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Firms in Competitive Markets 3627
64. If some resources used in the production of a good are only available in limited quantities, then the
long run market supply curve will be perfectly elastic.
a. True
b. False
65. Describe the difference between average revenue and marginal revenue. Why are both of these
revenue measures important to a profit-maximizing firm?
66. List and describe the characteristics of a perfectly competitive market.
3628 Firms in Competitive Markets
67. Why would a firm in a perfectly competitive market always choose to set its price equal to the
current market price? If a firm set its price below the current market price, what effect would
this have on the market?
Firms in Competitive Markets 3629
68. Use a graph to demonstrate the circumstances that would prevail in a competitive market where
firms are earning economic profits. Can this scenario be maintained in the long run? Explain your
answer.
69. Explain how a firm in a competitive market identifies the profit-maximizing level of production.
When should the firm raise production, and when should the firm lower production?
3630 Firms in Competitive Markets
70. News reports from the western United States occasionally report incidents of cattle ranchers
slaughtering a large number of newborn calves and burying them in mass graves rather than
transporting them to markets. Assuming that this is rational behavior by profit-maximizing "firms,"
explain what economic factors may influence such behavior.
Firms in Competitive Markets 3631
71. Use a graph to demonstrate the circumstances that would prevail in a perfectly competitive
market where firms are experiencing economic losses. Identify costs, revenue, and the economic
losses on your graph. Using your graph, determine whether an individual firm will shut down in
the short run, or choose to remain in the market. Explain your answer.
3632 Firms in Competitive Markets
72. At its current level of production a profit-maximizing firm in a competitive market receives $12.50
for each unit it produces and faces an average total cost of $10. At the market price of $12.50 per
unit, the firm's marginal cost curve crosses the marginal revenue curve at an output level of 1,000
units. What is the firm's current profit? What is likely to occur in this market and why?
73. Give two reasons why the long-run industry supply curve may slope upward. Use an example to
demonstrate your reasons.
Firms in Competitive Markets 3633
74. If identical firms that remain in a competitive market over the long run make zero economic
profit, why do these firms choose to remain in the market?
Problems
1. Describe the difference between average revenue and marginal revenue. Why are both of these
revenue measures important to a profit-maximizing firm?
2. List and describe the characteristics of a perfectly competitive market.
3634 Firms in Competitive Markets
3. Why would a firm in a perfectly competitive market always choose to set its price equal to the
current market price? If a firm set its price below the current market price, what effect would this
have on the market?
Firms in Competitive Markets 3635
4. Use a graph to demonstrate the circumstances that would prevail in a competitive market where
firms are earning economic profits. Can this scenario be maintained in the long run? Explain your
answer.
3636 Firms in Competitive Markets
5. Explain how a firm in a competitive market identifies the profit-maximizing level of production.
When should the firm raise production, and when should the firm lower production?
6. News reports from the western United States occasionally report incidents of cattle ranchers
slaughtering a large number of newborn calves and burying them in mass graves rather than
transporting them to markets. Assuming that this is rational behavior by profit-maximizing "firms,"
explain what economic factors may influence such behavior.
Firms in Competitive Markets 3637
7. Use a graph to demonstrate the circumstances that would prevail in a perfectly competitive market
where firms are experiencing economic losses. Identify costs, revenue, and the economic losses on
your graph. Using your graph, determine whether an individual firm will shut down in the short run,
or choose to remain in the market. Explain your answer.
3638 Firms in Competitive Markets
8. At its current level of production a profit-maximizing firm in a competitive market receives $12.50
for each unit it produces and faces an average total cost of $10. At the market price of $12.50 per
unit, the firm's marginal cost curve crosses the marginal revenue curve at an output level of 1,000
units. What is the firm's current profit? What is likely to occur in this market and why?
9. Give two reasons why the long-run industry supply curve may slope upward. Use an example to
demonstrate your reasons.
Firms in Competitive Markets 3639
10. If identical firms that remain in a competitive market over the long run make zero economic
profit, why do these firms choose to remain in the market?
