Question 1

A perfectly competitive market is initially in long-run competitive equilibrium.Each firm in the market is earning zero economic profit.The owner of one firm decides to discriminate against employees of race X by not hiring them,or by firing those employees of race X who currently work for him.If employees of race X are high-quality employees,and other firms hire them,then the owner of the discriminating firm will soon find that his costs rise (above that of other firms)and he will begin earning

Accepted Answer

Discrimination against high-quality employees of race X will result in lower productivity and higher costs for the discriminating firm compared to its competitors who hire them. As a result, the discriminating firm will start to earn below-normal profit or even incur losses in the long run. This is because the discriminating firm has to pay more to attract and retain employees of lower quality who have limited job opportunities elsewhere. In contrast, the non-discriminating firms will have access to a larger pool of high-quality employees and will be able to produce at lower costs and earn normal or positive economic profits. Therefore, the discriminating firm will soon face the consequences of its discriminatory behavior in the form of higher costs and lower profits.

Question 2

In long-run competitive equilibrium,firms

Accepted Answer

In long-run competitive equilibrium, firms have no incentive to make any changes because they are producing at the efficient scale where price equals marginal cost and they are earning zero economic profits. Any attempt to increase output or raise prices above the competitive level would result in decreased profits or losses in the long run. Therefore, firms have no incentive to make any changes.

Question 3

A perfectly competitive market is initially in long-run competitive equilibrium.Then,market demand increases.By the time all adjustments have been made,price will be __________ its original level if the industry witnesses __________ costs.

Accepted Answer

In a perfectly competitive market with increasing costs, an increase in demand will lead to a higher long-run equilibrium price as firms face higher costs when expanding output.

Question 4

In long-run competitive equilibrium,the market equilibrium price equals

Accepted Answer

The answer of In long-run competitive equilibrium,the market equilibrium price...

Question 5

A firm produces the quantity of output at which P = MC and P = ATC.It follows that the firm is

Accepted Answer

The answer of A firm produces the quantity of output...

Question 6

Which of the following statements is true?

Accepted Answer

The answer of Which of the following statements is true?
...

Question 7

Which of the following is not a condition of long-run competitive equilibrium?

Accepted Answer

In long-run competitive equilibrium, all of these conditions are met: firms have no incentive to enter or exit the industry, no incentive to adjust output, and no incentive to change plant size. This state ensures that the market is in a stable equilibrium where economic profits are zero, satisfying all conditions listed.

Question 8

A perfectly competitive market is initially in long-run competitive equilibrium.Then,market demand increases.As a result,

Accepted Answer

When market demand increases, the demand curve for each firm shifts upward, leading to an increase in the price of the good. This upward shift in the demand curve results in an upward shift in the marginal revenue curve for each firm, as they are now able to sell their output at a higher price. Therefore, both (a) and (b) are correct. The increase in demand does not affect the cost curves of each firm, so (c) and (d) are incorrect.

Question 9

All firms in an industry sell their product for the same price.This is a result of

Accepted Answer

The answer of All firms in an industry sell their...

Question 10

Exhibit 23-10
 
-Refer to Exhibit 23-10. What quantity of output should the profit-maximizing firm produce?

Accepted Answer

The profit-maximizing quantity of output is where marginal revenue equals marginal cost. In this case, that occurs at a quantity of 6. At any lower quantity, marginal revenue is greater than marginal cost, meaning the firm can increase profits by increasing output. At any higher quantity, marginal cost is greater than marginal revenue, meaning the firm can increase profits by decreasing output. Therefore, the profit-maximizing firm should produce 6 units of output.

Question 11

A perfectly competitive market is initially in long-run competitive equilibrium.Then,market demand increases.This causes existing firms in the market to __________ and __________.As a result of the latter,the market supply curve shifts __________.

Accepted Answer

An increase in market demand will cause firms in the market to produce more output, andnew firms to enter the market. This will shift the market supply curve to the right. Option A is incorrect as existing firms may not necessarily exit the market, but it is possible. Option B is incorrect as a rise in market demand will not cause existing firms to produce less output but will attract new firms to enter the market, which will shift the supply curve to the right. Option D is incorrect as there is no mention of plant expansion. Therefore, the correct answer is C.

Question 12

If the long-run industry supply curve is downward-sloping,it follows that there are __________ costs in the industry.

Accepted Answer

Decreasing costs in the industry lead to a downward-sloping long-run industry supply curve, as lower costs result in a greater supply being offered at lower prices.

Question 13

A perfectly competitive market is initially in long-run competitive equilibrium.Then,market demand falls.By the time all adjustments have been made,price will be __________ its original level if the industry witnesses __________ costs.

Accepted Answer

The answer of A perfectly competitive market is initially in...

Question 14

The long-run industry supply curve is the graphic representation of the quantity of output that the industry is prepared to

Accepted Answer

The long-run industry supply curve shows the quantity of output the industry is willing and able to supply at different prices, after the entry and exit of firms has occurred and the industry has reached a state of equilibrium. In this equilibrium state, firms are earning only normal profits, there is no incentive for firms to enter or exit the industry, and the market price reflects the minimum long-run average total cost of producing each unit of output. Therefore, the long-run industry supply curve represents the quantity that all the firms in the industry are willing and able to supply at each price.

Question 15

In long-run competitive equilibrium SRATC = LRATC,because if SRATC > LRATC (at the quantity of output at which MR = MC)firms would

Accepted Answer

In long-run competitive equilibrium, firms adjust their plant size and production levels to minimize costs. If SRATC (Short-Run Average Total Cost) is greater than LRATC (Long-Run Average Total Cost) at the output level where Marginal Revenue (MR) equals Marginal Cost (MC), firms have an incentive to change their plant size to produce their current output more efficiently and at a lower cost, thus moving towards the LRATC. This adjustment ensures that firms are operating at the minimum point of their LRATC curve in the long run, optimizing their production and minimizing costs.

Question 16

In a perfectly competitive market,if a resource that one firm utilizes is superior to resources used by other firms,and,as a result,lowers unit costs for the firm,that firm is likely to earn __________ in the short run.In time,however,the firm's __________ curve will rise to reflect the superior-quality of the resource it employs and the firm will then earn __________.

Accepted Answer

In the short run, the firm will earn positive economic profit due to the lower unit costs resulting from the superior-quality resource. However, in the long run, the firm's cost curve will rise to reflect the higher quality resource and the firm will earn normal profit. This is because in a perfectly competitive market, other firms will be able to adopt the same resource and compete away any economic profit that the firm may earn in the long run.

Question 17

When an industry is described as a decreasing-cost,increasing-cost,or constant-cost industry,the "cost" that is being referred to is

Accepted Answer

The cost being referred to is average total cost, which takes into account both fixed and variable costs. In a decreasing-cost industry, as production increases, average total cost decreases due to economies of scale. In an increasing-cost industry, as production increases, average total cost increases due to diseconomies of scale. In a constant-cost industry, as production increases, average total cost remains constant.

Question 18

Resource allocative efficiency exists for a perfectly competitive firm because

Accepted Answer

Resource allocative efficiency exists when a firm produces at the level where price equals marginal cost. In a perfectly competitive market, the firm is a price taker, which means it cannot influence the market price. Thus, the firm will produce at the level where price equals marginal cost to maximize profits. In other words, the firm will equate marginal revenue and marginal cost to maximize profits. Therefore, the correct answer is A, where price equals marginal revenue and the firm equates marginal revenue and marginal cost to maximize profits.

Question 19

A perfectly competitive market is initially in long-run competitive equilibrium.Then,market demand falls.This causes the marginal revenue curves for existing firms to shift __________ and for these firms to produce __________ output.Some of the existing firms will end up __________.

Accepted Answer

When market demand falls, the marginal revenue curves for existing firms will shift downward, causing them to produce less output. As a result, some of the firms will not be able to cover their variable costs and will exit the market. This is the best choice because the other options do not align with the concept of a market in long-run competitive equilibrium.

Question 20

A perfectly competitive market is initially in long-run competitive equilibrium.Then,market demand increases.As a result,existing firms in the market begin to __________.By the time all adjustments have been made,profits will __________.

Accepted Answer

In a perfectly competitive market, an increase in demand initially allows firms to earn positive economic profits as prices rise. However, these profits attract new firms into the market, increasing supply until prices fall back to the level where firms earn zero economic profit in the long run.

Quiz 23: Perfect Competition

In long-run competitive equilibrium,firms

A perfectly competitive market is initially in long-run competitive equilibrium.Then,market demand increases.By the time all adjustments have been made,price will be its original level if the industry witnesses costs.

In long-run competitive equilibrium,the market equilibrium price equals

A firm produces the quantity of output at which P = MC and P = ATC.It follows that the firm is

Which of the following statements is true?

Which of the following is not a condition of long-run competitive equilibrium?

A perfectly competitive market is initially in long-run competitive equilibrium.Then,market demand increases.As a result,

All firms in an industry sell their product for the same price.This is a result of

Exhibit 23-10 -Refer to Exhibit 23-10. What quantity of output should the profit-maximizing firm produce?

A perfectly competitive market is initially in long-run competitive equilibrium.Then,market demand increases.This causes existing firms in the market to and .As a result of the latter,the market supply curve shifts __.

If the long-run industry supply curve is downward-sloping,it follows that there are __________ costs in the industry.

A perfectly competitive market is initially in long-run competitive equilibrium.Then,market demand falls.By the time all adjustments have been made,price will be its original level if the industry witnesses costs.

The long-run industry supply curve is the graphic representation of the quantity of output that the industry is prepared to

In long-run competitive equilibrium SRATC = LRATC,because if SRATC > LRATC (at the quantity of output at which MR = MC) firms would

When an industry is described as a decreasing-cost,increasing-cost,or constant-cost industry,the "cost" that is being referred to is

Resource allocative efficiency exists for a perfectly competitive firm because

A perfectly competitive market is initially in long-run competitive equilibrium.Then,market demand falls.This causes the marginal revenue curves for existing firms to shift and for these firms to produce output.Some of the existing firms will end up __.

A perfectly competitive market is initially in long-run competitive equilibrium.Then,market demand increases.As a result,existing firms in the market begin to .By the time all adjustments have been made,profits will .