question
The economic profits of firms in long-run competitive equilibrium are:
answer
zero
question
Which of the following is a characteristic of equilibrium in long-run competitive markets?
answer
Combined consumer and producer surplus is maximized
question
The long-run industry supply curve will be horizontal:
answer
if resource prices remain constant as industry demand rises or falls.
question
Allocative efficiency in the production of wheat requires:
answer
producing every unit of wheat whose marginal benefit equals or exceeds its marginal cost.
question
"Creative destruction" refers to:
answer
the process by which old industries or technologies are replaced by newer ones.
question
Suppose a decrease in product demand occurs in a decreasing-cost industry. Compared to the original equilibrium the new long-run competitive equilibrium will entail:
answer
a higher price and a lower total output.
question
Combined consumer and producer surplus is maximized in a competitive market:
answer
at the quantity corresponding to the intersection of the market supply and demand curves.
question
An increasing cost industry is characterized by:
answer
an upsloping long-run supply curve.
question
Refer to the above diagrams, which pertain to a purely competitive firm and the industry in which it operates. In the long run we should expect:
answer
some firms to exit, supply to decrease, and price to rise.
question
In the long run, competitive markets achieve:
answer
allocative efficiency because P = MC and productive efficiency because P = min ATC.
question
Average fixed cost is shown as the distance between
answer
average variable cost and average total cost.
question
True statements about the theory of the firm in the short run and long run include which of the
following?
I. All input costs are fixed in the short run.
II. All input costs are variable in the long run.
III. At least on input price is fixed in the short run.
following?
I. All input costs are fixed in the short run.
II. All input costs are variable in the long run.
III. At least on input price is fixed in the short run.
answer
II and III only
question
On the graph above, the onset of diminishing marginal returns occurs beyond
answer
Point C
question
Which of the following statements about a firm's production function are true?
I. When total product is at its maximum, marginal product is zero.
II. When total product rises, marginal product is rising.
III. When marginal product is greater than average product, average product is rising.
IV. When marginal product is less than average product, average product is falling.
I. When total product is at its maximum, marginal product is zero.
II. When total product rises, marginal product is rising.
III. When marginal product is greater than average product, average product is rising.
IV. When marginal product is less than average product, average product is falling.
answer
I, III, and IV only
question
According to the graph above, if the firm is producing any quantity greater than Q2 experiencing
answer
diseconomies of scale (decreasing returns to scale)
question
For a perfectly competitive firm, if the market price is $8 then
answer
marginal revenue is equal to $8
question
A firm's short-run marginal cost curve will eventually increase because of
answer
diminishing marginal returns
question
Assume that in the short run at the profit-maximizing output, the price is lower than average variable cost. The perfectly competitive firm should
answer
shut down
question
According to the table below, which shows the costs of production for a firm, the average total cost of producing 3 units of output is
answer
$20.00
question
In the short run, a decrease in production costs of a product will shift
answer
only the supply curve to the right.
question
Assume that a perfectly competitive firm is operating where marginal revenue is greater than marginal costs. To increase profits, the firm should
answer
increase production
question
The shapes of the marginal product curve and the total product curve are best explained by the
answer
law of diminishing returns
question
If average variable cost of producing five units of a product is $100 and the average variable cost of producing six units is $125, then the marginal cost of producing the sixth unit is
answer
$250
question
In a perfectly competitive industry, the market price of the product is $12. A firm produces at a level of output where average total cost is $16, marginal cost is $16, and average variable cost is $8. To maximize its profit, the firm should
answer
decrease output but keep producing
question
When a perfectly competitive firm sells additional units of output, its total revenue will
answer
increase at a constant rate
question
If the firm is in short-run equilibrium at a price of P4
by producing at which of the following levels of output?
by producing at which of the following levels of output?
answer
Q4
question
At which price will this perfectly competitive firm make an economic profit?
answer
P4
question
Which price-quantity combination represents long-run equilibrium for this perfectly competitive firm?
answer
Point D
question
According to the graph above, if the firm is producing at Q, the firm is
answer
making normal profits because the price just covers average total cost
question
Which of the following best describes a perfectly competitive market?
answer
Many small firms producing an identical product and facing no significant barriers to entry
question
Which of the following represents the correct relationship between the demand curve for a perfectly competitive industry and the demand curve for a perfectly competitive firm?
answer
Downward slope to the right | Perfectly Elastic
question
Assume that a competitive industry producing a normal good is in long-run equilibrium. If average consumer income decreases, which of the following changes will occur?
answer
Decrease Decrease Exit
question
According to the graphs above, in which of the following ways are the industry supply curve and the equilibrium price most likely to change in the long run?
answer
Decrease Increase
question
If the price is P2 , the firm will
answer
produce Q2 units and earn an economic profit
question
If the price is P1
answer
produce Q1 units and earn a normal profit
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