Question 1

Keith is a perfectly competitive carnation grower. The market price is $2 per dozen carnations. Keith's average total cost to grow carnations is $2.50 per dozen. In the long run, Keith will

Accepted Answer

In the long run, if Keith's costs are consistently higher than the market price, he will not be able to earn profits and will likely exit the industry. Continuing to produce carnations at a loss would not be sustainable for Keith's business. Therefore, the best choice for Keith is to exit the industry if the price and his costs do not change.

Question 2

When firms in a perfectly competitive market incur economic losses, exit by some firms means the market supply will

Accepted Answer

When firms in a perfectly competitive market incur economic losses, some firms will exit the market in the long run. This means that the number of firms in the market will decrease, leading to a decrease in market supply. This is because as firms exit, their production capacity and output are removed from the market. Therefore, the remaining firms' supply will be reduced, resulting in a decrease in the overall market supply.

Question 3

Catfish farming is a perfectly competitive industry. Catfish farmers suffered tremendous economic losses in the late 2000s. As a result,

Accepted Answer

In a perfectly competitive market, economic losses lead to some firms exiting the market in the long run due to inability to cover their costs. Therefore, it is likely that some catfish farmers exited the market in late 2000s, reducing the supply of catfish.

Question 4

In the long run, a perfectly competitive firm

Accepted Answer

In the long run, a perfectly competitive firm will produce where price equals marginal cost, resulting in zero economic profit. This is because in a perfectly competitive market, there are no barriers to entry, and so firms will continue to enter the market until all economic profits have been eroded. Therefore, the only possible outcome for a perfectly competitive firm in the long run is to make zero economic profit.

Question 5

When new firms enter a perfectly competitive market, the market supply curve shifts ________ and the price ________.

Accepted Answer

When new firms enter a perfectly competitive market, the market supply increases, causing the supply curve to shift rightward. With a larger supply and constant demand, the equilibrium price falls.

Question 6

If concerns about mad-cow disease impose economic losses on the perfectly competitive cattle ranchers, exit by the ranchers combined with no further changes in the demand for beef will force the price of beef to

Accepted Answer

When cattle ranchers exit the market due to concerns about mad-cow disease, the supply of beef decreases. With demand remaining constant and supply decreasing, the price of beef will increase according to basic principles of supply and demand.

Question 7

In the long run, a perfectly competitive firm will

Accepted Answer

In the long run, a perfectly competitive firm will produce at the minimum point of its average total cost curve, where price equals marginal cost. At this point, the firm will make zero economic profit. If the firm was making an economic profit, other firms would enter the market and drive down the price, and if the firm was incurring an economic loss, some firms would exit the market, driving up the price. Therefore, in the long run, a perfectly competitive firm will make zero economic profit.

Question 8

In the long run, existing firms exit a perfectly competitive market

Accepted Answer

In the long run, existing firms will exit a perfectly competitive market if they incur an economic loss. This is because in the long run, new firms are able to enter the market, which increases competition and drives down prices. If a firm is unable to cover its costs at the prevailing market price, it will exit the market. However, if a firm is making a normal profit (covering its costs but not earning an economic profit) it may continue to remain in the market.

Question 9

In the long run, perfectly competitive firms will exit the market if the price is

Accepted Answer

In the long run, perfectly competitive firms need to earn enough revenue to cover both their variable and fixed costs. If the price is less than average total cost, the firm is not making enough revenue to cover all of its costs and is operating at a loss. In the long run, if firms continue to operate at a loss, they will eventually exit the market. Therefore, if the price is less than average total cost, perfectly competitive firms will exit the market.

Question 10

In the long run, a perfectly competitive firm makes

Accepted Answer

In the long run, a perfectly competitive firm makes zero economic profit because, in the long run, firms can enter or exit the industry, causing the market price to adjust until it is equal to the minimum point on the average total cost curve. This means that the firm is only earning enough revenue to cover all of its costs, including the opportunity cost of the resources used in production. This is called a "normal profit," where the firm is earning a "fair" return on investment, but not earning any economic profit.

Question 11

Suppose a perfectly competitive market is in a short-run equilibrium. If some firms exit the market, the profit of the remaining firms ________; if some firms enter the market, the profit of each existing firm ________.

Accepted Answer

When firms exit the market, the supply decreases, leading to higher prices and potentially higher profits for the remaining firms. Conversely, when new firms enter, the supply increases, leading to lower prices and decreased profits for existing firms.

Question 12

In a perfectly competitive industry, i. entry by new firms shifts the market supply curve rightward.
Ii. exit by existing firms shifts the market supply curve leftward.
Iii. at all times existing firms make only zero economic profit.

Accepted Answer

Entry by new firms will increase the number of firms in the market, which will increase the market supply and shift the supply curve rightward (i). Exit by existing firms will reduce the number of firms in the market, which will decrease the market supply and shift the supply curve leftward (ii). In the long run, firms in a perfectly competitive industry will earn only zero economic profit due to free entry and exit (iii). Therefore, statements (i) and (iii) are true, but statement (ii) is partially true as it only describes the effect of exit on the market supply curve.

Question 13

In the long run, perfectly competitive firms produce at the output level that has the minimum

Accepted Answer

In the long run, perfectly competitive firms produce at the output level where their average total cost is at its minimum. This is because in the long run, firms can adjust their inputs and technological efficiency to produce at the lowest possible cost. Therefore, they aim to produce at the point where their average total cost curve is at its minimum.

Question 14

Suppose a perfectly competitive market is in short-run equilibrium. Firms that are incurring a ________ economic loss ________.

Accepted Answer

In a perfectly competitive market, firms that are incurring a persistent economic loss will eventually exit the industry. This is because they are unable to cover their variable costs and remain profitable in the long run. As these firms exit the market, the market supply curve will shift leftward, reducing the overall supply in the market and potentially leading to higher prices and profits for the remaining firms.

Question 15

A perfectly competitive market is in equilibrium and then demand decreases. The decrease in demand means the market price will ________ and eventually there will be ________.

Accepted Answer

When demand decreases in a perfectly competitive market, the market price falls because the same quantity of goods is chased by fewer buyers. This leads to lower revenues for firms, making the market less attractive. Consequently, some existing firms may find it unprofitable to continue operating and decide to exit the market.

Question 16

If firms in a perfectly competitive industry are earning an economic profit, then in the ________ firms will ________ the industry.

Accepted Answer

In a perfectly competitive market, if firms are earning an economic profit in the short run, it attracts new firms to enter the market in the long run. This increases supply, leading to a decrease in the price until economic profits are zero.

Question 17

To eliminate losses in a perfectly competitive market, firms exit the industry. This exit results in

Accepted Answer

In a perfectly competitive market, firms earn zero economic profits in the long run. If some firms are making losses, they will exit the industry until the remaining firms are earning zero economic profits. This exit of firms reduces the supply of goods in the market, which leads to an increase in the market price. As the price increases, the remaining firms are able to break even and earn zero economic profits. Therefore, the exit of firms results in a decrease in market supply.

Question 18

The corn market is perfectly competitive, with thousands of corn farmers. In the 2000s, the price of corn soared so that new farmers entered the corn market. Initially, entry ________ the economic profit of the initial corn farmers and in the long run the initial corn farmers ________.

Accepted Answer

In a perfectly competitive market, the entry of new farmers increases supply, leading to a decrease in price. Initially, this reduces the economic profit of the initial corn farmers. In the long run, the market reaches an equilibrium where firms make zero economic profit, as any economic profit would attract more firms into the market, driving profits down to zero.

Question 19

The cranberry market is perfectly competitive. Reports that consuming cranberries can lead to improved health result in a permanent increase in the demand for cranberries and an immediate upward jump in the price of cranberries. As time passes, the price of cranberries ________ and the initial firms' economic ________.

Accepted Answer

In a perfectly competitive market, an increase in demand leads to a temporary rise in price and profits, attracting new firms. Over time, the entry of these new firms increases supply, which reduces the price and eliminates the initial economic profits, restoring normal profit levels.

Question 20

If it does not shut down, a perfectly competitive firm produces where marginal cost is equal to the marginal revenue

Accepted Answer

In a perfectly competitive market, firms aim to maximize their profits in the long-run by producing where marginal cost equals marginal revenue. This is because in the long-run, all factors of production become variable, and firms can adjust their production levels to minimize their costs and increase their profits. Therefore, a firm in a perfectly competitive market will always try to produce at the point where marginal cost equals marginal revenue to maximize its profit.

Quiz 11: Perfect Competition

Keith is a perfectly competitive carnation grower. The market price is $2 per dozen carnations. Keith's average total cost to grow carnations is $2.50 per dozen. In the long run, Keith will

When firms in a perfectly competitive market incur economic losses, exit by some firms means the market supply will

Catfish farming is a perfectly competitive industry. Catfish farmers suffered tremendous economic losses in the late 2000s. As a result,

In the long run, a perfectly competitive firm

When new firms enter a perfectly competitive market, the market supply curve shifts and the price .

If concerns about mad-cow disease impose economic losses on the perfectly competitive cattle ranchers, exit by the ranchers combined with no further changes in the demand for beef will force the price of beef to

In the long run, a perfectly competitive firm will

In the long run, existing firms exit a perfectly competitive market

In the long run, perfectly competitive firms will exit the market if the price is

In the long run, a perfectly competitive firm makes

Suppose a perfectly competitive market is in a short-run equilibrium. If some firms exit the market, the profit of the remaining firms ; if some firms enter the market, the profit of each existing firm .

In a perfectly competitive industry, i. entry by new firms shifts the market supply curve rightward. Ii. exit by existing firms shifts the market supply curve leftward. Iii. at all times existing firms make only zero economic profit.

In the long run, perfectly competitive firms produce at the output level that has the minimum

Suppose a perfectly competitive market is in short-run equilibrium. Firms that are incurring a economic loss .

A perfectly competitive market is in equilibrium and then demand decreases. The decrease in demand means the market price will and eventually there will be .

If firms in a perfectly competitive industry are earning an economic profit, then in the firms will the industry.

To eliminate losses in a perfectly competitive market, firms exit the industry. This exit results in

The corn market is perfectly competitive, with thousands of corn farmers. In the 2000s, the price of corn soared so that new farmers entered the corn market. Initially, entry the economic profit of the initial corn farmers and in the long run the initial corn farmers .

If it does not shut down, a perfectly competitive firm produces where marginal cost is equal to the marginal revenue