Question 1

Perfectly competitive firms ____ earn zero economic profit in long-run equilibrium because ____.

Accepted Answer

A) always; firms in perfectly competitive industries always maximize output and so flood the market until the equilibrium price of output is driven to zero 
B) sometimes; the demand curve for an individual perfectly competitive firm may or may not cross the company's long-run average total cost curve at its lowest point 
C) always; firms enter whenever their economic profit is positive and exit whenever it's negative, so in long-run equilibrium economic profit must always be zero 
D) never; no firm would be willing to produce if it received zero economic profit 
A) always; firms in perfectly competitive industries always maximize output and so flood the market until the equilibrium price of output is driven to zero 
B) sometimes; the demand curve for an individual perfectly competitive firm may or may not cross the company's long-run average total cost curve at its lowest point 
C) always; firms enter whenever their economic profit is positive and exit whenever it's negative, so in long-run equilibrium economic profit must always be zero 
D) never; no firm would be willing to produce if it received zero economic profit

Question 2

The short-run supply curve of a perfectly competitive firm

Accepted Answer

A) intersects the minimum point of its short-run average total cost curve but not its short-run average variable cost curve. 
B) intersects the minimum point of its short-run average variable cost curve but not its short-run average total cost curve. 
C) intersects the minimum point of both its short-run average variable cost and its short-run average total cost curves. 
D) intersects the minimum point of its short-run average total cost curve and may or may not intersect the minimum point of its short-run average variable cost curve. 
A) intersects the minimum point of its short-run average total cost curve but not its short-run average variable cost curve. 
B) intersects the minimum point of its short-run average variable cost curve but not its short-run average total cost curve. 
C) intersects the minimum point of both its short-run average variable cost and its short-run average total cost curves. 
D) intersects the minimum point of its short-run average total cost curve and may or may not intersect the minimum point of its short-run average variable cost curve.

Question 3

The quantity that a firm will supply in the short run

Accepted Answer

A) can be read from its average cost curve. 
B) can be read from its average variable cost curve. 
C) can be read from the firm's marginal cost curve above average variable cost. 
D) is always zero above minimum average variable cost. 
A) can be read from its average cost curve. 
B) can be read from its average variable cost curve. 
C) can be read from the firm's marginal cost curve above average variable cost. 
D) is always zero above minimum average variable cost.

Question 4

Describe the process that would occur in the long run in a competitive industry if there were economic profits. Illustrate this with a diagram.

Accepted Answer

The diagram should look like Figure 10-7

Question 5

In determining whether a market meets the conditions for perfect competition, it is necessary to

Accepted Answer

A) consider the number of firms in the market. 
B) determine the appropriate size of the firm. 
C) assess the production technology available to firms. 
D) evaluate the promotional tools that can be used by firms. 
A) consider the number of firms in the market. 
B) determine the appropriate size of the firm. 
C) assess the production technology available to firms. 
D) evaluate the promotional tools that can be used by firms.

Question 6

In perfectly competitive markets, some buyers do not have full information about the products available.

Accepted Answer

A) True 
 B)False

Question 7

A perfectly competitive firm is a price

Accepted Answer

A) giver. 
B) taker. 
C) maker. 
D) leader. 
A) giver. 
B) taker. 
C) maker. 
D) leader.

Question 8

Draw a graph illustrating a competitive firm in short-run equilibrium that is earning an economic profit. Be sure to label all curves and axes correctly.

Accepted Answer

The diagram should look like F

Question 9

To determine whether a market is perfectly competitive, economists examine the

Accepted Answer

A) number of firms in the market. 
B) similarities among the products of the different firms in the market. 
C) ease of entry and exit by firms in the market. 
D) All of the responses are correct. 
A) number of firms in the market. 
B) similarities among the products of the different firms in the market. 
C) ease of entry and exit by firms in the market. 
D) All of the responses are correct.

Question 10

Figure 10-8 ​
 
For the perfectly competitive firm in Figure 10-8, what is the long-run price and quantity?

Accepted Answer

A) P = 4, Q = 150 
B) P = 9, Q = 200 
C) P = 10, Q = 200 
D) P = 5, Q = 150 
A) P = 4, Q = 150 
B) P = 9, Q = 200 
C) P = 10, Q = 200 
D) P = 5, Q = 150

Question 11

A firm sells in a competitive market in which price is $12. Its marginal cost is 6 + 0.25Q. Determine the profit-maximizing level of output.

Accepted Answer

The solution requires equating

Question 12

The difference between zero accounting profit and zero economic profit is that

Accepted Answer

A) an economic profit of zero indicates a fair rate of return because it includes the opportunity cost of a firm's capital. 
B) an economic profit of zero indicates an unacceptable rate of return because it does not include the opportunity cost of a firm's capital. 
C) an economic profit of zero indicates more than a fair rate of return because it includes opportunity cost and explicit cost. 
D) an accounting profit of zero indicates a fair rate of return because it includes the opportunity cost of a firm's capital. 
A) an economic profit of zero indicates a fair rate of return because it includes the opportunity cost of a firm's capital. 
B) an economic profit of zero indicates an unacceptable rate of return because it does not include the opportunity cost of a firm's capital. 
C) an economic profit of zero indicates more than a fair rate of return because it includes opportunity cost and explicit cost. 
D) an accounting profit of zero indicates a fair rate of return because it includes the opportunity cost of a firm's capital.

Question 13

In long-run equilibrium in perfect competition, every firm is producing at minimum average cost.

Accepted Answer

A) True 
 B)False

Question 14

In perfect competition, a firm's marginal revenue equals the price of the product.

Accepted Answer

A) True 
 B)False

Question 15

Figure 10-4 ​
 
Figure 10-4 shows the industry's supply and demand curves in panel (1)and the cost curves of a firm in the industry in panel (2). At S3, the firm is

Accepted Answer

A) going to shut down. 
B) incurring losses. 
C) earning zero economic profits. 
D) earning economic profit greater than zero. 
A) going to shut down. 
B) incurring losses. 
C) earning zero economic profits. 
D) earning economic profit greater than zero.

Question 16

Regardless of quantity in long-run equilibrium, the industry price cannot exceed the

Accepted Answer

A) long-run average cost of supplying that quantity. 
B) total variable cost of supplying that quantity. 
C) long-run total cost of supplying that quantity. 
D) minimum long-run marginal cost of supplying that quantity. 
A) long-run average cost of supplying that quantity. 
B) total variable cost of supplying that quantity. 
C) long-run total cost of supplying that quantity. 
D) minimum long-run marginal cost of supplying that quantity.

Question 17

What are the assumptions of the model of perfect competition? Explain why each is important for short-run and long-run equilibrium.

Accepted Answer

There are four assumptions: 
1. Numerous

Question 18

In short-run equilibrium, a perfectly competitive firm

Accepted Answer

A) may earn a profit or a loss. 
B) always earns a profit. 
C) never earns a profit. 
D) earns a profit only if the firm has no fixed cost. 
A) may earn a profit or a loss. 
B) always earns a profit. 
C) never earns a profit. 
D) earns a profit only if the firm has no fixed cost.

Question 19

One of the following is not a characteristic of perfect competition. Which is it?

Accepted Answer

A) Firms advertise to increase their market share. 
B) Profits are low in the long run. 
C) Consumers pay little attention to brand names. 
D) Firms pay no attention to their competitors' output levels. 
A) Firms advertise to increase their market share. 
B) Profits are low in the long run. 
C) Consumers pay little attention to brand names. 
D) Firms pay no attention to their competitors' output levels.

Question 20

Figure 10-7 ​
 
Figure 10-8 displays the cost curves of a perfectly competitive firm. Profits at a price of $10 would be approximately

Accepted Answer

A) $1 per unit. 
B) $3 per unit. 
C) $5 per unit. 
D) $10 per unit. 
A) $1 per unit. 
B) $3 per unit. 
C) $5 per unit. 
D) $10 per unit.

Exam 10: The Firm and the Industry Under Perfect Competition

Perfectly competitive firms ____ earn zero economic profit in long-run equilibrium because ____.

The short-run supply curve of a perfectly competitive firm

The quantity that a firm will supply in the short run

Describe the process that would occur in the long run in a competitive industry if there were economic profits. Illustrate this with a diagram.

In determining whether a market meets the conditions for perfect competition, it is necessary to

In perfectly competitive markets, some buyers do not have full information about the products available.

A perfectly competitive firm is a price

Draw a graph illustrating a competitive firm in short-run equilibrium that is earning an economic profit. Be sure to label all curves and axes correctly.

To determine whether a market is perfectly competitive, economists examine the

Figure 10-8 ​ For the perfectly competitive firm in Figure 10-8, what is the long-run price and quantity?

A firm sells in a competitive market in which price is $12. Its marginal cost is 6 + 0.25Q. Determine the profit-maximizing level of output.

The difference between zero accounting profit and zero economic profit is that

In long-run equilibrium in perfect competition, every firm is producing at minimum average cost.

In perfect competition, a firm's marginal revenue equals the price of the product.

Figure 10-4 ​ Figure 10-4 shows the industry's supply and demand curves in panel (1)and the cost curves of a firm in the industry in panel (2). At S3, the firm is

Regardless of quantity in long-run equilibrium, the industry price cannot exceed the

What are the assumptions of the model of perfect competition? Explain why each is important for short-run and long-run equilibrium.

In short-run equilibrium, a perfectly competitive firm

One of the following is not a characteristic of perfect competition. Which is it?

Figure 10-7 ​ Figure 10-8 displays the cost curves of a perfectly competitive firm. Profits at a price of $10 would be approximately

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: the Importance of Marginal Analysis

The Financial Markets and the Economy: the Tail That Wags the Dog

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

Externalities, Externaliteis, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

International Trade and Comparative Advantage

Contemporary Issues in the Us Economy

Filters

Perfectly competitive firms earn zero economic profit in long-run equilibrium because .

Figure 10-8 For the perfectly competitive firm in Figure 10-8, what is the long-run price and quantity?

Figure 10-4 Figure 10-4 shows the industry's supply and demand curves in panel (1)and the cost curves of a firm in the industry in panel (2). At S₃, the firm is

Figure 10-7 Figure 10-8 displays the cost curves of a perfectly competitive firm. Profits at a price of $10 would be approximately