Exam 14: Firms in Competitive Markets

Firms that shut down in the short run are unable to avoid their:

Table 14-3 The market for Whizzly Jigs consists of many identical firms, each with the cost structure below.Suppose the current market price is $2. -Refer to table 14-3.Suppose the long-run market competitive equilibrium quantity is 1500 Whizzly Jigs.How many firms are operating in the marketplace?

Graph 14-5 The graph depicts the cost structure of a firm in a competitive market.Use the graph to answer the following question(s). -Refer to Graph 14-5.When market price is P₅, a profit-maximising firm's profits can be represented by the area:

When firms are neither entering nor exiting a perfectly competitive market:

In the long run, when price is less than average total cost for all possible levels of production, a firm in a competitive market will choose to exit (or not enter) the market.

Use a graph to demonstrate the circumstances that would prevail in a competitive market where firms are earning economic profits.Can this scenario be maintained in the long-run? Carefully explain your answer.

New Zealand possums produce the highest quality fur, due to the large pelts per body size.Demand for New Zealand possums products has risen dramatically.This is partly a result of the conservation benefits of harvesting New Zealand possums.This has made the product seem more environment-friendly than other fur products and boosted sales to concerned consumers.Assume that the possums market satisfies all of the attributes of a competitive market.Further assume that high grade possum furs are the most expensive input into the possum fur production function. a.Use a graph of the market for possum fur to demonstrate the effect of its environmentally friendly status on the market equilibrium. b.Graph the reaction of an individual incumbent firm to the increase in market demand.In your graph, identify the firm's revenue and cost structures. c.What would you predict would happen to long-run industry supply if the price of possum fur increased as possum culling increased their production of possum furs? Use a graph to demonstrate the validity of your prediction.

The long-run supply curve in a competitive market must be more inelastic than the short-run supply curve.

Restaurants often remain open for lunch even if they attract few customers because, the variable costs are small relative to the revenue, even if the fixed costs are large.

It is possible for firms in a competitive market to earn positive accounting profits in the long-run.

When a competitive market experiences an increase in demand that induces an increase in producer costs, which of the following is most likely to occur?

Graph 14-9 -Refer to Graph 14-9.When the market is in long-run equilibrium at point A in panel (b), the firm represented in panel (a) will:

By comparing marginal revenue and marginal cost, a firm in a competitive market is able to adjust production to the level that:

If a firm was producing an output that was above the marginal revenue = marginal cost point (MR = MC), explain why a reduction in output (Q) would increase its profit.

When a profit-maximising firm in a competitive market experiences rising prices, it will respond with an increase in production.

When firms think at the margin and make incremental adjustments to the level of production, they are naturally led to a level of production where:

When a firm makes a short-run decision not to produce anything during a specified period of time because of current market conditions, it:

At its current level of production, a profit-maximising firm in a competitive market receives $12.50 for each unit it produces, and faces an average total cost of $10.At the market price of $12.50 per unit, the firm's marginal cost curve crosses the marginal revenue curve at an output level of 1000 units.What is the firm's current profit? What is likely to occur in this market and why?