Deck 11: Perfect Competition

Question 1

Which statement is true?

A)In an increasing-cost industry, a firm's long-run supply curve is perfectly elastic at the minimum of ATC and the long-run industry supply curve is upward sloping.
B)In an increasing-cost industry, a firm's long-run supply curve is upward sloping and the long run industry supply curve is also upward sloping.
C)In a decreasing-cost industry, a firm's long-run supply curve is upward sloping and the long-run industry supply curve is perfectly elastic at the minimum of ATC.
D)In an increasing-cost industry, a firm's long-run supply curve is upward sloping and the long-run industry supply curve can either be perfectly elastic or upward sloping, depending on the circumstances.
E)None of the above.

Answer 1

In an increasing-cost industry, a firm's long-run supply curve is upward sloping and the long run industry supply curve is also upward sloping.

Question 2

Consider a competitive firm with a TC = 50 + 2q² + q.If price is $21, which statement is true?

A)The firm produces 5 units of output and is making an economic loss; the firm will exit the industry in the long run.
B)The firm produces 10 units of output and this is the long-run equilibrium.
C)The firm produces 5 units of output, and is making a positive economic profit; this is the long-run equilibrium.
D)The firm produces 5 units of output and this is the long-run equilibrium.
E)The firm shuts down in the short run and produces zero output; the firm will leave the industry in the long run.

Answer 2

The firm produces 5 units of output and this is the long-run equilibrium.

Question 3

The short-run supply curve for a firm in a competitive market is:

A)The downward-sloping section of the short-run marginal cost curve.
B)The upward-sloping section of the short-run marginal cost curve above the minimum of ATC.
C)The upward-sloping section of the short-run marginal cost curve.
D)The upward-sloping section of its short-run marginal cost curve above the minimum of AVC.
E)None of the above.

Answer 3

The upward-sloping section of its short-run marginal cost curve above the minimum of AVC.

Question 4

Consider a competitive firm with a TC = 50 + 2q² + q.If price is $17, which statement is true?

A)The firm produces 4 units of output in the short run and is making an economic loss; the firm will exit the industry in the long run.
B)The firm produces 8.5 units of output and this is the long-run equilibrium.
C)The firm produces 4 units of output, and is making a positive economic profit; this is the long-run equilibrium.
D)The firm produces 4 units of output, and is making a zero economic profit; this is the long-run equilibrium.
E)The firm shuts down in the short run and produces zero output; the firm will leave the industry in the long run.

Question 5

Assume that a firm has TC = 100 + q².If price is $50, which statement is true?

A)The firm produces 50 units, and makes an economic profit; this outcome is not a long-run equilibrium
B)The firm produces 25 units, and makes an economic profit; this outcome is not a long-run equilibrium.
C)The firm produces 25 units, and makes zero economic profit; this outcome is not a long-run equilibrium.
D)The firm produces 25 units, and make zero economic profit; the market is in its long-run equilibrium.
E)None of the above.

Question 6

Assume that a firm has TC = 100 + q².If price is $20, which statement is true?

A)The firm produces 20 units, and makes an economic profit; this outcome is not a long-run equilibrium.
B)The firm produces 25 units, and makes an economic profit; this outcome is not a long-run equilibrium.
C)The firm produces 10 units, and makes zero economic profit; this outcome is a long-run equilibrium.
D)The firm produces 20 units, and make zero economic profit; the market is in its long-run equilibrium.
E)None of the above.

Question 7

A competitive firm has a TC = 64 + q² + 20q.If the market price is $16, which statement is true?

A)The firm produces 2 units of output in the short run and is making an economic loss; the firm will exit the industry in the long run.
B)The firm produces 5 units of output and this is the long-run equilibrium.
C)The firm produces 16 units of output, and is making a positive economic profit; this is not the long-run equilibrium.
D)The firm produces 4 units of output, and is making a zero economic profit; this is the long-run equilibrium.
E)The firm shuts down in the short run and produces zero output; the firm will leave the industry in the long run.

Question 8

Which statement is true?

A)The long-run supply curve for a competitive firm is its long-run marginal cost curve above the minimum of AVC.
B)The long-run supply curve for a competitive firm is its long-run marginal cost curve above the minimum of ATC.
C)The long-run supply curve for a competitive firm is its long-run marginal cost curve above the minimum of AFC.
D)The long-run supply curve for a competitive firm is its long-run marginal cost curve.
E)None of the above.

Question 9

Which statement is true?

A)Zero economic profits in the long run means that firms make zero accounting profits.
B)Free entry and exit in a competitive industry means that firms make negative economic profits in the long run.
C)A competitive firm in the long run can make positive economic profits.
D)A competitive firm in the long run will always leave the industry as it makes zero economic profits.
E)None of the above.

Question 10

In the long run in a constant-cost industry:

A)A firm's supply curve is upward sloping but the industry supply curve is perfectly elastic at the minimum of ATC.
B)A firm's supply curve is upward sloping but the industry supply curve is perfectly elastic at the minimum of AVC.
C)Both the industry and a firm's supply curve are perfectly elastic at the minimum of ATC.
D)The supply curve for a firm is perfectly elastic at the minimum of average total cost and the industry supply curve is the horizontal summation of the upward sloping sections of the MC curves of firms in the industry (above the minimum of ATC).
E)None of the above.