firm in a competitive market for potatoes, long-run average cost is minimized at $0.20 per pound when 500 pounds are grown. The demand for potatoes is Q=10,000/p. If the long-run supply curve is horizontal, then how many firms will this industry sustain in the long-run?

100

There are currently N identical firms in a market. If it is a perfectly competitive market, the short-run market supply curve at any given price is

N times the supply of an individual firm

If firms in a competitive market are not identical, then the long-run market supply curve will be

upward sloping

An increase in the cost of an input will result in

a leftward shift of the market supply curve, a leftward shift in the firm's supply curve and an upward shift of the firm's marginal cost curve

If a competitive firm is in short-run equilibrium, then

an increase in its fixed cost will have no effect on output

Economists define a market to be competitive when the firms

are price takers

Markets with hit-and-run entry and exit experience

firms entering whenever they can make a profit and exiting when they cannot make a profit

If a firm makes zero economic profit then the firm

can be earning positive business profit

Even if two products have different characteristics, such as color, the products are only considered heterogeneous if consumers

consider the two products as imperfect substitutes

Firms in long-run perfect competition produce at

constant returns to scale

In a competitive market, if buyers did not know all the prices charged by the many firms,

demand curves can be downward sloping for some or all firms

In a perfectly competitive market

firms can freely enter and exit

A special license is required to operate a taxi in many cities. The number of licenses is restricted. More drivers want licenses than are issued. This describes a non-perfectly competitive market because

firms cannot freely enter and exit the market

Long-run market supply curves are downward sloping if

input prices fall as the industry expands

If a firm makes zero economic profit, then the firm

is indifferent between staying and exiting the industry

If a firm is operating at an output level where losses are minimized, the firm

is maximizing profits

If a competitive firm's marginal profit is positive at an output of 1000 units

it should produce more than 1000 units

A firm should always shut down if its revenue is

less than its avoidable costs

If a firm operates in a perfectly competitive market, then

no firms will advertise

Which of the following markets would reach long-run equilibrium fastest?

online retail

The perfectly competitive model makes a lot of fairly unrealistic assumptions. Why do economics textbooks still talk a lot about this model?

perfectly competitive markets maximize societal welfare, many markets are close to being perfectly competitive, and it is an important model to use as a benchmark to compare other market structures to

If a firm is a price taker, then its marginal revenue will always equal

price

Suppose a competitive firm's total revenue is $1,000,000 where MR=MC, its explicit variable costs are $900,000, its fixed costs are $90,000 of which $60,000 are sunk in the short-run. If its implicit opportunity costs are $50,000, the firm should

produce even though its economic profit is negative

Assuming a horizontal long-run market supply curve, which of the following statements are TRUE about competitive firms in the long-run?

profit= 0, p=AC, and p=MC

If firms in a competitive market are not identical, then an increase in cost will

push the most inefficient firms out of the market

The demand curve that an individual competitive firm faces is known as its

residual demand curve

When the production of a good involves several inputs and inputs are used in fixed proportions, an increase in the cost of one input will usually cause total costs to

rise by the exact amount of the input price increase

When the production of a good involves several inputs, an increase in the cost of one input will usually cause total costs to

rise less than in proportion

Baseball teams shut down in the winter. This is an example of

temporarily leaving the industry because price is less than average variable cost

A market's structure is described by

the ability of firms to differentiate their product, the ease with which firms can enter and exit the market, and the number of firms in the market

In the absence of any government regulation on price, if a firm has no power to set price on its own, one can safely conclude

the demand curve for the firm's product is horizontal

A horizontal demand curve for a firm implies that

the firm is selling in a competitive market

If a firm is currently in short-run equilibrium earning a profit, what impact will a lump-sum tax have on its production decision?

the firm will not change output but earn a lower profit

The reasons why a competitive firm's short-run supply curve is upward sloping are

the law of diminishing marginal returns and profit maximization

Suppose that for each firm in a competitive market for potatoes, long-run average cost is minimized at $0.20 per pound when 500 pounds are grown. If the long-run supply curve is horizontal, then

the long-run price will be $0.20 per pound

Long-run market supply curves are upward sloping if

the number of firms is restricted in the long-run

The competitive firm's supply curve is equal to

the portion of its marginal cost curve that lies about AVC

How can the market demand for a product be inelastic but the demand for a particular firm is elastic?

there is a sufficiently large number of sellers

Under what circumstances will the residual supply curve for a country be upward sloping?

when it imports a large portion of the rest of the world's supply of the good

If consumers view the output of any firm in a market to be identical to the output of any other firm in the market, the demand curve for the output of any given firm

will be horizontal

Downward sloping long-run supply curves occur in markets

with learning-by-doing or with increasing returns to scale