Which of the following statements is TRUE? Select one: a. If a profit-maximizing firm in a perfectly competitive market is making an economic profit, then it must be producing at a level of output where price is greater than average total cost. b. The presence of positive economic profit in a perfectly competitive market is consistent with the characteristics of a long-run competitive equilibrium. c. When firms in a perfectly competitive market incur economic losses, some will exit in the long run, thereby shifting the industry supply curve rightward. Od. If a profit-maximizing firm in a perfectly competitive market is incurring an economic loss, then it must be producing at a level of output where price is greater than average total cost.

Which of the following statements is TRUE? Select one: a. If a profit-maximizing firm in a perfectly competitive market is making an economic profit, then it must be producing at a level of output where price is greater than average total cost. b. The presence of positive economic profit in a perfectly competitive market is consistent with the characteristics of a long-run competitive equilibrium. c. When firms in a perfectly competitive market incur economic losses, some will exit in the long run, thereby shifting the industry supply curve rightward. Od. If a profit-maximizing firm in a perfectly competitive market is incurring an economic loss, then it must be producing at a level of output where price is greater than average total cost.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter13: Firms In Competitive Markets

Section: Chapter Questions

Problem 4CQQ

See similar textbooks

Similar questions

1. Assume you have a perfectly competitive market with two types of firms. The only difference between the two types of firms is that the minimum average cost at which firms of type A can produce is lower than the minimum average cost at which firms of type B can produce. a. Give a graphical example of what the individual long run supply functions of a type A firm and a type B firm may look like. Explain the shape in detail. b. Based on your example, what will the aggregate supply curve of a market with 2 firms, one type A and one type B, look like? Explain the shape in detail. C. Assume now that all potential firms are identical. Evaluate the impact of a demand shock on the long run equilibrium market price and firm numbers. You must use graphical analysis and explain in detail.
1. Assume the market for coffee mugs is perfectly competitive. Firms in themarket are producing output, but are currently making economic losses. a. How does the price of coffee mugs compare to the average total cost, the averagevariable cost, and the marginal cost of producing coffee mugs?b. Draw two graphs, side by side, illustrating the present situation for the typical firm andin the market.c. Assuming there is no change in either market demand or the firms’ cost curves,explain what will happen in the long run to the price of coffee mugs, marginal cost,average total cost, the quantity supplied by each firm, and the total quantity supplied tothe market.
1. Explain how the long run differs from the short run in pure competition. 2. The basic model of pure competition reviewed in this chapter finds that in the long run all firms in a purely competitive industry will earn normal profits. If all firms will only earn a normal profit in the long run, why would any firms bother to develop new products or lower-cost production methods? Explain.
Which of the following offers the best explanation of why “marginal revenue equals marginal cost” is the rule that indicates the profit-maximizing output level? a. If output were reduced from the profit-maximizing level, then the firm would be gaining marginal revenue that exceeds marginal cost, and thus increasing the level of profit. b. The marginal revenue is equal to the marginal cost at all levels of output for a perfectly competitive firm. c. If output were increased from the profit-maximizing level, then the firm would be gaining marginal revenue that is less than the marginal cost incurred in producing this additional unit, and thus reducing the level of profit. d. Because the firm colludes with other similar firms to set price equal to marginal cost.
What are the three conditions for a market to be perfectly competitive? For a market to be perfectly competitive, there must be A. many buyers and sellers, with all firms selling identical products, and no barriers to new firms entering the market. B. many buyers and nothingsellers, with all firms selling identical products, and substantial barriers to new firms entering the market. C. many buyers and sellers, with firms selling similar but not identical products, with low barriers to new firms entering the market. D. many buyers and one seller, with the firm producing a product that has no close substitutes, and barriers to new firms entering the market.
A. If a firm operating in a perfectly competitive market doubles the amount it sells, what happens to the price of its output and its total revenue? B. How does a competitive firm determine its profit-maximizing level of output? When does a competitive firm decide to temporarily shut down in the short run? Explain, using the concepts of marginal cost, marginal revenue, price, and average variable cost.
a perfectly competitive market over the long run, a. an increase in market demand or a decrease in firms' costs will lead to a decrease in the number of firms operating within the market. b. an improvement in production technology will increase profits at fust, but those profits will be competed away over time as more firms enter the industry and reduce market price. c. market price will equal maximum possible average total cost in long-run equilibrium. d. an increase in demand will cause the final market equilibrium to be at the original price but at a lower output level.
Suppose the book-printing industry is a competitive market, and it begins with a long run competitive equilibrium. a. Draw side-by-side diagrams to show the initial conditions of the bookprinting industry, including the condition of a typical book-printing firm and the whole industry. b. Given the rising popularity of e-books, the demand for book-printing drops. Based on the diagrams in (a), illustrate the short run effects on the market price, market output level, output level of an typical bookprinting firm and her profit. Briefly explain.
13. If milk is a normal good, then a decrease in consumers' income will definitely cause A a decrease in the demand for milk. B an increase in the demand for milk. C an increase in the supply of milk. D a decrease in the supply of milk. E an increase in the demand and supply of milk. 14. Zero economic profit earned by firms in a perfectly competitive market indicates that A firms will exit in the long run. B total revenue covers all variable costs of production exactly. C MR < AR. D P= ATC. E zero nomal profit. 15. In the market for cream, which of the following events would increase demand, ceteris paribus? A Increased health fears regarding the consumption of too much fat (cream contains fat) B A fall in the income of consumers C An increase in the price of scones, a complement D A drop in the price of yoghurt, a substitute
8. Suppose the book-printing industry is competitive and begins in long-run equilibrium. a. Draw a diagram describing the typical firm in the industry. b. Hi-Tech Printing Company invents a new process that sharply reduces the cost of printing books. What hap- pens to Hi-Tech's profits and the price of books in the short run when Hi-Tech's patent prevents other firms from using the new technology? c. What happens in the long run when the patent expires and other firms are free to technology? 1 use the
Suppose a competitive market has a horizontal long- run supply curve and is in long-run equilibrium. If demand decreases, we can be cetain that in the short- run, a. at least some firms will shut down b. price will fall below marginal cost for some firms. C. price will fall below average total cost for some firms. d. at least some firms will enter the industry.
A perfectly competitive firm can produce its current level of output at an average total cost of $10 and a marginal cost of $8. If the market price of the product is currently $8, what should the firm do? a. The answer depends upon the relationship between price and average variable cost. The firm should shut down if average variable cost is $8 or greater, but the firm should continue to produce the current level of output if average variable cost is less than $8. O b. The firm should definitely shut down since average total cost exceeds price. Oc. The firm should continue to produce, but they should decrease production in order to increase profit. O d. The firm should increase production in order to increase profit. 0= Icon Key mentMain.do?takeAssignmentSessionLocator=assignment-take,53ef7eec-ce82-423c-a5cf-a72630d672e7#