modul 14

Question 1

What is the long-run supply curve for a constant-cost industry?

Answer 1

A horizontal line

Question 2

Why do output prices change less than production cost in the short run but change by the full amount in the long run under perfect competition?

Answer 2

In the short run, firms may have fixed contracts or limited ability to adjust prices, but in the long run, they can fully adjust prices to reflect changes in production costs.

Question 3

Why do firms in a perfectly competitive industry earn zero economic profit in long-run equilibrium?

Answer 3

Because the market price is equal to the average total cost.

Question 4

What happens to the costs of factors of production in a perfectly competitive industry when there is expansion or contraction?

Answer 4

Expansion leads to a decrease in the costs of factors of production, while contraction leads to an increase in the costs of factors of production

Question 5

In a perfectly competitive industry, firms will earn ______ profit in the long run.

Answer 5

zero

Question 6

What adjustments do firms make in response to changes in demand?

Answer 6

Exit in the long run and shifting the supply curve to the left

Question 7

What factors can cause changes in demand?

Answer 7

Changes in preferences

Question 8

What happens to industry output in response to changes in demand?

Answer 8

It remains the same

Question 9

What causes an increase in market price and marginal revenue curves?

Answer 9

Changes in demand

Question 10

What is the impact of changes in demand on industry output and economic profits?

Answer 10

Changes in demand lead to an increase in industry output and economic profits in the short run, but attract new firms and return economic profits to zero in the long-run equilibrium

Question 11

In the short run, output prices change __ than production cost, but in the long run, they change by the ____ amount under perfect competition.

Answer 11

less, full

Question 12

What is the difference between economic profit and accounting profit?

Answer 12

Economic profit includes both explicit and implicit costs, while accounting profit only includes explicit costs.

Question 13

What are the three possible effects on the costs of factors of production that expansion or contraction of a perfectly competitive industry may have?

Answer 13

Expansion may increase costs, contraction may decrease costs, and no change in costs may occur.

Question 14

What happens to the costs of factors of production in a perfectly competitive industry when there is expansion or contraction?

Answer 14

Expansion leads to a decrease in the costs of factors of production, while contraction leads to an increase in the costs of factors of production

Question 15

What are the effects of expansion or contraction on the costs of factors of production in a perfectly competitive industry?

Answer 15

Expansion increases costs, while contraction decreases costs.

Question 16

What is the impact of expansion or contraction on the costs of factors of production in a perfectly competitive industry?

Answer 16

Expansion increases the costs of factors of production, while contraction decreases the costs of factors of production.

Question 17

What is the impact of a change in fixed cost on price and output in the short run and long run under perfect competition?

Answer 17

In the short run, a change in fixed cost will not affect price, but it may affect output. In the long run, a change in fixed cost will lead to adjustments in both price and output.

Question 18

How do changes in production cost affect the ATC curve?

Answer 18

They shift the ATC curve

Question 19

What adjustments do firms make in response to changes in demand?

Answer 19

Exit in the long run and shifting the supply curve to the left

Question 20

What is long-run equilibrium in a perfectly competitive industry?

Answer 20

Long-run equilibrium in a perfectly competitive industry occurs when firms are earning zero economic profits and there is no incentive for firms to enter or exit the industry.

Question 21

What adjustments do firms make in response to changes in demand in the long run?

Answer 21

They enter the industry

Question 22

What happens to industry output and economic profits in long-run equilibrium?

Answer 22

Industry output increases and economic profits return to zero

Question 23

How do changes in demand affect market price and marginal revenue curves?

Answer 23

They cause the market price to increase and the marginal revenue curves to shift right

Question 24

Profits attract ______ in the long run, shifting the supply curve to the right.

Answer 24

entry

Question 25

What happens to industry output in response to changes in demand?

Answer 25

It remains the same

Question 26

What adjustments do firms make in response to changes in demand in the short run?

Answer 26

Firms increase their output

Question 27

What causes changes in a firm’s costs?

Answer 27

Changes in production cost

Question 28

The firm’s average total cost is slightly higher than its original level of $1.70 because of the ______ of the curve

Answer 28

U shape

Question 29

What is the process that occurs in the long run when firms are making an economic profit?

Answer 29

Entry of new firms

Question 30

What causes an increase in market price and marginal revenue curves?

Answer 30

Changes in demand

Question 31

What is the impact of changes in demand on industry output and economic profits?

Answer 31

Changes in demand lead to an increase in industry output and economic profits in the short run, but attract new firms and return economic profits to zero in the long-run equilibrium