Question : 11) A perfectly competitive market in long-run equilibrium. At present : 1267140

11) A perfectly competitive market is in long-run equilibrium. At present there are 100 identical firms each producing 5,000 units of output. The prevailing market price is $20. Assume that each firm faces increasing marginal cost. Now suppose there is a sudden increase in demand for the industry’s product which causes the price of the good to rise to $24. Which of the following describes the effect of this increase in demand on a typical firm in the industry?

A) In the short run, the typical firm increases its output and makes an above normal profit.

B) In the short run, the typical firm’s output remains the same but because of the higher price, its profit increases.

C) In the short run, the typical firm increases its output but its total cost also rises, resulting in no change in profit. 

D) In the short run, the typical firm increases its output but its total cost also rises. Hence, the effect on the firm’s profit cannot be determined without more information.

12) In long-run perfectly competitive equilibrium, which of the following is false?

A) There is efficient, low-cost production at the minimum efficient scale.

B) Economic surplus is maximized.

C) Firms earn economic profit.

D) Economies of scale are exhausted.

Figure 9-10

13) Refer to Figure 9-10. Consider a typical firm in a perfectly competitive industry which is incurring short-run losses.  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

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

A) the industry supply will not change.

B) new firms are attracted to the industry.

C) some existing firms will exit the industry.

D) firms are breaking even.

Figure 9-11

15) Refer to Figure 9-11. Assume that the medical screening industry is perfectly competitive and that some firms are making short-run losses. Suppose the medical screening industry runs an effective advertising campaign which convinces a large number of people that yearly CT scans are critical for good health. Which of the diagrams in the figure best describes what happens in the industry?

A) Panel A

B) Panel B

C) Panel C

D) Panel D

16) Refer to Figure 9-11. Suppose a typical firm in a perfectly competitive market is earning economic profits in the short run. Which of the diagrams in the figure depicts what happens to in the industry as it transitions to along run equilibrium?

A) Panel A

B) Panel B

C) Panel C

D) Panel D

17) Assume that the medical screening industry is perfectly competitive. Consider a typical firm that is making short-run losses. Suppose the medical screening industry runs an effective advertising campaign which convinces a large number of people that yearly CT scans are critical for good health. How will this affect a typical firm that remains in the industry?

A) The firm’s supply curve shifts right and its marginal revenue curve shifts upwards as the market price rises and ultimately the firm starts making profits.

B) The firm’s marginal revenue curve and average cost curve shift upwards in response to the increase in market price and advertising expenditure. The firm increases output until it starts breaking even.

C) The marginal revenue curve shifts upwards, the firm’s output increases along its marginal cost curve, it expands production and eventually starts making profits.

D) The marginal revenue curve shifts upwards, the firm’s output increases along its marginal cost curve, it expands production until it breaks even.

18) An industry’s long-run supply curve shows

A) the relationship in the long run between market price and quantity supplied.

B) how the government determines the price of the product.

C) how average productivity is changing.

D) greater than normal profit.

19) In the long run, a perfectly competitive market will

A) produce only the quantity of output that yields a long-run profit for the typical firm.

B) supply whatever amount consumers will buy at a price which earns the market an economic profit. 

C) supply whatever amount consumers demand at a price determined by the minimum point on the typical firm’s average total cost curve.

D) generate a long-run equilibrium where the typical firm operates at a loss.

20) A perfectly competitive wheat farmer in a constant-cost industry produces 3,000 bushels of wheat at a total cost of $36,000.  The prevailing market price is $15. What will happen to the market price of wheat in the long run?

A) The price remains constant at $15.

B) The price falls to $12.

C) The price rises above $15.

D) There is insufficient information to answer the question.