Question 1

What is meant by allocative efficiency? How does a perfectly competitive firm achieve allocative efficiency?

Accepted Answer

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Question 2

Firms in perfect competition produce the productively efficient output level in the short run and in the long run.

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Question 3

New York Times writer Michael Lewis wrote that "The sad truth,for investors,seems to be that most of the benefits....are passed through to consumers free of charge." To which of the following did Lewis refer?

Accepted Answer

The quote suggests that some benefits existed in the 1990s that were not being fully captured by investors but were instead being passed on to consumers for free. Therefore, option D, new technologies developed in the 1990s, is the most suitable choice.

Question 4

If productive efficiency characterizes a market

Accepted Answer

Productive efficiency means that firms are producing goods at the lowest possible cost. This requires minimizing the cost of production, using efficient technology, and producing the goods that consumers desire. Marginal cost minimization (option A) is one factor that contributes to productive efficiency, but it is not sufficient on its own. Option B is incorrect because productive efficiency is not necessarily about producing the goods that consumers desire most, but rather about producing them at the lowest possible cost. Option D is partially correct, but again, the emphasis is on minimizing costs, rather than simply using the newest or best technology available.

Question 5

A teenaged babysitter is similar to a firm in a perfectly competitive industry in that,for both

Accepted Answer

Both a teenaged babysitter and a firm in a perfectly competitive industry have many other suppliers of similar goods or services. In the case of a babysitter, there are other teens who offer babysitting services, while in a perfectly competitive industry, there are many firms offering similar products or services.

Question 6

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?

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Question 7

When plasma television sets were first introduced prices were high and few firms were in the market.Later,economic profits attracted new firms and the price of plasma televisions fell.This example illustrates

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Question 8

What is meant by productive efficiency? How does a perfectly competitive firm achieve productive efficiency?

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Question 9

If a firm in a perfectly competitive industry introduces a lower-cost way of producing an existing product,the firm will be able to earn economic profits in the long run.

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Question 10

Allocative efficiency is achieved in an industry when firms supply those goods and services that provide consumers with a marginal benefit equal to the marginal cost of producing those goods and services.

Accepted Answer

Allocative efficiency is achieved when the price of a good or service reflects its true marginal cost of production and is equal to the marginal benefit to consumers. This ensures that resources are allocated efficiently and the economy is operating at its maximum potential.

Question 11

A perfectly competitive industry achieves allocative efficiency in the long run.What does allocative efficiency mean?

Accepted Answer

Allocative efficiency means that resources are allocated in a way that maximizes social welfare. In a perfectly competitive industry, each firm produces up to the point where the price of the good equals the marginal cost of producing the last unit, which ensures that resources are allocated efficiently and social welfare is maximized. Choices B, C, and D are not necessarily indicative of allocative efficiency.

Question 12

Using two graphs,illustrate how a positive technological change in the market for notebook computers could eliminate short-run economic profit for a firm in that market.On the first graph,use a supply and demand graph to illustrate the positive technological change.On the second graph,use demand,ATC,MC and MR curves to illustrate the elimination of economic profit resulting from the positive technological change.Explain what is taking place in each graph.

Accepted Answer

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Question 13

Perfectly competitive firms produce up to the point where the price of the good equals the marginal cost of producing the last unit.This condition is referred to as

Accepted Answer

Allocative efficiency is achieved when the price of the good is equal to the marginal cost of production. This means that resources are being allocated efficiently, and no additional consumer surplus or producer surplus can be gained by producing more or less of the good. Therefore, perfectly competitive firms will produce up to the point where allocative efficiency is achieved.

Question 14

If a perfectly competitive firm achieves productive efficiency then

Accepted Answer

Productive efficiency means that the firm is producing at the lowest possible cost or minimum average total cost, which is achieved at the minimum efficient scale. Therefore, choice D is correct. Choice A is incorrect because in perfect competition, firms cannot raise prices without losing all their customers to competitors. Choice B is incorrect because the price of the good is determined by the market, not the benefit received by consumers. Choice C is incorrect because minimum efficient scale is the level of output at which the firm minimizes its long-run average total cost, but it may not necessarily represent productive efficiency for every level of output.

Question 15

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

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Question 16

Firms in perfect competition produce the allocatively efficient output in the short run and in the long run.

Accepted Answer

In perfect competition, firms produce at the point where marginal cost equals price, which is also the point where the marginal cost curve intersects the demand curve. This is the allocatively efficient output level in both the short run and the long run, as long as the market is free from any externalities or market failures.

Question 17

A perfectly competitive firm in long-run equilibrium produces output at the lowest possible average total cost.

Accepted Answer

In long-run equilibrium, a perfectly competitive firm produces at the minimum point on its average total cost curve, which means it is producing at the lowest possible cost per unit of output. This is because in a perfectly competitive market, firms have no market power and must accept the price as given, so they have to produce at the lowest possible cost to remain competitive.

Quiz 9: Firms in Perfectly Competitive Markets