101.Supposeacompetitivemarkethasahorizontallong-runsupplycurveandisinlong-runequilibrium.Ifdemanddecreases,wecanbecertainthatintheshort-run,
a.atleastsomefirmswillshutdown.
b.pricewillfallbelowmarginalcostforsomefirms.
c.pricewillfallbelowaveragetotalcostforsomefirms.
d.atleastsomefirmswillentertheindustry.
102.Thelong-runmarketsupplycurveinacompetitivemarketwill
a.alwaysbehorizontal.
b.betheportionoftheMCthatliesabovetheminimumofAVCforthemarginalfirm.
c.typicallybemoreelasticthantheshort-runsupplycurve.
d.beabovethecompetitivefirm’sefficientscale.
103.Inthelongrunthemarketsupply
a.mustalwaysbehorizontal.
b.couldbeupwardslopingifthecostofproductionfallsasnewfirmsenterthemarket.
c.couldbeupwardslopingifthecostofproductionrisesasnewfirmsenterthemarket.
d.couldbeupwardslopingiftechnologicalimprovementslowerthecostofproducinginthemarket.
104.Supposethatacompetitivemarketisinitiallyinequilibrium.Thendemandincreases.Ifsomeresourcesusedinproductionarenotavailableinsufficientquantitiesforenteringfirms,
a.thelong-runmarketsupplycurvewillbeupwardsloping.
b.thelong-runmarketsupplycurvewillbeperfectlyelastic.
c.inthelongrunfirmswillsuffereconomiclosses,leadingthemtoexittheindustry.
d.thenumberoffirmswilldecrease,andthemarketwillbecomeamonopoly.
105.Supposethatacompetitivemarketisinitiallyinequilibrium.Thendemandincreases.Ifenteringfirmsfacethesamecostsasexistingfirmsandsufficientresourcesareavailableforenteringfirms,
a.thelong-runmarketsupplycurvewillbeupwardsloping.
b.thelong-runmarketsupplycurvewillbeperfectlyelastic.
c.inthelongrunfirmswillsuffereconomiclosses,leadingthemtoexittheindustry.
d.thenumberoffirmswilldecrease,andthemarketwillbecomeamonopoly.
106.Inamarketwithafixednumberoffirms,aslongaspriceisaboveaverage
a.variablecost,eachfirm’smarginalcostcurveisitssupplycurve.
b.variablecost,eachfirm’saveragetotalcostcurveisitssupplycurve.
c.totalcost,eachfirm’smarginalcostcurveisitssupplycurve.
d.totalcost,eachfirm’saveragetotalcostcurveisitssupplycurve.
107.Supposethelong-runsupplycurveforagoodisupward-sloping.Theupwardslopecouldbeexplainedby
a.increasesinproductioncostsresultingfrommorefirmscomingintothemarket.
b.abreakdownofthe“freeentryandexit”featureofcompetition.
c.abreakdownofthe“pricetaking”featureofcompetition.
d.astabledemandcurveforthegood,thatis,ademandcurvethatnevershifts.
108.Supposethelong-runsupplycurveforagoodisupward-sloping.Theupwardslopecouldbeexplainedby
a.decreasesinproductioncostsresultingfrommorefirmscomingintothemarket.
b.abreakdownofthe“freeentryandexit”featureofcompetition.
c.abreakdownofthe“pricetaking”featureofcompetition.
d.thefactthataresourceusedintheproductionofthegoodisavailableonlyinlimitedquantities.
Figure14-14
109.RefertoFigure14-14.Whenthemarketisinlong-runequilibriumatpointWinpanel(b),thefirmrepresentedinpanel(a)will
a.haveazeroeconomicprofit.
b.haveanegativeaccountingprofit.
c.exitthemarket.
d.choosetoincreaseproductiontoincreaseprofit.
110.RefertoFigure14-14.AssumethatthemarketstartsinequilibriumatpointWinpanel(b).AnincreaseindemandfromD0toD1willresultin
a.anewmarketequilibriumatpointX.
b.aneventualincreaseinthenumberoffirmsinthemarketandanewlong-runequilibriumatpointZ.
c.risingpricesandfallingprofitsforexistingfirmsinthemarket.
d.fallingpricesandfallingprofitsforexistingfirmsinthemarket.
111.RefertoFigure14-14.AssumethatthemarketstartsinequilibriumatpointWinpanel(b)andthatpanel(a)illustratesthecostcurvesfacingindividualfirms.SupposethatdemandincreasesfromD0toD1.Whichofthefollowingstatementsiscorrect?
a.PointsW,Y,andZrepresentbothshort-runandlong-runequilibria.
b.PointsW,Y,Z,andXrepresentshort-runequilibria.
c.PointsW,Y,andZrepresentlong-runequilibria.
d.PointsWandZrepresentlong-runequilibria.
112.RefertoFigure14-14.AssumethatthemarketstartsinequilibriumatpointWinpanel(b)andthatpanel(a)illustratesthecostcurvesfacingindividualfirms.SupposethatdemandincreasesfromD0toD1.Whichofthefollowingstatementsisnotcorrect?
a.Point Wisa long-runequilibriumpoint.
b.PointsW,Y,andZareshort-runequilibriapoints.
c.Point Yis along-run equilibriumpoint.
d.Point Z isa long-runequilibrium point.
113.RefertoFigure14-14.IfthemarketstartsinequilibriumatpointZinpanel(b),adecreaseindemandwillultimatelyleadto
a.morefirmsintheindustrybutlowerlevelsofoutputforeachfirm.
b.fewerfirmsinthemarket.
c.a newlong-runequilibriumatpointX inpanel(b).
d.lowerpricesoncethenewlong-runequilibriumisreached.
114.RefertoFigure14-14.Supposeafirminacompetitivemarket,liketheonedepictedinpanel(a),observesmarketpricerisingfromP1toP2.Whichofthefollowingcouldexplainthisobservation?
a.Theentryofnewfirmsintothemarket.
b.Theexitofexistingconsumersfromthemarket.
c.AnincreaseinmarketsupplyfromS0toS1.
d.AnincreaseinmarketdemandfromD0toD1.
Multiple Choice – Section 04: Behind the Supply Curve
1.TheproductiondecisionsofperfectlycompetitivefirmsfollowoneoftheTenPrinciplesofEconomics,whichstatesthatrationalpeople
a.considersunkcosts.
b.equatepricestotheaveragecostsofproduction.
c.prefertopurchaseproductsfromsmallerratherthanlargerfirms.
d.thinkatthemargin.
2.Iffirmsarecompetitiveandprofitmaximizing,thepriceofagoodequalsthe
a.marginalcostofproduction.
b.fixedcostofproduction.
c.totalcostofproduction.
d.averagetotalcostofproduction.
3.Profitmaximizingfirmsincompetitiveindustrieswithfreeentryandexitfaceapriceequaltothelowestpossible
a.marginalcostofproduction.
b.fixedcostofproduction.
c.totalcostofproduction.
d.averagetotalcostofproduction.
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