Chapter 9

Question 1

Which of the following is true about a competitive market supply curve?

Answer 1

It is the sum of the marginal cost curves of all the firms.

Question 2

If a new sushi restaurant opens, then

Answer 2

the market supply curve for sushi will shift to the right.

Question 3

Marginal cost is the increase in total cost associated with a one-unit

Answer 3

increase in production.

Question 4

Which of the following is characteristic of a perfectly competitive market?

Answer 4

zero economic profit in the long run

Question 5

If economic profits are earned in a competitive market, then over time

Answer 5

additional firms will enter the market.

Question 6

If long-run economic losses are being experienced in a competitive market,

Answer 6

equilibrium price will rise as firms exit.

Question 7

The entry of firms into a market

Answer 7

reduces the profits of existing firms in the market.

Question 8

Other things being equal, as more firms enter a market, the market supply curve

Answer 8

shifts to the right.

Question 9

An example of a barrier to entry includes

Answer 9

patents.

Question 10

Which of the following is not a characteristic of a perfectly competitive market?

Answer 10

high barriers to entry

Question 11

In a perfectly competitive industry, economic profit

Answer 11

will approach zero in the long run as prices are driven to the level of average production costs.

Question 12

To maximize profits, a competitive firm will seek to expand output until the

Answer 12

price equals marginal cost.

Question 13

If a firm finds that its marginal cost is greater than its price, it

Answer 13

should reduce production.

Question 14

Technological improvements cause

Answer 14

ATC to shift down.

Question 15

A firm should shut down production when

Answer 15

P < minimum AVC.

Question 16

(Figure 23.1) A perfectly competitive firm should shut down in the short run if the market price is below

Answer 16

$5.

Question 17

(Figure 23.1) In the long run, a perfectly competitive firm would stay in this market only if the market price was equal to or higher than

Answer 17

$15.

Question 18

(Figure 23.1) If the market price equaled $10, in the short run this firm should

Answer 18

produce with an economic loss.

Question 19

(Figure 23.2) A perfectly competitive firm will maximize profits by producing the level of output that corresponds to point

Answer 19

C

Question 20

In a perfectly competitive market economy, business failures can benefit society by causing

Answer 20

a reallocation of resources to better uses.