Question 1

In the long run, any perfectly competitive firm that produces will choose a quantity such that

Accepted Answer

In the long run, a perfectly competitive firm will produce at a quantity where price equals long-run marginal cost, which also coincides with the minimum point of the long-run average cost curve, ensuring zero economic profit.

Question 2

Suppose an industry has 100 firms, each with supply curve P = 50 + 10Q. Furthermore, suppose the market demand curve is given by P = 200 - 0.9Q. How many units of output will be produced by a firm operating in this market with a MC = 130Q?

Accepted Answer

To find the output produced by a firm, set the firm's supply curve equal to its marginal cost: 50 + 10Q = 130Q. Solving for Q gives Q = 2.

Question 3

If a firm is producing where its LMC = price and the LMC is equal to LAC, then it would do better in the long run by

Accepted Answer

The firm is already at its long-run profit-maximizing point because Long-Run Marginal Cost (LMC) equals price, indicating optimal output level, and LMC equals Long-Run Average Cost (LAC), indicating the firm is producing at the minimum point of its LAC curve, which is the most efficient scale of operation in the long run.

Question 4

At market equilibrium, the total benefit that results from all the transactions is

Accepted Answer

At market equilibrium, the demand and supply curves intersect, and the quantity exchanged is where the quantity demanded and supplied are equal. At this point, the price is set, and both consumers and producers have a surplus. The consumer's surplus is the difference between the maximum price they are willing to pay and the market price, and the producer's surplus is the difference between the market price and the minimum price they are willing to accept. The total benefit that results from all the transactions is, therefore, the sum of the consumer surplus and the producer surplus, making choice C the correct answer.

Question 5

Assume a perfectly competitive economy would use an assortment of nails that weighs a total of 100 tons. However, the economy is controlled by the government and it sets a ton limit of 100 tons. When production is complete there is only one nail that weighs 100 tons. Which of the following describes what was wrong when government did the planning?

Accepted Answer

The government set a ton limit, but did not account for the variety and distribution of nails needed by consumers, leading to a mismatch between production and consumer needs.

Question 6

The expansion of the car manufacturing industry causes an improvement in the assembly line system, thus reducing costs to each firm in that industry. This is an example of

Accepted Answer

The improvement in the assembly line system leads to a reduction in costs for each firm in the car manufacturing industry. This is a characteristic of a decreasing-cost industry, where as the industry expands, there are economies of scale which result in a decrease in the costs of production.

Question 7

Suppose an industry has 100 firms, each with supply curve P = 50 + 10Q. Furthermore, suppose the market demand curve is given by P = 200 - 0.9Q. What is the industry supply curve?

Accepted Answer

The industry supply curve is found by summing the individual supply curves of all firms. Since each of the 100 firms has a supply curve of P = 50 + 10Q, the total quantity supplied by the industry at any price is 100 times the quantity supplied by a single firm at that price. Therefore, the industry supply curve is P = 50 + 10(100Q) = 50 + 1000Q. However, to express this in terms of Q on the right side (as is standard), we divide everything by 1000 to get P = 50/1000 + Q = 50 + 0.1Q, which corrects the initial explanation.

Question 8

Some people advocate price ceilings in certain markets because they seek to

Accepted Answer

Price ceilings may benefit consumers, particularly those with limited incomes, by lowering the price they pay for goods, which may increase their welfare. However, in certain markets, price ceilings can lead to shortages, reduced quality, or black markets, which can decrease overall welfare. Supporters of price ceilings may argue that redistributing welfare from producers to consumers is worth sacrificing overall welfare, particularly if producers enjoy market power or are engaging in price gouging. Therefore, option B is the most appropriate because it describes the justification for price ceilings that some people may have.

Question 9

In a competitive industry in the long-run, it is likely that

Accepted Answer

In the long run, firms have the opportunity to adjust their scale of production, location choice, technology, etc. Such adjustments can lead to similar cost structures regardless of location or worker skills. In a competitive industry, firms will continuously strive to reduce their costs to remain competitive, and this will eventually lead to firms having the same long-run average cost (LAC) curve. Therefore, all firms giving their best effort will have the same LAC regardless of location or the unique skills of some workers.

Question 10

A competitive industry consists of 100 firms. The short-run marginal cost curve for each firm is given by MC = 200 + .3Q. The demand curve faced by the industry is given as P = 400 - .1Q. How much profit is each firm making if fixed costs are $375 per firm?

Accepted Answer

The answer of A competitive industry consists of 100 firms....

Question 11

A firm is currently selling its product at $20 each. It estimates that its average total cost of production is $100 and its average fixed cost is $40. In the short run the firm should

Accepted Answer

In the short run, if the price ($20) is less than the average variable cost (which is $60, calculated as $100 - $40), the firm should shut down to minimize losses.

Question 12

You have a small business that makes $50,000 accounting and economic profit for you. As a disabled person, you must work at home and you did not have other opportunities until your neighbor offers you a job you like equally well for $50,000 and you can do it at home. This means

Accepted Answer

Economic profit takes into account opportunity costs, which in this case includes the $50,000 you could earn from the job offer. Since you're foregoing this opportunity by continuing with your business, your economic profit decreases. However, your accounting profit, which does not consider opportunity costs, remains the same at $50,000.

Question 13

Competitive markets result in allocative efficiency because they

Accepted Answer

Competitive markets result in allocative efficiency because they allow for mutually beneficial trade to occur until all possible gains from trade have been exhausted. This means that resources are allocated in the most efficient way possible, with no waste or excess, and both consumers and producers benefit from the exchange.

Question 14

A competitive industry consists of 100 firms. The short-run marginal cost curve for each firm is given by MC = 200 + .3Q. The demand curve faced by the industry is given as P = 400 - .1Q. What is the equilibrium price and quantity produced by the industry as a whole?

Accepted Answer

The answer of A competitive industry consists of 100 firms....

Question 15

A competitive industry consists of 100 firms. The short-run marginal cost curve for each firm is given by MC = 200 + .3Q. The demand curve faced by the industry is given as P = 400 - .1Q. What is the price charged by each firm and what quantity will each firm produce?

Accepted Answer

The answer of A competitive industry consists of 100 firms....

Question 16

Which statement is true of the market supply curve?

Accepted Answer

The market supply curve is derived from the marginal cost curves of individual firms, which are above the average variable cost. Knowing the marginal cost information of firms is essential for constructing a supply function, as it reflects how much more of a good a firm will supply as the price increases.

Question 17

The Agriculture industry is often used as an example of a competitive market model. However, of the four conditions required for perfect competition, one is clearly not present in farming. Which one is the least applicable and why does it not fit the model?

Accepted Answer

The answer of The Agriculture industry is often used as...

Question 18

I get $200 revenue from the sale of my product each day. I rent the factory that I use for $90 a day. The raw materials of the operation cost $115 a day. I do all the work myself. Both jobs are equally attractive as far as the work is concerned. Recently, a competitor offered me $30 a day to work for him. My accounting profit is ____, and my economic profit is _____.

Accepted Answer

The answer of I get $200 revenue from the sale...

Question 19

A competitive industry consists of 100 firms. The short-run marginal cost curve for each firm is given by MC = 200 + .3Q. The demand curve faced by the industry is given as P = 400 - .1Q. What is the producer and consumer surplus in the entire market?

Accepted Answer

The answer of A competitive industry consists of 100 firms....

Question 20

Which is not true of a perfectly competitive market?

Accepted Answer

In a perfectly competitive market, the incentive to innovate can still exist despite economic profits being zero in the long-run. Innovations can lead to temporary profits and efficiencies that benefit firms before the market adjusts to these changes.

Quiz 10: Perfect Competition

In the long run, any perfectly competitive firm that produces will choose a quantity such that

Suppose an industry has 100 firms, each with supply curve P = 50 + 10Q. Furthermore, suppose the market demand curve is given by P = 200 - 0.9Q. How many units of output will be produced by a firm operating in this market with a MC = 130Q?

If a firm is producing where its LMC = price and the LMC is equal to LAC, then it would do better in the long run by

At market equilibrium, the total benefit that results from all the transactions is

The expansion of the car manufacturing industry causes an improvement in the assembly line system, thus reducing costs to each firm in that industry. This is an example of

Suppose an industry has 100 firms, each with supply curve P = 50 + 10Q. Furthermore, suppose the market demand curve is given by P = 200 - 0.9Q. What is the industry supply curve?

Some people advocate price ceilings in certain markets because they seek to

In a competitive industry in the long-run, it is likely that

A competitive industry consists of 100 firms. The short-run marginal cost curve for each firm is given by MC = 200 + .3Q. The demand curve faced by the industry is given as P = 400 - .1Q. How much profit is each firm making if fixed costs are $375 per firm?

A firm is currently selling its product at $20 each. It estimates that its average total cost of production is $100 and its average fixed cost is $40. In the short run the firm should

You have a small business that makes $50,000 accounting and economic profit for you. As a disabled person, you must work at home and you did not have other opportunities until your neighbor offers you a job you like equally well for $50,000 and you can do it at home. This means

Competitive markets result in allocative efficiency because they

A competitive industry consists of 100 firms. The short-run marginal cost curve for each firm is given by MC = 200 + .3Q. The demand curve faced by the industry is given as P = 400 - .1Q. What is the equilibrium price and quantity produced by the industry as a whole?

A competitive industry consists of 100 firms. The short-run marginal cost curve for each firm is given by MC = 200 + .3Q. The demand curve faced by the industry is given as P = 400 - .1Q. What is the price charged by each firm and what quantity will each firm produce?

Which statement is true of the market supply curve?

The Agriculture industry is often used as an example of a competitive market model. However, of the four conditions required for perfect competition, one is clearly not present in farming. Which one is the least applicable and why does it not fit the model?

A competitive industry consists of 100 firms. The short-run marginal cost curve for each firm is given by MC = 200 + .3Q. The demand curve faced by the industry is given as P = 400 - .1Q. What is the producer and consumer surplus in the entire market?

Which is not true of a perfectly competitive market?