22-1. To determine the market supply, the quantities:
Demanded at each price by each demander are added
together.
→ Supplied at each price by each supplier are added
together.
Demanded at each price by each demander and
supplied at each price by each supplier are added
together.
Demanded at each price by each demander are
subtracted from the quantities supplied at each price by
each supplier.
22-3. If the price of ricotta cheese, an ingredient in
lasagna, increases, then:
The market supply curve for lasagna will shift to the
right.
→ The market supply curve for lasagna will shift to the
left.
There will be a movement up along the market
supply curve for lasagna.
There will be a movement down along the market
supply curve for lasagna.
22-5. Which of the following is characteristic of a
perfectly competitive market?
A small number of firms
Exit of small firms when profits are high for large
firms
→ Zero economic profit in the long run
Marginal revenue lower than price for each firm
22-7. In a competitive market where firms are earning
economic profits, which of the following should be
expected as the industry moves to long-run equilibrium,
ceteris paribus?
A higher price and fewer firms
A higher price and more firms
A lower price and fewer firms
→ A lower price and more firms
22-9. The exit of firms from a market, ceteris paribus:
Shifts the market supply curve to the right.
→ Reduces the economic losses of remaining firms in
the market.
Increases the equilibrium output in the market.
Shifts the market demand curve to the left.
22-2. Which of the following is true about a competitive
market supply curve?
It is horizontal
It is downward sloping to the right
→ It is the sum of the marginal cost curves of all firms
It is vertical
22-4. If catfish farmers expect catfish prices to fall in the
future, then right now:
There will be a movement down along the market
supply curve for catfish.
There will be a movement up along the market
supply curve for catfish.
The market supply curve for catfish will shift to the
left.
→ The market supply curve for catfish will shift to the
right.
22-6. For a competitive market in the long run:
Economic losses induce firms to shut down.
→ Economic profits induce firms to enter until profits
are normal.
Accounting profit is zero.
Economic profit is positive.
22-8. The entry of firms into a market:
Increases the equilibrium price.
→ Reduces the profits of existing firms in the market.
Shifts the market supply curve to the left.
Shifts the market demand curve to the left.
22-10. Which of the following is not a barrier to entry?
Government regulation
Control of essential factors of production
Economies of scale
→ Perfect information
22-2. The market supply curve is the sum of the
marginal cost curves, which are usually upward sloping
due to diminishing marginal returns, of all the firms.
Therefore, market supply curve in a perfectly
competitive firm is usually upward sloping.
22-1. The market supply curve is the sum of the
individual quantities of all the firms, at the various price
levels.
22-4. Expectations of lower prices in the future will
entice producers to produce more now, at higher price
levels which increase supply.
22-3. If the cost of producing lasagna increases, the
supply of lasagna will decrease.
22-6. If economic profits exist in an industry, more firms
will want to enter it. As they do, the market supply curve
will shift to the right and cause the market price to drop
until profits are normal.
22-5. A perfectly competitive industry has several
distinguishing characteristics, including many firms,
identical products, and low-entry barriers. Because of
the low-entry barriers, perfectly competitive firms will
earn zero economic profit in the long run.
22-8. As more firms enter a market, the market supply
curve will shift to the right and cause the market price to
drop along with profits.
22-7. If economic profits exist in an industry, more firms
will want to enter it. As they do, the market supply curve
will shift to the right and cause the market price to drop
until profits are normal.
22-10. Barriers of entry include patents, economies of
scale, ownership of key resources and government
regulation.
22-9. If economic losses exist in an industry, firms will
want to exit. As they do, the market supply curve will
shift to the left and cause the market price to increase
until profits are normal.
22-11. Perfectly competitive firms cannot individually
affect market price because:
There is an infinite demand for their goods.
Demand is perfectly inelastic for their goods.
→ There are many firms, none of which has a significant
share of total output.
The government exercises control over the market
power of competitive firms.
22-13. In a perfectly competitive industry, economic
profit:
Can persist in the long run because of barriers to
entry.
Can persist in the long run because of homogeneous
products.
Will approach zero in the long run as prices are
driven to zero.
→ Will approach zero in the long run as prices are
driven to the level of average production costs.
22-12. Which of the following is characteristic of a
perfectly competitive market?
Long-run economic profit
High barriers to entry
→ Identical products
A small number of firms
22-14. To maximize profits, a competitive firm will seek
to expand output until:
Total revenue equals total cost.
The elasticity of demand equals 1.
→ Price equals marginal cost.
Price equals $0.
22-15. If a firm finds that its marginal cost is greater
than its price, it:
→ Should reduce production.
Is maximizing its profit.
Should increase production.
Is maximizing its total revenue.
22-16. For a perfectly competitive market, long-run
equilibrium is characterized by all of the following but
which one?
P = MR.
P = MC.
P = minimum ATC.
→ P = maximum ATC.
22-17. In which of the following cases would a firm
enter a market?
P > short-run ATC
P < short-run ATC
→ P > long-run ATC
P < long-run ATC
22-18. If price is below the long-run competitive
equilibrium level, there will be:
Greater demand.
Positive economic profits.
Greater output.
→ Exit of firms from the market.
22-19. Technological improvements cause:
→ ATC to shift down.
The supply curve to shift to the left.
MC to shift up.
P to increase.
22-20. A firm should shut down production when:
→ P < minimum AVC.
P > minimum AVC.
P = minimum ATC.
P = MC.
22-12. A perfectly competitive industry has several
distinguishing characteristics, including many firms,
identical products, and low-entry barriers. Because of
the low-entry barriers, perfectly competitive firms will
earn zero economic profit in the long run.
22-11. A firm that has market power will have the
ability to control the market price for the good it sells,
unlike a perfectly competitive firm that risk losing all of
its customers who will shop elsewhere if they increase
the price of their product.
22-14. If an extra unit brings in more revenue than it
costs to produce, it is adding to total profit. Total profits
must increase in this case. Hence, a competitive firm
wants to expand the rate of production whenever price
exceeds MC.
22-13. If economic profits exist in an industry, more
firms will want to enter it. As they do, the market supply
curve will shift to the right and cause the market price to
drop until profits are normal.
22-16. If the short-run equilibrium is profitable, other
firms will want to enter the industry. As they do, market
price will fall until it reaches the level of minimum ATC.
22-15. If MC exceeds price, a firm is spending more to
produce that extra unit than they are getting back in
revenue; total profits will decline if they produce it.
Hence, a firm will want to decrease production
whenever price is less than MC.
22-18. If economic losses exist in an industry (P<ATC),
firms will want to exit. As they do, the market supply
curve will shift to the left and cause the market price to
increase until profits are normal.
22-17. If economic profits exist (P>ATC) in an industry,
more firms will want to enter. As they do, the market
supply curve will shift to the right and cause the market
price to drop until profits are normal.
22-20. A firm that shuts down will lose all its fixed costs.
Therefore, a firm should shut down only if the losses
from continuing production exceed fixed costs. This
happens when price is less than average variable cost.
22-19. When the market is at long-run equilibrium, the
quest for profits encourages producers to discover
cheaper ways to manufacture their product. This results
in lower costs thus shifting the ATC down.
22-21. In Figure 22.1, at a price of p3 in the long run:
→ Firms will enter the market.
Economic profits equal zero.
Firms will exit the market.
P = ATC.
22-23. In the long run, at prices below p2 in Figure 22.1:
There is economic profit.
The firm will produce the quantity where MC = MR.
Firms will enter the market.
→ Firms will exit the market.
22-22. In Figure 22.1, at a price of p2 in the long run:
Firms will enter the market.
→ Economic profits equal zero.
Firms will exit the market.
P = AVC.
22-24. In Figure 22.1, the price at which a firm makes
zero economic profits is:
p1.
→ p2.
p3.
p4.
22-22. Entry and exit cease at the long-run equilibrium
when there is zero economic profit (P = ATC).
22-21. Economic profits attract new suppliers and the
market supply curve shifts to the right. Prices decrease
and equilibrium quantity increases and profits
approaches zero.
22-24. Firms will make zero economic profits when the
profit per unit is zero (P = ATC) which occurs at p2.
22-23. Firms will exit the market in the long-run if
economic losses prevail (P<ATC).
22-25. Refer to Figure 22.6 for a perfectly competitive
firm. Given the current market price, we expect to see:
Entry into this industry.
→ Exit from this industry.
No change in the number of firms in this industry.
Costs rise to absorb the profits earned by the firms in
the industry.
22-25. Currently, firms are experiencing economic
losses (P<ATC), which will cause some firms to exit the
market in the long-run.