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Exam 7: Market Structure: Perfect Competition

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Question 21

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If the level of output produced by the firms in a perfectly competitive market has no effect on the prices of the inputs used by the firms, the market supply curve will be flatter than the supply curve for an individual firm in the market.

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Question 22

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Assume that there is an improvement in the technology used by firms in a perfectly competitive industry that is initially in long-run equilibrium.In the short run this would cause:

A) an increase in the firm's economic profit.
B) a decrease in the firm's economic profit.
C) no change in the firm's economic profit.
D) cannot be determined with the information given.

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Question 23

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Assume there is a decrease in the market demand for a good sold by price-taking firms that are initially producing the profit-maximizing level of output.For the individual firm, this would result in:

Assume a perfectly competitive firm is producing a level of output at which MR < MC.What will happen as the firm moves to its profit-maximizing equilibrium?

The individual firm maximizes its total profit by producing the level of output at which the difference between marginal revenue and marginal cost is as large as possible.

Which of the following is not an option for a perfectly competitive firm in the short run?

A perfectly competitive market is characterized by a large number of small firms that produce a differentiated product.

What assumptions in the perfect competition model ensure that economic profit is zero in the long run? Explain.

High fuel prices and losses by smaller firms have resulted in a considerable amount of consolidation in the trucking industry, which now most closely resembles the oligopoly market structure.

Fill in the blanks to complete the following statements. "Assume a perfectly competitive market is initially in long-run equilibrium.In the short run, a decrease in raw materials prices will cause the firm's average costs to ________.As a result, the profits of existing firms will ________.However, over the long run, this will cause the number of firms in the market to ________, and market price will ________ until firms once again earn a ________."

In order to maximize its profits, a price-taking firm should produce the level of output at which:

Assume that goods X and Y are substitutes and are produced in perfectly competitive markets.If there is a decrease in the supply of good X, which of the following will happen in the market for good Y in the long run?

Explain why, when all adjustment have taken place, the perfectly competitive firm will operate at the minimum of its short-run and long-run average total cost curves and earn zero economic profit.

Although an improvement in technology enables perfectly competitive firms to earn a positive economic profit in the short run, entry by new firms will ensure that those profits are eliminated over time.

If firms in a perfectly competitive industry produce an undifferentiated product, it is not possible to increase profits of the individual firms in the industry by increasing market demand for the product because of the large number of available substitutes.

The estimated price-cost margin of 11.9 percent in the market for broiler chickens in 1992 suggested that there was a high degree of competition in that industry.

Assume there is a decrease in the supply of a product produced in a perfectly competitive market.All else constant, in the short run this will cause the profits of firms that produce substitutes for the good in question to increase.

By shutting down when price is less than average variable cost at the profit-maximizing level of output, a perfectly competitive firm will limit its losses to its:

Assume the government decides to impose a per-unit tax on a good produced in a perfectly competitive market. a.Graphically illustrate the short-run effects of the tax on the cost conditions faced by a representative firm in the market. b.Explain the adjustment process to long-run equilibrium in the market.What has happened to long-run equilibrium price and output as a result of the tax? What has happened to the number of firms in the market? Why?

Consumers don't care which supplier they buy from in a perfectly competitive market because: