Exam 12: Competition and the Invisible Hand

The marginal cost of producing the first three bushels of corn on Farm 1 is $1.00, $1.25, and $1.33, respectively. For Farm 2, the marginal cost of producing the first three bushels of corn is $0.90, $1.15, and $1.30. Three bushels should be produced if the market price is $1.15 per bushel.

The long-run level of profit is the same in each perfectly competitive industry.

A free market can naturally allocate production across firms in an industry to minimize total costs due to:

What happens in a competitive industry when more firms enter?

Use the following to answer questions: Figure: Light Bulbs -(Figure: Light Bulbs) In this diagram, Firm 1 (MC₁) and Firm 2 (MC₂) are each making 100 million light bulbs. How many light bulbs should each firm make to minimize total production costs while maintaining the same total output?

If P > AC in competitive markets, firms enter the market until P = AC.

In a competitive industry, if the marginal cost of Factory 1 is higher than that of Factory 2, in the short run:

A small island nation produces only boxes of macaroni and cheese, most of which it sells in the export market. The world price per box is $10, regardless of the quantity exported. The nation has three macaroni and cheese factories, each of which varies in efficiency, but it's impossible for the government to determine each factory's marginal cost. To profit the most as a country, what should this nation's government do?

Change:

Explain how market entry affects the profit level of a competitive firm.

Which of the following statements is TRUE regarding profit maximization in competitive markets? I. When all firms pursue profits, none of them achieve profits. II. When all firms pursue profits, only the most innovative will achieve profits. III. Production is divided in such a way that total costs of production are minimized.

Figure: Two Farms Refer to the figure. If a farmer owns two farms, Farm 1 and Farm 2, and is under contract to produce 400 bushels of corn for a food processor, should the farmer produce 200 bushels of corn from each farm as shown in this diagram?

If an industry is highly profitable, it is an indication that:

Total costs cannot be minimized if firms:

If a firm has revenues of $200, explicit costs of $100, and implicit costs of $100, then its economic profit is:

The greatest use of our limited resources occurs when:

A central planner can never allocate output across firms in such a way as to minimize the total costs of production.

If P < AC in a given industry, then:

In a perfectly competitive market, each firm sells at:

Profit maximization occurs when: