Exam 12: Perfect Competition and the Supply Curve

In the long run, when economic profit is zero, firms leave the industry, which will increase the market supply and price until economic profits are positive.

The short-run shut-down price is:

Use the following to answer questions: Figure: Costs and Profits for Tomato Producers -(Figure: Costs and Profits for Tomato Producers) Look at the figure Costs and Profits for Tomato Producers. The market for tomatoes is perfectly competitive. The market price of a bushel of tomatoes is $18. If the market price falls to $16, the farmer's marginal revenue _____ and the profit-maximizing output _____.

Economic profits in a perfectly competitive industry encourage firms to _____ the industry, and losses encourage firms to _____ the industry.

Hank operates a perfectly competitive firm in the long run. For several periods the market price has been $20, and his break-even price is $22. Given the chance to change his fixed costs, Hank should:

Use the following to answer questions: Figure: Game-Day Shirts -(Figure: Game-Day Shirts) Rick is one of 10 vendors who sell game-day T-shirts at football games in a perfectly competitive market. His costs are identical to the costs of the other 9 vendors. If the price of a shirt is $9, in the long run:

In the model of perfect competition:

Which of the following is MOST likely to cause firms to exit a perfectly competitive industry?

People in the eastern part of Beirut are prevented by border guards from traveling to the western part of Beirut to shop for or sell food. This situation violates the perfect competition assumption of:

In perfect competition, the assumption of easy entry and exit implies that in the _____ run all firms in the industry will earn _____ economic profits.

The slope of the total cost curve is:

Use the following to answer questions: Figure: A Perfectly Competitive Firm in the Short Run -(Figure: A Perfectly Competitive Firm in the Short Run) Look at the figure A Perfectly Competitive Firm in the Short Run. The lowest price that will yield zero economic profit is indicated by the letter:

For a firm producing at any level of output LOWER THAN the most profitable one, an increase in output adds:

When a perfectly competitive firm is in long-run equilibrium, the firm is producing at _____ cost.

Use the following to answer questions: -(Table: Variable Costs for Lots) Look at the table Variable Costs for Lots. During the winter, Alexa runs a snow-clearing service in a perfectly competitive industry. Assume that costs are constant in each interval; that is, the variable cost of clearing anywhere from 1 through 10 lots is $200. Her only fixed cost is $1,000 for a snowplow. Her variable costs include fuel, her time, and hot coffee. If the price to clear a lot is $30, what is Alexa's profit at the optimal output?

State and explain the price-taking firm's optimal output rule.

The market for beef is in long-run equilibrium at $3.25 per pound. The announcement that mad cow disease has been discovered in the United States reduces the demand for beef sharply, and the price falls to $2.00 per pound. If the long-run supply curve is horizontal, when the long-run equilibrium is reestablished, the price will be:

A perfectly competitive firm will incur an economic loss but will continue to produce a positive quantity of output in the short run if the price is:

Explain how the long-run perfectly competitive equilibrium is efficient.

A firm's shut-down point is the minimum value of: