Question : 12.5   “If Everyone Can Do It, You Can’t Make Money : 1387805

 

 

12.5   “If Everyone Can Do It, You Can’t Make Money at It”: The Entry and Exit of Firms in the Long Run

 

1) Which of the following statements is correct?

A) Economic profit takes into account all costs involved in producing a product.

B) Accounting profit is not relevant in preparing the firm’s financial statement.

C) Economic profit always exceeds accounting profit.

D) Accounting profit is the same as economic profit.

 

Figure 12-11

 

 

2) Refer to Figure 12-11.  Suppose the prevailing price is $20 and the firm is currently producing 1,350 units. In the long-run equilibrium, the firm represented in the diagram

A) will continue to produce the same quantity.

B) will reduce its output to 1,100 units.

C) will reduce its output to 750 units.

D) will cease to exist.

 

 

3) Refer to Figure 12-11.  Suppose the prevailing price is $20 and the firm is currently producing 1,350 units. In the long-run equilibrium,

A) there will be fewer firms in the industry and total industry output decreases.

B) there will be more firms in the industry and total industry output increases.

C) there will be fewer firms in the industry but total industry output increases.

D) there will be more firms in the industry and total industry output remains constant.

 

4) Refer to Figure 12-11.  If this is a constant-cost industry, what is the market price in the long-run equilibrium?

A) $5

B) $14

C) $15

D) $20

 

 

5) If a typical firm in a perfectly competitive industry is earning profits, then

A) all firms will continue to earn profits.

B) new firms will enter in the long run causing market supply to decrease, market price to rise and profits to increase.

C) new firms will enter in the long run causing market supply to increase, market price to fall and profits to decrease.

D) the number of firms in the industry will remain constant in the long run.

 

Figure 12-12

 

 

6) Refer to Figure 12-12.  Consider a typical firm in a perfectly competitive industry that makes short-run profits. Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

A) Panel A

B) Panel B

C) Panel C

D) Panel D

 

7) If, in a perfectly competitive industry, the market price facing a firm is above its average total cost at the output where marginal revenue equals marginal cost, then

A) firms are breaking even.

B) new firms are attracted to the industry.

C) existing firms will exit the industry.

D) market supply will remain constant.

 

 

Figure 12-13

 

 

8) Refer to Figure 12-13.  Suppose the prevailing price is P1 and the firm is currently producing its loss-minimizing quantity. In the long-run equilibrium,

A) there will be fewer firms in the industry and total industry output decreases.

B) there will be more firms in the industry and total industry output increases.

C) there will be fewer firms in the industry but total industry output increases.

D) there will be more firms in the industry and total industry output remains constant.

 

9) Refer to Figure 12-13.  Suppose the prevailing price is P1 and the firm is currently producing its loss-minimizing quantity. If the firm represented in the diagram continues to stay in business, in the long-run equilibrium,

A) it will reduce its output to Q0 and face a price of P0.

B) it will continue to produce Q1 but faces the higher price of P2.

C) it will expand its output to Q2 and face a price of P2.

D) it will expand its output to Q3 and face a price of P1.

 

 

10) If a typical firm in a perfectly competitive industry is incurring losses, then

A) all firms will continue to lose money.

B) some firms will exit in the long run, causing market supply to decrease and market price to rise increasing profits for the remaining firms.

C) some firms will exit in the long run, causing market supply to decrease and market price to fall increasing losses for the remaining firms.

D) some firms will enter in the long run, causing market supply to increase and market price to rise increasing profit for all firms.