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190. The exit of existing firms from a competitive market will
a. increase market supply and increase market prices. b. increase market supply and decrease market prices. c. decrease market supply and increase market prices. d. decrease market supply and decrease market prices. ANS: C PTS: 1 DIF: 2 REF: 14-3 TOP: Competitive markets MSC: Interpretive
191. When firms are neither entering nor exiting a perfectly competitive market,
a. total revenue must equal total variable cost for each firm. b. economic profits must be zero.
c. price must equal average variable cost for each firm. d. Both a and c are correct. ANS: B PTS: 1 DIF: 2 REF: 14-3 TOP: Competitive markets MSC: Interpretive
192. When entry and exit behavior of firms in an industry does not affect a firm's cost structure,
a. the long-run market supply curve must be horizontal.
b. the long-run market supply curve must be upward-sloping. c. the long-run market supply curve must be downward-sloping.
d. we can't tell anything about the shape of the long-run market supply curve. ANS: A PTS: 1 DIF: 2 REF: 14-3 TOP: Supply curve MSC: Interpretive
Figure 14-7
193. Refer to Figure 14-7. When the market is in long-run equilibrium at point A in panel (b), the firm represented in
panel (a) will
a. have a zero economic profit.
b. have a negative accounting profit. c. exit the market.
d. choose to increase production to increase profit. ANS: A PTS: 1 DIF: 2 REF: 14-3 TOP: Profit maximization MSC: Analytical
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194. Refer to Figure 14-7. Assume that the market starts in equilibrium at point A in panel (b). An increase in demand
from Demand0 to Demand1 will result in a. a new market equilibrium at point D.
b. an eventual increase in the number of firms in the market and a new long-run equilibrium at point C. c. rising prices and falling profits for existing firms in the market. d. falling prices and falling profits for existing firms in the market. ANS: B PTS: 1 DIF: 2 REF: 14-3 TOP: Competitive markets MSC: Analytical 195. Refer to Figure 14-7. If the market starts in equilibrium at point C in panel (b), a decrease in demand will ultimately
lead to
a. more firms in the industry, but lower levels of production for each firm. b. fewer firms in the market.
c. a new long-run equilibrium at point D in panel (b).
d. lower prices once the new long-run equilibrium is reached. ANS: B PTS: 1 DIF: 2 REF: 14-3 TOP: Competitive markets MSC: Analytical 196. Refer to Figure 14-7. Suppose a firm in a competitive market, like the one depicted in panel (a), observes market
price rising from P1 to P2. Which of the following could explain this observation? a. The entry of new firms into the market.
b. The exit of existing consumers from the market.
c. An increase in market supply from Supply0 to Supply1. d. An increase in market demand from Demand0 to Demand1. ANS: D PTS: 1 DIF: 2 REF: 14-3 TOP: Competitive markets MSC: Analytical 197. When managers of firms in a competitive market observe falling profits, they are likely to infer that the market is
characterized by
a. a violation of conventional market forces. b. over-investment.
c. the entry of new firms.
d. too few firms in the market. ANS: C PTS: 1 DIF: 2 REF: 14-3 TOP: Competitive markets MSC: Interpretive 198. Suppose a competitive market is comprised of firms that face identical cost curves. The firms experience an increase
in demand that results in positive profits for the firms. Which of the following events are then most likely to occur? (i) New firms will enter the market.
(ii) In the short run, price will rise; in the long run, price will rise further. (iii) In the long run, all firms will be producing at their efficient scale.
a. (i) and (ii) only b. (i) and (iii) only c. (ii) and (iii) only d. (i), (ii) and (iii) ANS: B PTS: 1 DIF: 2 REF: 14-3 TOP: Competitive markets MSC: Interpretive 199. When firms in a perfectly competitive market face the same costs, in the long run they must be operating
a. under diseconomies of scale.
b. with small, but positive, levels of profit. c. at their efficient scale.
d. where price is equal to average fixed cost. ANS: C PTS: 1 DIF: 2 REF: 14-3 TOP: Competitive markets MSC: Interpretive
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200. When some resources used in production are only available in limited quantities, it is likely that the long-run supply
curve in a competitive market is a. downward sloping. b. upward sloping. c. horizontal. d. vertical. ANS: B PTS: 1 DIF: 2 REF: 14-3 TOP: Supply curve MSC: Interpretive 201. When a competitive market experiences an increase in demand that induces an increase in production costs, which of
the following is most likely to arise?
a. The long-run market supply curve will be upward sloping. b. The condition of free entry into the market will be violated. c. Producer profits will fall in the long run.
d. The long-run market supply curve will be horizontal as new firms enter and drive the price downward. ANS: A PTS: 1 DIF: 2 REF: 14-3 TOP: Supply curve MSC: Interpretive 202. When firms in a competitive market have different costs, it is likely that
a. free entry and exit in the market will be violated. b. the market will no longer be considered competitive. c. long-run market supply will be downward sloping.
d. some firms will earn positive economic profits in the long run. ANS: D PTS: 1 DIF: 2 REF: 14-3 TOP: Competitive markets MSC: Interpretive 203. Regardless of the cost structure of firms in a competitive market, in the long run
a. firms will experience rising demand for their products. b. the marginal firm will earn zero economic profit.
c. firms will experience a less competitive market environment.
d. exit and entry is likely to lead to a horizontal long-run supply curve. ANS: B PTS: 1 DIF: 2 REF: 14-3 TOP: Competitive markets MSC: Interpretive 204. A long-run supply curve is flatter than a short-run supply curve because
a. firms can enter and exit a market more easily in the long run than in the short run. b. long-run supply curves are sometimes downward sloping.
c. competitive firms have more control over demand in the long run. d. firms in a competitive market face identical cost structures. ANS: A PTS: 1 DIF: 2 REF: 14-3 TOP: Supply curve MSC: Interpretive
205. A market might have an upward-sloping long-run supply curve if
a. firms have different costs.
b. consumers exercise market power over producers.
c. all factors of production are essentially available in unlimited supply.
d. the entry of new firms into the market has no effect on the cost structure of firms in the market. ANS: A PTS: 1 DIF: 2 REF: 14-3 TOP: Supply curve MSC: Interpretive 206. When new entrants into a competitive market have higher costs than existing firms,
a. accounting profits will be the primary determinant of entry into the market. b. sunk costs become an important determinant of the short-run entry strategy. c. market price must be rising.
d. all firms will earn zero economic profit once the new equilibrium is reached. ANS: C PTS: 1 DIF: 2 REF: 14-3 TOP: Competitive markets MSC: Interpretive
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207. The assumption of a fixed number of firms is appropriate for analysis of
a. the short run, but not the long run. b. the long run, but not the short run. c. both the short run and the long run. d. neither the short run nor the long run. ANS: A PTS: 1 DIF: 1 REF: 14-3 TOP: Competitive markets MSC: Interpretive
208. In a particular market, there are 500 firms. Each firm has a marginal cost of $30 when it produces 200 units of output.
One point on the market supply curve is a. Quantity = 200, Price = $30 b. Quantity = 500, Price = $30 c. Quantity = 100,000, Price = $30 d. Quantity = 100,000, Price = $15,000 ANS: C PTS: 1 DIF: 2 REF: 14-3 TOP: Supply curve MSC: Applicative 209. Entry into a market by new firms will
a. increase the supply of the good. b. increase profits of existing firms. c. increase the price of the good.
d. raise the marginal cost of producing the good. ANS: A PTS: 1 DIF: 2 REF: 14-3 TOP: Competitive markets MSC: Interpretive 210. In a long-run equilibrium, the marginal firm has
a. price equal to average total cost. b. total revenue equal to total cost. c. economic profit equal to zero. d. All of the above are correct. ANS: D PTS: 1 DIF: 2 REF: 14-3 TOP: Competitive firms MSC: Interpretive
211. In the long-run equilibrium of a market with free entry and exit, if all firms have the same cost structure, then
a. marginal cost exceeds average total cost.
b. the price of the good exceeds average total cost. c. average total cost exceeds the price of the good. d. firms are operating at their efficient scale. ANS: D PTS: 1 DIF: 2 REF: 14-3 TOP: Profit maximization MSC: Interpretive 212. In the long-run equilibrium of a market with free entry and exit, marginal firms are operating
a. at the point where average variable cost equals marginal cost. b. at the minimum point on their marginal cost curves. c. at their efficient scale.
d. where accounting profit is zero. ANS: D PTS: 1 DIF: 2 REF: 14-3 TOP: Competitive firms MSC: Interpretive
213. Suppose a competitive market has a horizontal long-run supply curve and is in long-run equilibrium. If demand
decreases, we can be certain 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 exit the industry. ANS: C PTS: 1 DIF: 2 REF: 14-3 TOP: Competitive markets MSC: Analytical 214. There are 500 identical firms in a competitive market. The firms do not use any resources that are available in limited
quantities, and all of them have the following long-run cost structure:
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Output 0 1 2 3 4 5
Total Cost $0 $10 $12 $15 $24 $40 The long-run supply curve for this market is a. positively sloped.
b. horizontal at a price of $3.33. c. horizontal at a price of $5. d. horizontal at a price of $7. ANS: C PTS: 1 DIF: 3 REF: 14-3 TOP: Profit maximization MSC: Analytical
215. Consider a competitive market with a large number of identical firms. The firms in this market do not use any
resources that are available only in limited quantities. In long-run equilibrium, market price a. is determined by demand.
b. is determined by the minimum point on the firms' average total cost curve. c. is determined by the minimum point on the firms' average variable cost curve. d. depends on how many firms exist in the industry. ANS: B PTS: 1 DIF: 2 REF: 14-3 TOP: Supply curve MSC: Interpretive 216. Consider a competitive market with a large number of identical firms. The firms in this market do not use any
resources that are available only in limited quantities. In this market, an increase in demand will a. increase price in the short run, but not in the long run. b. increase price in the long run, but not in the short run. c. increase price both in the short and the long run. d. not affect price in either the short or the long run. ANS: A PTS: 1 DIF: 2 REF: 14-3 TOP: Competitive markets MSC: Interpretive 217. Which of the following statements is false?
a. In a long-run equilibrium, marginal firms make zero economic profit.
b. To maximize profit, firms should produce at a level of output where price equals average variable cost.
c. The amount of gold in the world is limited. Therefore, the gold jewelry market probably has a long-run supply
curve that is upward sloping.
d. Long-run supply curves are typically more elastic than short-run supply curves. ANS: B PTS: 1 DIF: 2 REF: 14-3 TOP: Competitive markets MSC: Interpretive 218. In the short run, a market consists of 100 identical firms. The market price is $8, and the total cost to each firm of
producing various levels of output is given in the table below. What will total quantity supplied be in the market?
Q 0 1 2 3 4 5
TC 1 7 14 22 31 41