Exam 12: Firms in Perfectly Competitive Markets

Assume the market for organically-grown produce is perfectly competitive. All else equal, as farmers find it less profitable to produce and sell organic produce in this market,

A perfectly competitive apple farm produces 1,000 bushels of apples at a total cost of $36,000. The price of each bushel is $50. Calculate the firm's short-run profit or loss.

In the short run, if price falls below a firm's minimum average total cost, the firm should shut down.

In the long run, perfectly competitive firms earn zero economic profit. Why do firms enter an industry when they know that in the long run, they will not earn any profit?

Figure 12-2 -Refer to Figure 12-2. Suppose the firm is currently producing Q2 units. What happens if it expands output to Q3 units?

Molly Sharp is producing a documentary about the plight of the six-toed ferrets of Sri Lanka. Molly has spent $125,000 of her own money on this project and the documentary is now complete. Molly just found out that no studio is willing to release her documentary and she must now shop it to cable television networks, where she knows she will not be able to recoup her investment. Which of the following statements regarding Molly Sharp's documentary is true?

Figure 12-9 Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-9. At price P2, the firm would

A very large number of small sellers who sell identical products imply

In long-run competitive equilibrium, the perfectly competitive firm produces where price equals minimum average total cost. a. What is this efficiency criterion called? b. How does it benefit consumers?

What is productive efficiency?

In the long run, a firm in a perfectly competitive industry will supply output only if its total revenue covers its

Writing in the New York Times on the technology boom of the late 1990s, Michael Lewis argues, "The sad truth, for investors, seems to be that most of the benefits of new technologies are passed right through to consumers free of charge." What does Lewis means by the benefits of new technology being "passed right through to consumers free of charge"?

Assume that firms in a perfectly competitive market are earning economic profits. Which of the following statements describes the change in market price and output as a result of the entry of new firms into this market?

Table 12-3 Arnie sells basketballs in a perfectly competitive market. Table 12-3 summarizes Arnie's output per day (Q), total cost (TC), average total cost (ATC) and marginal cost (MC). -Refer to Table 12-3. What will Arnie's output be and how much profit will he earn if the market price of basketballs is $5.00?

Which of the following describes a difference between allocative efficiency and productive efficiency in a perfectly competitive market?

A firm will make a profit when

Letters are used to represent the terms used to answer this question: price (P), quantity of output (Q), total cost (TC) and average total cost (ATC). Which of the following equations is equal to a firm's profit?

For a perfectly competitive firm, at the profit-maximizing output average revenue equals marginal cost.

If a firm shuts down, it

A perfectly competitive firm in a constant-cost industry produces 3,000 units of a good at a total cost of $36,000. The prevailing market price is $15. What will happen to the number of firms in the industry and to the industry's output in the long run?