Question : 15.5   Integrative Questions 1) Consider a short-run equilibrium in a perfectly : 1238774

15.5   Integrative Questions

1) Consider a short-run equilibrium in a perfectly competitive market. Suppose that the firms’ average total cost and marginal cost schedules differ. In the short run,

A) all firms in the market must be able to make an economic profit.

B) all firms produce equal amounts of output.

C) some firms might incur an economic loss, but still produce output.

D) some firms might make an economic profit and, as a result, shut down.

E) all firms in the market must be able to make either positive or zero economic profit.

2) The above figure shows three possible average total cost curves. If all firms in a perfectly competitive industry each have an average total cost curve identical to ATC0, each produces 20 units, and the market price of the good is $16 per unit, then

A) the firms make an economic profit of $8 per unit.

B) firms will enter the industry and the number of firms increases.

C) the firms’ ATC curves will eventually shift to become the same as ATC1.

D) firms will exit the industry and the number of firms decreases.

E) Both answers A and B are correct.

3) The above figure shows three possible average total cost curves. If all firms in a perfectly competitive industry each have an average total cost curve identical to ATC2, each produces 40 units, and the market price of the good is $20 per unit, then

A) the firms incur an economic loss of $12 per unit.

B) firms will enter the industry and the number of firms increases.

C) the firms’ ATC curves will eventually shift to become the same as ATC1.

D) firms will exit the industry and the number of firms decreases.

E) Both answers A and D are correct.

4) The above figure shows three possible average total cost curves. If all firms in a perfectly competitive industry each have an average total cost curve identical to ATC1, each produce 30 units, and the market price of the good is $16 per unit, then the firms

A) make zero economic profit and firms neither enter nor exit the industry.

B) make zero economic profit and so some firms exit the industry.

C) incur an economic loss and so some firms exit the industry.

D) incur an economic loss and so new firms enter the industry.

E) make an economic profit and new firms enter the industry.

5) The above figure shows three possible average total cost curves. If all firms in a perfectly competitive industry each have an average total cost curve identical to ATC1, each produce 30 units, and the market price of the good is $16 per unit, then the firms

A) make zero economic profit and new firms enter the market.

B) make zero economic profit and no firms enter or exit the market.

C) make zero economic profit and some firms exit the market.

D) incur an economic loss and some firms exit the market.

E) make an economic profit and new firms enter the market.

6) If firms in a perfectly competitive industry are earning an economic profit and new firms enter the industry, then

A) consumer surplus decreases.

B) the existing firms’ economic profit decreases.

C) there must be external benefits to consumption of the good.

D) the new firms must incur an economic loss.

E) Both answers A and B are correct.

7) Suppose that each of 8,000 firms in a perfectly competitive industry produces 1,000 units of a good and maximizes profits when the price of the good is $10. If there is a permanent increase in demand, in the short run each firm produces ________ 1,000 units and in the long run the number of firms is ________ 8,000.

A) more than; more than

B) less than; more than

C) less than; less than

D) more than; less than

E) exactly; more than

8) Suppose that each of 10,000 perfectly competitive firm in an industry produces 1,000 units of a good and earns an economic profit when the price of the good is $10. In the long run, definitely

A) each firm increases its production above 1,000 units.

B) the number of firms is more than 10,000.

C) consumer surplus decreases.

D) producer surplus increases.

E) the number of firms is less than 10,000.