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Movement of Firms and Long-Run Equilibrium in Perfect Competition
A firm is producing the allocatively efficient level of output if
(A)total revenue is equal to total cost
(B)marginal revenue is equal to marginal cost
(C)price is equal to average total cost
(D)price is equal to marginal cost
(E)price is equal to total cost
This graph shows the long-run adjustment of a constant-cost perfectly competitive industry. Assume that the corn
market is initially in long-run equilibrium at point R. What are the short-run and long-run prices of corn if more corn is
used as a source of alternative energy?
(A)Short-Run = P ; Long-Run = P1
(B)Short-Run = P ; Long-Run = P2
(C)Short-Run = P1 ; Long-Run = P2
(D)Short-Run = P2 ; Long-Run = P1
(E)Short-Run = P2 ; Long-Run = P
This graph shows the long-run adjustment of a constant-cost perfectly competitive industry. The long-run industry
supply curve for corn is
(A)upward sloping
(B)downward sloping
(C)horizontal
(D)downward sloping at first and then upward sloping
(E)upward sloping at first and then downward sloping
This graph represents a perfectly competitive firm in a constant-cost industry. Which of the following MUST be true in
the long run?
(A)The equilibrium price will be P2, since that is where marginal cost equals minimum average variable cost.
(B)The equilibrium price will be above P3, since firms must make an economic profit to stay in business.
(C)If the price is above P2, new firms will enter the industry.
(D)If the price is above P3, new firms will enter the industry.
(E)If the price is above P4, firms will exit the industry.
A firm operating in perfect competition has reached long-run equilibrium at which of the following conditions?
(A)P = MC
(B)P = AR
(C)P = AR = MR
(D)P = MC = ATC
(E)P = AFC
Assume that olive oil is produced in a constant-cost, perfectly competitive industry, which is currently in long-run
equilibrium. If the current price of olive oil is $5 per quart and the demand for olive oil increases, then the price of olive
oil will change in which of the following ways in the short-run and long-run?
(A)Short-Run = Be more than $5 ; Long-Run = Be more than $5
(B)Short-Run = Be more than $5 ; Long-Run = Be equal to $5
(C)Short-Run = Be equal to $5 ; Long-Run = Be equal to $5
(D)Short-Run = Be less than $5 ; Long-Run = Be less than $5
(E)Short-Run = Be less than $5 ; Long-Run = Be equal to $5
For a perfectly competitive, increasing-cost industry, an increase in the industry's demand will lead to which of the
following in the long run?
(A)An upward shift in each firm's long-run average cost curve
(B)An increase in each firm's profit
(C)A decrease in the price of an input and a decrease in total industry profits
(D)A decrease in total industry sales
(E)A decrease in total producer surplus and an increase in total consumer surplus
If a constant-cost perfectly competitive market is in long-run equilibrium, which of the following statements must be
true?
(A)No change to long-run equilibrium quantity will occur if demand goes up.
(B)No change will occur in the long-run equilibrium price if demand goes up.
(C)The long-run supply curve is downward sloping.
(D)The long-run supply curve is vertical.
(E)The total production costs are constant as output increases.
Let’s say a business is operating in a perfectly competitive product and factor market. It’s also experiencing a long-run
equilibrium. The business is producing 100 units of output, its total revenue is $6000, and the fixed cost of production is
$500. Based on this information, which of the following is true for the firm?
(A)Its marginal cost is $55, and its average total cost is $55.
(B)Its marginal cost is $55, and its average variable cost is $55.
(C)Its marginal cost is $60, and its average total cost is $55.
(D)Its marginal cost is $60, and its average variable cost is $55.
(E)Its marginal cost is $60, and its average fixed cost is $55.
Assume the market for hats is perfectly competitive, it has constant-costs, and is in long-run equilibrium. If the number
of people who buy hats goes up, it will most likely result in
(A)higher prices for hats in the short-run and the long-run
(B)less short-run profits, which causes some firms to exit the industry
(C)all short-run cost curves shifting up, followed by a higher price in the long-run for hats
(D)the demand for hats going down, followed by the supply of hats going down
(E)the short-run price for hats going up, followed by an increase in the quantity of hats produced
This graph represents a perfectly competitive firm in the short-run. If the firm is maximizing profits, which of the
following are true?
I. Price > average total cost.
II. Zero economic profit.
III.Marginal cost = average total cost.
IV.Firms will enter the industry in the long-run.
(A)I and IV only
(B)I and III only
(C)I and II only
(D)II, III, and IV only
(E)I, II, III, and IV
In long-run equilibrium, a firm in a perfectly competitive market will
(A)be allocatively efficient.
(B)earn positive economic profit.
(C)experience economic losses.
(D)be productively inefficient.
(E)maximizes revenue.
Which of these describes the graph of a perfectly competitive firm best?
(A)The firm is earning economic profit, and costs will go up until profits disappear.
(B)The firm is earning economic profit, and when firms enter the industry prices will go down in the long-run.
(C)The firm is earning economic profit, and firms will not enter or exit the industry in the long-run.
(D)The firm is experiencing economic loss, and will increase price until losses disappear.
(E)The firm is experiencing economic loss, and when firms exit the industry, prices will go up in the long-run.
What happens if the firm is operating in a perfectly competitive industry and the price is P2?
(A)The firm will earn profits in the short-run but experience losses in the long-run.
(B)Firms will exit the market until profits go up.
(C)Firms already in the market will exit the industry.
(D)Firms already in the market will produce more than Q2 in the long-run.
(E)New firms will be less likely to enter the market unless the price goes up.
A firm that operates in a perfectly competitive market is experiencing a long-run equilibrium. Total revenue = $20,000 ;
and average total cost = $10. If that’s the case, which of the following is true?
(A)MC = $2,000, and there is positive profit.
(B)MC = $2,000, and there is zero economic profit.
(C)The firm produces 2,000 units of output and has zero economic profit.
(D)The firm produces 2,000 units of output and is experiencing economic loss.
(E)The firm produces 2,000 units of output and has positive economic profit.
A firm operates in a constant-cost perfectly competitive market and is experiencing long-run equilibrium. If the demand
for its product goes up, how will the firm’s profit-maximizing level of output change both in the short-run and long-run?
(A)Short-Run = Back to Original Level ; Long-Run = Back to Original Level
(B)Short-Run = Go up ; Long-Run = Go up
(C)Short-Run = Go down ; Long-Run = Back to Original Level
(D)Short-Run = Go down ; Long-Run = Go down
(E)Short-Run = Go up ; Long-Run = Back to Original Level
A constant-cost, perfectly competitive market reaches long-run equilibrium. If demand for the product goes up, what
will happen in the long-run?
(A)The price will go up.
(B)The price will not change.
(C)The price will go down.
(D)Economic profits will go up.
(E)Economic profits will go down.
This graph shows the cost curves for a profit-maximizing, perfectly competitive firm. If marginal revenue = P1, all of the
following statements are correct EXCEPT:
(A)The firm will decrease production in the long run.
(B)The firm will produce Q1 units of output.
(C)The firm will produce the efficient level of output.
(D)The firm will earn a normal profit.
(E)Total revenue will equal total costs.
Imagine that a competitive industry is in long-run equilibrium and is producing a normal good. If consumer income
drops, which of the following changes will occur?
(A)Short-Run Price = Goes Up ; Short-Run Industry Output = Goes Up ; Movement of Firms = Enter
(B)Short-Run Price = Goes Up ; Short-Run Industry Output = Goes Down ; Movement of Firms = Leave
(C)Short-Run Price = Goes Down ; Short-Run Industry Output = Goes Up ; Movement of Firms = Leave
(D)Short-Run Price = Goes Down ; Short-Run Industry Output = Goes Down ; Movement of Firms = Leave
(E)Short-Run Price = Goes Down ; Short-Run Industry Output = Goes Down ; Movement of Firms = Enter