Exam 7: Perfect Competition and the Invisible Hand

Suppose the firms in a perfectly competitive industry are earning positive economic profits.How will these positive profits affect the flow of resources into the industry? How will the equilibrium quantity and price change in the industry because of the profits?

Historical evidence suggests that ________.

The incentive for new firms to enter a perfectly competitive market is primarily the ________.

The following figure depicts the market for a certain good. -Refer to the figure above.If the demand were to shift down by $2 at any quantity,what would be the new deadweight loss if the price must be kept at $6?

Scenario: The figure on the left shows the demand for fuel by Lisa and Nick during ordinary times. Assume that Lisa and Nick are the only consumers. In the figure on the right, D₀ is the market demand, and S₀ is the supply in ordinary times in the town. Then a hurricane hits the town. The acute needs for fuel to operate electric generators pushes the demand to D₁. Meanwhile, the supply plummets to S₁ because some of the fuel storage tanks owned by the town seller have been damaged by the storm. This pushes the price up to $5 per liter and only Lisa can afford some fuel. Suppose that fuel sellers outside the affected area have a cost of production such that MC = ATC at $2.50 per liter, which includes the cost of transporting the fuel under hazardous conditions. -Refer to the scenario above.Nick complains to the town council of price gouging by the fuel sellers.In response,an anti-price-gouging law is immediately passed that puts the price ceiling at $1.75 per liter.What will likely happen next?

Which of the following suggests that a competitive firm earns zero economic profits?

For a buyer,reservation value is the same as ________.

How do perfectly competitive markets allow for the movement of resources from less productive industries to more productive industries?

The tables below show reservation values of buyers and sellers in a market. There are three buyers and two sellers. Each buyer's reservation values for the fourth unit and above are negative, and each seller can produce at most four units. -Refer to the tables above.What is the range of equilibrium prices? What is the equilibrium quantity?

A maximized social surplus in an economy means that ________.

$20 is to be divided among two individuals-Gary and Jamie.Which of the following allocations is NOT Pareto efficient?

Whenever there is a binding price ceiling (a price control that sets the price below the market equilibrium price)that changes the equilibrium quantity,all of the below occur except which option?

The following figure shows the demand and supply curves for a good. The initial demand curve is D₁ and the supply curve is S. Later, due to an external shock, the demand curve shifts to D₂. -Refer to the figure above.What is the equilibrium quantity after the demand curve shifts to D₂?

A buyer is willing to buy 10 units of a good at a maximum price of $10 per unit.The reservation value of the buyer in this case is ________.

The following figure shows the demand and supply curves for bottled water. -Refer to the figure above.If a price control is imposed at $8,what is the gain in consumer surplus?

The following figure depicts the short-run cost curves of a perfectly competitive firm. -Refer to the figure above.At the profit-maximizing level of output,totals are equal to ________.

If price is greater than the average variable cost,a profit-maximizing firm should ________.

Scenario: A manufacturing firm operates three plants with the marginal cost curves shown in the figure and the average total costs summarized in the table below. -Refer to the scenario above.If the market price of the firm's product is $60 per 100 kg,which plants should be used to produce the good?

Scenario: The scenario above changes, because an increase in the wages of workers at Plant 2 causes marginal costs and average total costs at Plant 2 to rise: Plant 2: New marginal cost: MC₂ = 20 + 2Q, Plant 2: Average total cost: ATC₂ = 20 + Q. Costs at Plant 1 do not change. -Refer to the scenario above.Faced with different costs at each facility,what are the levels of output produced at each facility under the new owner's guidance to maximize firm profits? Explain your answer.

If the producer surplus in a market for a good is $36 and the consumer surplus in the market for the same good is $9,the social surplus in the market is ________.