Microeconomics Ch. 12 Homework

what determines entry and exit of firms in a perfectly competitive industry in the long run? in a perfectly competitive industry in the long run,

new firms will enter if existing firms are making a profit and existing firms will exit if they are experiencing losses

which of the following is an expression of profit for a perfectly competitive firm? profit for a perfectly competitive firm can be expressed as:

profit = (P*Q) - (ATC*Q), where P is price, Q is output, and ATC is average total cost

what is the supply curve for a perfectly competitive firm in the short run? the supply curve for a firm in a perfectly competitive market in the short run is:

that firm's marginal cost curve for prices at or above average variable cost

how should firms in perfectly competitive markets decide how much to produce? perfectly competitive firms should produce the quantity where:

the difference between total revenue and total cost is as large as possible

farmer jones grows sugar. the average total cost and marginal cost of growing sugar for an individual farmer are illustrated in the graph. assume the market for sugar is perfectly competitive. according to the graph, farmer jones will earn profit at any market price above $---- per bushel. assume that the market price specifically is $24 per bushel. if farmer jones produces the profit maximizing quantity, what will be her profit?

10 $900

Jane grows apples on land she inherited from her grandmother. she incurs explicit costs of $180 for the trees and $60 for fertilizers. in addition, suppose her land is otherwise worth $5,000 and her labor is worth $30,000. the market price of apples is $34 per box. if at this price Jane produces 1,500 boxes of apples, then her economic profit is $------. suppose all apple farmers have the same cost structure in the long run. if so, then farmers will ---- the apple market.

15,760 enter

suppose the market for corn is perfectly competitive. the average total cost and marginal cost of growing corn in the long run for an individual farmer are illustrated in the graph to the right. according to the graph, the long run equilibrium price for corn is $--- per box. if at this price an individual corn farmer produces 30 boxes of corn per week, she will have economic profits of $-----. to break even in the long run, corn farmers must produce the quantity that occurs ------.

22 -60 at lowest average cost

farmer brown grows blackberries. the average total cost, average variable cost, and marginal cost of growing blackberries for an individual farmer are illustrated in the graph to the right. farmer brown will incur losses if the market price falls below $---- per crate. furthermore, farmer brown should shut down in the short run if the market price falls below $---- per crate.

24 20

the figure to the right represents the cost structure for a perfectly competitive wheat farmer with her average total cost curve and marginal cost curve. at what market price will the wheat farmer break even? the wheat farmer will break even at a price of $--- per bushel. if the market price for wheat were indeed $3 per bushel, should the wheat farmer exit the industry in the long run? in the long run, the wheat farmer:

3 should continue to produce wheat because breaking even is as high a return as she could earn elsewhere

suppose a farmer in Georgia begins to grow peaches. he uses $1,000,000 in savings to purchase land, he rents equipment for $80,000 a year, and he pays workers $100,000 in wages. in return, he produces 200,000 baskets of peaches per year, which sell for $3 each. suppose the interest rate on savings is 4 percent and that the farmer could otherwise have earned $30,000 as a shoe salesman. what is the farmer's economic profit? the peach farmer earns economic profit of $-----. what is the farmer's accounting period? the peach farmer earns accounting profit of $-------.

350,000 420,000

farmer jones grows sugar. the total revenue, marginal revenue, total cost, and marginal cost of producing various quantities of sugar are presented in the table below. suppose the market for sugar is perfectly competitive. to maximize profits, farmer jones should produce ---- thousand bushels of sugar. at that level of output, farmer jones will earn profit of $----.

4 112

farmer smith grows apples. the average total cost and marginal cost of growing apples for an individual farmer are illustrated in the graph to the right. suppose the market for apples is perfectly competitive. if the market price is $24 per box, then to maximize profits, farmer smith should produce --- thousand boxes of apples.

60

why would a firm produce in the short run while experiencing losses?

a firm would not shut down if by producing it would lose an amount less than its total fixed costs

farmer lee grows apples. the average total cost and marginal cost of growing apples in the long run for an individual farmer are illustrated in the graph to the right. suppose the market price is $25.58 per box. if so, then farmers will ---- the market for apples until the market price is $--- per box.

enter 22

the figure to the right represents the cost structure for a perfectly competitive firm with its average total cost curve, average variable curve, and marginal cost curve. suppose the market price is $15 per unit. will firms enter or exit the industry in the long run? if the price is $15, then firms will ------ the market in the long run. what effect will firms entering have on the market price? when firms enter,

enter market supply will increase, decreasing price

the figure to the right represents the cost structure for a perfectly competitive firm with its average total cost curve, average variable cost curve, and marginal cost curve. fixed costs are $50. suppose the market price is $19 per unit. characterize the firm's profit. if the firm produces output, then it will -------------. should the firm instead shut down in the short run? in the short run, the firm should:

experience losses continue to produce because price is greater than average variable cost

what conditions make a market perfectly competitive? a market is perfectly competitive if:

it has many buyers and many sellers, all of whom are selling identical products, with no barriers to new firms entering the market

the figure on the left represents the cost structure for a perfectly competitive wheat farmer with her average total cost curve and marginal cost curve - this firm's cost curves are representative of most firms in the market. the figure on the right represents the market for wheat. characterize profits for the firms in this industry. firms in this market are currently ---------. what will be the market price at the long-run competitive equilibrium? the long-run equilibrium price will be $-----. in the long-run, firms will ----- the market until the marginal firm is earning ----------.

making a profit 4 enter zero economic profit

does the market system result in allocative efficiency? in the long run, perfect competition:

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:

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

which of the following is a characteristic of perfectly competitive markets?

there will be many buyers and many firms, all of whom are small relative to the market

suppose the market for cotton is perfectly competitive and that input prices increase as the industry expands. characterize the industry's long-run supply curve. the cotton industry's long-run supply curve will be:

upward sloping because the long-run average cost of production will be increasing

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:

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

why do single firms in perfectly competitive markets face horizontal demand curves?

with many firms selling an identical product, single firms have no effect on market price

are perfectly competitive markets productively efficient in the long run?

yes, because firms produce at the lowest average cost possible