Question 1

Why do economists prefer to use the model of perfect competition in most economic analysis?

Accepted Answer

Economists have three main uses for the

Question 2

In the figure given below, D₁ and D₂ represent the demand curves for land before and after the ethanol program respectively.SRS is the short-run supply curve of land.

-Refer to Figure .What will be the impact of the ethanol program on the long-run equilibrium price level for land suitable for corn cultivation?

Accepted Answer

A) The price level will settle between $6 and $9. 
B) The price level will settle at $6. 
C) The price level will settle at $9. 
D) The price level will be above $9. 
A) The price level will settle between $6 and $9. 
B) The price level will settle at $6. 
C) The price level will settle at $9. 
D) The price level will be above $9.

Question 3

Firms in a perfectly competitive market usually enter or leave an industry in the short-run and not in the long-run.

Accepted Answer

A) True 
 B)False

Question 4

When the existing firms in a competitive industry have different operating costs:

Accepted Answer

A) the highest-cost firm in operation breaks even, while the low cost firms will earn profit. 
B) the highest-cost firm in operation breaks even, while the low cost firms leave the industry. 
C) the low cost firms earn a larger profit than the high-cost firms. 
D) the highest-cost firms will incur a deadweight loss. 
A) the highest-cost firm in operation breaks even, while the low cost firms will earn profit. 
B) the highest-cost firm in operation breaks even, while the low cost firms leave the industry. 
C) the low cost firms earn a larger profit than the high-cost firms. 
D) the highest-cost firms will incur a deadweight loss.

Question 5

In the figure given below MC denotes the marginal cost and AC denotes the average cost of a firm under perfect competition. 
   
-Refer to Figure .When the demand increases to Q₁, in the short run the firm will be:

Accepted Answer

A) earning a loss. 
B) earning a profit. 
C) operating at the break-even point. 
D) operating at the shut-down point. 
A) earning a loss. 
B) earning a profit. 
C) operating at the break-even point. 
D) operating at the shut-down point.

Question 6

When a perfectly competitive firm is in long-run equilibrium, it and all other firms are on the lowest point of their average cost curves.

Accepted Answer

A) True 
 B)False

Question 7

In the market for oranges, availability of substitutes limits a single seller's power over price.

Accepted Answer

A) True 
 B)False

Question 8

In the figure given below MC denotes the marginal cost and AC denotes the average cost of a firm under perfect competition. 
   
-Refer to Figure .What will be the effect of the increase in demand (from Q₀ to Q₁) on the short run supply curve?

Accepted Answer

A) The short-run supply curve will shift to the right. 
B) The short-run supply curve will shift to the left. 
C) The short-run supply curve will become steeper. 
D) The short-run supply curve will become flatter. 
A) The short-run supply curve will shift to the right. 
B) The short-run supply curve will shift to the left. 
C) The short-run supply curve will become steeper. 
D) The short-run supply curve will become flatter.

Question 9

State any two properties of the perfectly competitive market.

Accepted Answer

All sellers in a perfectly com

Question 10

Which of the following conditions define the short-run for any industry?

Accepted Answer

A) Firms do not incur a fixed cost. 
B) Firms incur both fixed as well as variable costs. 
C) Firms can easily enter and leave the market. 
D) Firms can enter but cannot leave the market. 
A) Firms do not incur a fixed cost. 
B) Firms incur both fixed as well as variable costs. 
C) Firms can easily enter and leave the market. 
D) Firms can enter but cannot leave the market.

Question 11

In the figure given below MC denotes the marginal cost and AC denotes the average cost of a firm under perfect competition. 
   
-Refer to Figure .What will be the long run effect of the increase in demand (from Q₀ to Q₁) in this market?

Accepted Answer

A) The profit earned by the firm will increase. 
B) The firm will break even at the new equilibrium. 
C) The loss incurred by the firm will decrease. 
D) The firm will shut down completely. 
A) The profit earned by the firm will increase. 
B) The firm will break even at the new equilibrium. 
C) The loss incurred by the firm will decrease. 
D) The firm will shut down completely.

Question 12

In the figure given below MC denotes the marginal cost and AC denotes the average cost of a firm under perfect competition. 
   
-Refer to Figure .Suppose the demand for the commodity increases to Q₁, what will be the effect on the price level in the short run?

Accepted Answer

A) The price level will rise above $5. 
B) The price level will remain at $3. 
C) The price level will rise above $3 but will remain below $5. 
D) The price level will rise to $5. 
A) The price level will rise above $5. 
B) The price level will remain at $3. 
C) The price level will rise above $3 but will remain below $5. 
D) The price level will rise to $5.

Question 13

In the figure given below, D₁ and D₂ represent the demand curves for land before and after the ethanol program respectively.SRS is the short-run supply curve of land.

-Refer to Figure .What will be the shape of the long-run supply curve of land suitable for corn farming?

Accepted Answer

A) The long-run supply curve of land suitable for corn farming will be perfectly inelastic. 
B) The long-run supply curve of land suitable for corn farming will be perfectly elastic. 
C) The long-run supply curve of land suitable for corn farming will be less elastic than the short-run supply curve. 
D) The long-run supply curve of land suitable for corn farming will be more elastic than the short-run supply curve. 
A) The long-run supply curve of land suitable for corn farming will be perfectly inelastic. 
B) The long-run supply curve of land suitable for corn farming will be perfectly elastic. 
C) The long-run supply curve of land suitable for corn farming will be less elastic than the short-run supply curve. 
D) The long-run supply curve of land suitable for corn farming will be more elastic than the short-run supply curve.

Question 14

How is the short-run supply curve of a perfectly competitive market different from the long-run supply curve?

Accepted Answer

The short-run market supply cu

Question 15

If the cost of production of the firms in a perfectly competitive market differs the resulting long-run supply curve will be an upward rising step function.

Accepted Answer

A) True 
 B)False

Question 16

Assume that buyers are aware of the similarities between the products sold by two dairy farms.The dairy producers can still practice price discrimination through advertisement and salesmanship.

Accepted Answer

A) True 
 B)False

Question 17

The following table gives the average cost of production for three different categories of firms producing the same product.

$$\begin{array} { | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Type of } \
\text { firme }
\end{array} & \begin{array} { c } 
\text { No. of } \
\text { firms }
\end{array} & \begin{array} { c } 
\text { Awerane } \
\text { sostper } \
\text { unit }
\end{array} & \begin{array} { c } 
\text { Equilibrium } \
\text { output }
\end{array} \
\hline \hline \text { A } & 350 & \$ 3 & 10 \text { units } \
\text { B } & 400 & \$ 5 & 10 \text { units } \
\text { C } & 550 & \$ 10 & 10 \text { units } \
\hline
\end{array}$$
-Refer to Table .Suppose the demand for the commodity rises from 3,200 units to 3,500 units and the market price increases to $5.Which of the following situations will be observed?

Accepted Answer

A) Type A will supply 3,200 units and earn normal profits while Type B will supply the remaining at a loss. 
B) Type A and Type B firms will jointly supply 3,500 units and both will break even. 
C) Type A firms will supply 3,200 units and Type B will supply the rest. 
D) Type A firms will supply 3,500 units and earn supernormal profit. 
A) Type A will supply 3,200 units and earn normal profits while Type B will supply the remaining at a loss. 
B) Type A and Type B firms will jointly supply 3,500 units and both will break even. 
C) Type A firms will supply 3,200 units and Type B will supply the rest. 
D) Type A firms will supply 3,500 units and earn supernormal profit.

Question 18

In the long run, producers do not incur any fixed cost as all inputs are variable.

Accepted Answer

A) True 
 B)False

Question 19

State two characteristics of the long-run equilibrium under perfect competition.

Accepted Answer

In a long-run equilibrium (1)

Question 20

Suppose a legislation passed by the government encourages domestic oil exploration thereby reducing petroleum imports substantially.If the cost of production is uniform for all producers, which of the following will be observed in the petroleum market?

Accepted Answer

A) The world price of petroleum would decline. 
B) The domestic price of petroleum would decline. 
C) The world price of gasoline will remain unaffected. 
D) Crude oil consumption in the domestic and the world market would decrease. 
A) The world price of petroleum would decline. 
B) The domestic price of petroleum would decline. 
C) The world price of gasoline will remain unaffected. 
D) Crude oil consumption in the domestic and the world market would decrease.

Why do economists prefer to use the model of perfect competition in most economic analysis?

Firms in a perfectly competitive market usually enter or leave an industry in the short-run and not in the long-run.

When the existing firms in a competitive industry have different operating costs:

In the figure given below MC denotes the marginal cost and AC denotes the average cost of a firm under perfect competition. -Refer to Figure .When the demand increases to Q₁, in the short run the firm will be:

When a perfectly competitive firm is in long-run equilibrium, it and all other firms are on the lowest point of their average cost curves.

In the market for oranges, availability of substitutes limits a single seller's power over price.

In the figure given below MC denotes the marginal cost and AC denotes the average cost of a firm under perfect competition. -Refer to Figure .What will be the effect of the increase in demand (from Q₀ to Q₁) on the short run supply curve?

State any two properties of the perfectly competitive market.

Which of the following conditions define the short-run for any industry?

In the figure given below MC denotes the marginal cost and AC denotes the average cost of a firm under perfect competition. -Refer to Figure .What will be the long run effect of the increase in demand (from Q₀ to Q₁) in this market?

In the figure given below MC denotes the marginal cost and AC denotes the average cost of a firm under perfect competition. -Refer to Figure .Suppose the demand for the commodity increases to Q₁, what will be the effect on the price level in the short run?

In the figure given below, D₁ and D₂ represent the demand curves for land before and after the ethanol program respectively.SRS is the short-run supply curve of land. -Refer to Figure .What will be the shape of the long-run supply curve of land suitable for corn farming?

How is the short-run supply curve of a perfectly competitive market different from the long-run supply curve?

If the cost of production of the firms in a perfectly competitive market differs the resulting long-run supply curve will be an upward rising step function.

Assume that buyers are aware of the similarities between the products sold by two dairy farms.The dairy producers can still practice price discrimination through advertisement and salesmanship.

In the long run, producers do not incur any fixed cost as all inputs are variable.

State two characteristics of the long-run equilibrium under perfect competition.

Suppose a legislation passed by the government encourages domestic oil exploration thereby reducing petroleum imports substantially.If the cost of production is uniform for all producers, which of the following will be observed in the petroleum market?

Reasoning With Economics: Models and Information

Transactions and Institutions: the Building Blocks

Markets

Cost and Production

Extreme Markets II: Monopoly

Between the Extremes: Interaction and Strategy

Competition and Strategy

Beyond Markets; Property and Contracts

The Economics of Contracts

Risk and Information in Contracts

Organizations in Concept and Practice

Organizational Design

Vertical Relationships

Employment Relationships

Time, Risk and Options

Conflict, Negotiation and Group Choice

Filters

Exam 5: Extreme Markets I: Perfect Competition

Why do economists prefer to use the model of perfect competition in most economic analysis?

Firms in a perfectly competitive market usually enter or leave an industry in the short-run and not in the long-run.

When the existing firms in a competitive industry have different operating costs:

In the figure given below MC denotes the marginal cost and AC denotes the average cost of a firm under perfect competition. -Refer to Figure .When the demand increases to Q₁, in the short run the firm will be:

When a perfectly competitive firm is in long-run equilibrium, it and all other firms are on the lowest point of their average cost curves.

In the market for oranges, availability of substitutes limits a single seller's power over price.

In the figure given below MC denotes the marginal cost and AC denotes the average cost of a firm under perfect competition. -Refer to Figure .What will be the effect of the increase in demand (from Q₀ to Q₁) on the short run supply curve?

State any two properties of the perfectly competitive market.

Which of the following conditions define the short-run for any industry?

In the figure given below MC denotes the marginal cost and AC denotes the average cost of a firm under perfect competition. -Refer to Figure .What will be the long run effect of the increase in demand (from Q₀ to Q₁) in this market?

In the figure given below MC denotes the marginal cost and AC denotes the average cost of a firm under perfect competition. -Refer to Figure .Suppose the demand for the commodity increases to Q₁, what will be the effect on the price level in the short run?

In the figure given below, D₁ and D₂ represent the demand curves for land before and after the ethanol program respectively.SRS is the short-run supply curve of land. -Refer to Figure .What will be the shape of the long-run supply curve of land suitable for corn farming?

How is the short-run supply curve of a perfectly competitive market different from the long-run supply curve?

If the cost of production of the firms in a perfectly competitive market differs the resulting long-run supply curve will be an upward rising step function.

Assume that buyers are aware of the similarities between the products sold by two dairy farms.The dairy producers can still practice price discrimination through advertisement and salesmanship.

In the long run, producers do not incur any fixed cost as all inputs are variable.

State two characteristics of the long-run equilibrium under perfect competition.

Suppose a legislation passed by the government encourages domestic oil exploration thereby reducing petroleum imports substantially.If the cost of production is uniform for all producers, which of the following will be observed in the petroleum market?

Reasoning With Economics: Models and Information

Transactions and Institutions: the Building Blocks

Markets

Cost and Production

Extreme Markets II: Monopoly

Between the Extremes: Interaction and Strategy

Competition and Strategy

Beyond Markets; Property and Contracts

The Economics of Contracts

Risk and Information in Contracts

Organizations in Concept and Practice

Organizational Design

Vertical Relationships

Employment Relationships

Time, Risk and Options

Conflict, Negotiation and Group Choice

Filters