Chapter 14/Firms in Competitive Markets ❖ 61
191. A firm will shut down in the short run if the total revenue that it would get from producing and selling its out-
put is less than its
a.
opportunity costs.
b.
fixed costs.
c.
variable costs.
d.
total costs.
192. A firm will shut down in the short run if, for all positive levels of output,
a.
its losses exceed its fixed costs.
b.
its total revenue is less than its variable costs.
c.
the price of its product is less than its average variable cost.
d.
All of the above are correct.
193. A firm’s marginal cost has a minimum value of $2, its average variable cost has a minimum value of $4, and
its average total cost has a minimum value of $5. Then the firm will shut down if the price of its product is less
than
a.
$5 but more than $2.
b.
$5.
c.
$4.
d.
There is not enough information given to answer the question.
194. A firm’s marginal cost has a minimum value of $50, its average variable cost has a minimum value of $80, and
its average total cost has a minimum value of $90. Then the firm will shut down once the price of its product
falls below
a.
$90.
b.
$80.
c.
$50.
d.
$40.
195. Which of the following represents the firm’s short–run condition for shutting down?
a.
shut down if TR < TC
b.
shut down if TR < FC
c.
shut down if P < ATC
d.
shut down if TR < VC
62 ❖ Chapter 14/Firms in Competitive Markets
196. When determining whether to shut down in the short run, a competitive firm should ignore
(i)
fixed costs.
(ii)
variable costs.
(iii)
sunk costs.
a.
(iii) only
b.
(i) and (iii) only
c.
(ii) only
d.
(i), (ii), and (iii)
197. In a competitive market the current price is $7, and the typical firm in the market has ATC = $7.50 and AVC =
$7.15.
a.
In the short run firms will shut down, and in the long run firms will leave the market.
b.
In the short run firms will continue to operate, but in the long run firms will leave the market.
c.
New firms will likely enter this market to capture any remaining economic profits.
d.
The firm will earn zero profits in both the short run and long run.
198. Jose’s restaurant operates in a perfectly competitive market. At the point where marginal cost equals marginal
revenue, ATC = $20, AVC = $15, and the price per unit is $10. In this situation,
a.
Jose’s restaurant is earning a positive economic profit.
b.
Jose’s restaurant should shut down immediately.
c.
Jose’s restaurant is losing money in the short run but should continue to operate.
d.
the market price will rise in the short run to increase profits.
199. When fixed costs are ignored because they are irrelevant to a business’s production decision, they are called
a.
explicit costs.
b.
implicit costs.
c.
sunk costs.
d.
opportunity costs.
200. When a profit-maximizing firm’s fixed costs are considered sunk in the short run, then the firm
a.
can set price above marginal cost.
b.
must set price below average total cost.
c.
will never show losses.
d.
can safely ignore fixed costs when deciding how much output to produce.
Chapter 14/Firms in Competitive Markets ❖ 63
201. Which of these types of costs can be ignored when an individual or a firm is making decisions?
a.
sunk costs
b.
marginal costs
c.
variable costs
d.
opportunity costs
202. Suppose you value a special watch at $100. You purchase it for $75. On your way home from class one day,
you lose the watch. The store is still selling the same watch, but the price has risen to $85. Assume that los-
ing the watch has not altered how you value it. What should you do?
a.
Pay the $85 to buy the watch.
b.
Wait to see if the watch goes on sale. If the price drops to $75 or less, buy the watch.
c.
Wait to see if the watch goes on sale. If the price drops to $25 or less, buy the watch.
d.
Do not buy the watch.
203. Suppose you bought a ticket to a football game for $30 and that you place a $35 value on seeing the game. If
you lose the ticket, then what is the maximum price you should pay for another ticket? Assume that losing the
ticket does not alter how you value it.
a.
$5
b.
$30
c.
$35
d.
$65
204. You purchase a $30, nonrefundable ticket to a play at a local theater. Ten minutes into the show you realize
that it is not a very good show and place only a $10 value on seeing the remainder of the show. Alternatively
you could leave the theater and go home and watch TV or read a book. You place an $8 value on watching TV
and a $6 value on reading a book.
a.
You should leave the theater since the net benefit from seeing the remainder of the show is -$20,
while going home will earn you at least $8 of satisfaction.
b.
You should stay and watch the remainder of the show.
c.
You should go home and watch TV.
d.
You should go home and read a book.
205. You purchase a $30, nonrefundable ticket to a play at a local theater. Ten minutes into the show you realize
that it is not a very good show and place only a $10 value on seeing the remainder of the show. Alternatively
you could leave the theater and go home and watch TV or read a book. You place an $8 value on watching TV
and a $12 value on reading a book.
a.
You should stay and watch the remainder of the show.
b.
You should go home and watch TV.
c.
You should go home and read a book.
d.
You should go home and either watch TV or read a book.
64 ❖ Chapter 14/Firms in Competitive Markets
206. A sunk cost is one that
a.
changes as the level of output changes in the short run.
b.
was paid in the past and will not change regardless of the present decision.
c.
should determine the rational course of action in the future.
d.
has the most impact on profit-making decisions.
207. When economists refer to a production cost that has already been committed and cannot be recovered, they
use the term
a.
implicit cost.
b.
explicit cost.
c.
variable cost.
d.
sunk cost.
208. A corporation has been steadily losing money on one of its product lines, plastic flamingo lawn ornaments.
The firm produces plastic flamingos in a factory that cost $20 million to build 10 years ago. The firm is now
considering an offer to buy that factory for $15 million. Which of the following statements about the decision
to sell or not to sell is correct?
a.
The firm should turn down the purchase offer because the factory cost more than $15 million to
build.
b.
The $20 million spent on the factory is a sunk cost; that cost should not affect the decision.
c.
The $20 million spent on the factory is an implicit cost, which should be included in the decision.
d.
The firm should sell the factory only if it can reduce its costs elsewhere by $5 million.
209. Suppose that you value a hat from your favorite university at $20. The university bookstore has the hat on sale
for $15. You purchase the hat but lose it on the way home. What should you do? Assume that losing the hat
does not alter how you value it.
a.
Go back to the bookstore and purchase another hat.
b.
Wait until the cost of the hat falls to $15 or less before purchasing another hat.
c.
Wait until the cost of the hat falls to $5 or less before purchasing another hat.
d.
Do not purchase another hat regardless of the price.
210. In the long run, a firm will enter a competitive industry if
a.
total revenue exceeds total cost.
b.
the price exceeds average total cost.
c.
the firm can earn economic profits.
d.
All of the above are correct.
Chapter 14/Firms in Competitive Markets ❖ 65
211. In the long run, a firm will exit a competitive industry if
a.
total revenue exceeds total cost.
b.
the price exceeds average total cost.
c.
average total cost exceeds the price.
d.
Both a and b are correct.
212. In the long run, a profit-maximizing firm will choose to exit a market when
a.
average fixed cost is falling.
b.
variable costs exceed sunk costs.
c.
marginal cost exceeds marginal revenue at the current level of production.
d.
total revenue is less than total cost.
213. A firm that exits its market has to pay
a.
its variable costs but not its fixed costs.
b.
its fixed costs but not its variable costs.
c.
both its variable costs and its fixed costs.
d.
neither its variable costs nor its fixed costs.
214. The competitive firm’s long-run supply curve is that portion of the marginal cost curve that lies above average
a.
fixed cost.
b.
variable cost.
c.
total cost.
d.
revenue.
215. Which of the following represents the firm’s long-run condition for exiting a market?
a.
exit if P < MC
b.
exit if P < FC
c.
exit if P < ATC
d.
exit if MR < MC
66 ❖ Chapter 14/Firms in Competitive Markets
THE SUPPLY CURVE IN A COMPETITIVE MARKET
Figure 14-9
In the figure below, panel (a) depicts the linear marginal cost of a firm in a competitive market, and panel (b)
depicts the linear market supply curve for a market with a fixed number of identical firms.
MC
$1.00
100
(a) Firm
$2.00
200
Quantity
Price
MC
$1.00
Q1
(b) Market
$2.00
Q2
Quantity
Price
1. Refer to Figure 14-9. If there are 200 identical firms in this market, what level of output will be supplied to
the market when price is $1.00?
a.
2,000
b.
5,000
c.
10,000
d.
20,000
2. Refer to Figure 14-9. If there are 200 identical firms in this market, what level of output will be supplied to
the market when price is $2.00?
a.
2,000
b.
10,000
c.
20,000
d.
40,000
3. Refer to Figure 14-9. If there are 600 identical firms in this market, what is the value of Q1?
a.
6,000
b.
12,000
c.
60,000
d.
120,000
Chapter 14/Firms in Competitive Markets ❖ 67
4. Refer to Figure 14-9. If there are 400 identical firms in this market, what is the value of Q2?
a.
4,000
b.
8,000
c.
40,000
d.
80,000
5. Refer to Figure 14-9. When 100 identical firms participate in this market, at what price will 15,000 units be
supplied to this market?
a.
$1.00
b.
$1.50
c.
$2.00
d.
The price cannot be determined from the information provided.
6. Refer to Figure 14-9. If at a market price of $1.75, 52,500 units of output are supplied to this market, how
many identical firms are participating in this market?
a.
75
b.
100
c.
250
d.
300
Figure 14-10
In the figure below, panel (a) depicts the linear marginal cost of a firm in a competitive market, and panel (b)
depicts the linear market supply curve for a market with a fixed number of identical firms.
MC
$2.00
300
(a) Firm
$4.00
600
Quantity
Price
MC
$2.00
Q1
(b) Market
$4.00
Q2
Quantity
Price
7. Refer to Figure 14-10. If there are 500 identical firms in this market, what is the value of Q1?
a.
10,000
b.
20,000
c.
50,000
d.
150,000
68 ❖ Chapter 14/Firms in Competitive Markets
8. Refer to Figure 14-10. If there are 500 identical firms in this market, what is the value of Q2?
a.
12,000
b.
60,000
c.
240,000
d.
300,000
9. Refer to Figure 14-10. If there are 700 identical firms in this market, what is the value of Q1?
a.
140,000
b.
210,000
c.
280,000
d.
420,000
10. Refer to Figure 14-10. If there are 700 identical firms in this market, what is the value of Q2?
a.
140,000
b.
210,000
c.
280,000
d.
420,000
Chapter 14/Firms in Competitive Markets ❖ 69
Figure 14-11
MC
1 2 3 4 5 6 7 8 Quantity
1
2
3
4
5
6
7
8
9
10 Price
11. Refer to Figure 14-11. The figure above is for a firm operating in a competitive industry. If there were eight
identical firms in the industry, which of the following price-quantity combinations would be on the market
supply curve?
Point
Price
Quantity
A
$4
4
B
$4
32
C
$6
6
D
$8
64
a.
A only
b.
A and C only
c.
B only
d.
B and D only
12. The short-run market supply curve in a perfectly competitive industry
a.
shows the total quantity supplied by all firms at each possible price.
b.
is perfectly inelastic at the market price.
c.
is perfectly elastic at the market price.
d.
shows the variety of prices that different firms will charge for a given quantity.
13. In the short-run, a firm’s supply curve is equal to the
a.
marginal cost curve above its average variable cost curve.
b.
marginal cost curve above its average total cost curve.
c.
average variable cost curve above its marginal cost curve.
d.
average total cost curve above its marginal cost curve.
70 ❖ Chapter 14/Firms in Competitive Markets
14. In a market with 1,000 identical firms, the short-run market supply is the
a.
marginal cost curve above average variable cost for a typical firm in the market.
b.
quantity supplied by the typical firm in the market at each price.
c.
sum of the prices charged by each of the 1,000 individual firms at each quantity.
d.
sum of the quantities supplied by each of the 1,000 individual firms at each price.
15. In a perfectly competitive market, the horizontal sum of all the individual firms’ supply curves is
a.
zero.
b.
equal to the industry profits.
c.
the market supply curve.
d.
a horizontal line.
16. In a perfectly competitive market, the market supply curve is
a.
the marginal cost curve above average total cost for a representative firm.
b.
the horizontal sum of all the individual firms’ supply curves.
c.
the vertical sum of all the individual firms’ supply curves.
d.
always a horizontal line.
17. In the short run for a particular market, there are 500 firms. Each firm has a marginal cost of $30 when it pro-
duces 200 units of output. One point on the market supply curve is
a.
quantity = 200, price = $30.
b.
quantity = 500, price = $30.
c.
quantity = 100,000, price = $30.
d.
quantity = 100,000, price = $15,000.
Table 14–15
Quantity
Total Cost
0
$2
1
$7
2
$10
3
$11
4
$18
5
$27
6
$38
18. Refer to Table 14–15. What is the lowest price at which this firm would operate in the short run?
a.
$3.
b.
$4.
c.
$5.
d.
$6.
Chapter 14/Firms in Competitive Markets ❖ 71
Figure 14-12
MC
ATC
P1
Q1
(a)
Quantity
Price
(b)
Quantity
Price
19. Refer to Figure 14-12. If the figure in panel (a) reflects the long-run equilibrium of a profit-maximizing firm
in a competitive market, the figure in panel (b) most likely reflects
a.
perfectly inelastic long-run market supply.
b.
perfectly elastic long-run market supply.
c.
the entry of firms into the industry when some resources used in production are available only in
limited quantities.
d.
the fact that zero profits cannot be sustained in the long run.
20. In a competitive market with identical firms,
a.
an increase in demand in the short run will result in a new price above the minimum of average
total cost, allowing firms to earn a positive economic profit in both the short run and the long run.
b.
firms cannot earn positive economic profit in either the short run or long run.
c.
firms can earn positive economic profit in the long run if the long-run market supply curve is
upward sloping.
d.
free entry and exit into the market requires that firms earn zero economic profit in the long run even
though they may be able to earn positive economic profit in the short run.
21. When new firms enter a perfectly competitive market,
a.
economic profits of existing firms will continue to be zero.
b.
entering firms will earn zero economic profit upon entry into the market.
c.
existing firms may see their costs rise if more firms compete for limited resources.
d.
prices will rise as existing firms raise prices to keep new firms out of the market.
72 ❖ Chapter 14/Firms in Competitive Markets
22. Suppose a competitive market is comprised of firms that face identical cost curves. The firms experience an
increase in demand that results in positive profits for the firms. Which of the following events are then most
likely to occur?
(i)
New firms will enter the market.
(ii)
In the short run, price will rise; in the long run, price will rise further.
(iii)
In the long run, all firms will be producing at their efficient scale.
a.
(i) and (ii) only
b.
(i) and (iii) only
c.
(ii) and (iii) only
d.
(i), (ii) and (iii)
23. In the short run, there are 500 identical firms in a competitive market. The firms do not use any resources that
are available in limited quantities, and each of them has the following cost structure:
Output
Total Cost
0
$0
1
$10
2
$12
3
$15
4
$24
5
$40
The long-run supply curve for this market is
a.
positively sloped.
b.
horizontal at a price of $3.33.
c.
horizontal at a price of $5.
d.
horizontal at a price of $7.
24. In the short run, a market consists of 100 identical firms. The market price is $8, and the total cost to each firm
of producing various levels of output is given in the table below. What will total quantity supplied be in the
market?
Quantity
Total Costs
0
$1
1
$7
2
$14
3
$22
4
$31
5
$41
a.
200 units
b.
300 units
c.
400 units
d.
500 units
Chapter 14/Firms in Competitive Markets ❖ 73
25. When existing firms in a competitive market are profitable, an incentive exists for
a.
new firms to seek government subsidies that would allow them to enter the market.
b.
new firms to enter the market, even without government subsidies.
c.
existing firms to raise prices.
d.
existing firms to increase production.
26. The assumption of a fixed number of firms is appropriate for analysis of
a.
the short run but not the long run.
b.
the long run but not the short run.
c.
both the short run and the long run.
d.
neither the short run nor the long run.
27. Entry into a market by new firms will increase the
a.
supply of the good.
b.
profits of existing firms.
c.
price of the good.
d.
marginal cost of producing the good.
28. When new firms have an incentive to enter a competitive market, their entry will
a.
increase the price of the product.
b.
drive down profits of existing firms in the market.
c.
shift the market supply curve to the left.
d.
increase demand for the product.
29. When firms have an incentive to exit a competitive market, their exit will
a.
lower the market price.
b.
necessarily raise the costs for the firms that remain in the market.
c.
raise the profits of the firms that remain in the market.
d.
shift the demand for the product to the left.
30. When new firms enter a perfectly competitive market,
a.
demand increases.
b.
the short-run market supply curve shifts right.
c.
the short-run market supply curve shifts left.
d.
existing firms will increase prices to keep the new firms from entering.
74 ❖ Chapter 14/Firms in Competitive Markets
31. The entry of new firms into a competitive market will
a.
increase market supply and increase market price.
b.
increase market supply and decrease market price.
c.
decrease market supply and increase market price.
d.
decrease market supply and decrease market price.
32. The exit of existing firms from a competitive market will
a.
increase market supply and increase market price.
b.
increase market supply and decrease market price.
c.
decrease market supply and increase market price.
d.
decrease market supply and decrease market price.
33. When managers of firms in a competitive market observe falling profits, they may infer that the market is ex-
periencing
a.
a violation of conventional market forces.
b.
over-investment.
c.
the entry of new firms.
d.
too few firms in the market.
34. Timmy’s Trophies operates in a perfectly competitive market. If trophies sell for $20 each and average total
cost per trophy is $15 at the profit-maximizing output level, then in the long run
a.
more firms will enter the market.
b.
some firms will exit from the market.
c.
the equilibrium price per trophy will rise.
d.
average total costs will fall.
35. Carol owns a running shoe store that operates in a perfectly competitive market. If running shoes sell for $120
per pair and the average total cost per pair of shoes is $125 at the profit-maximizing output level, then in the
long run
a.
more firms will enter the market.
b.
some firms will exit from the market.
c.
the equilibrium price per pair of shoes will fall.
d.
average total costs will fall.
Chapter 14/Firms in Competitive Markets ❖ 75
36. When market conditions in a competitive industry are such that firms cannot cover their total production costs,
then
a.
the firms will suffer long-run economic losses.
b.
the firms will suffer short-run economic losses that will be exactly offset by long-run economic
profits.
c.
some firms will exit the market, causing prices to rise until the remaining firms can cover their total
production costs.
d.
all firms will go out of business, since consumers will not pay prices that enable firms to cover their
total production costs.
37. If occupational safety laws were changed so that firms no longer had to take expensive steps to meet regulato-
ry requirements, we would expect that
a.
the demand for products in this industry would increase.
b.
the market price of products in this industry would decrease in the short run but not in the long run.
c.
the firms in the industry would make a long-run economic profit.
d.
competition would force producers to pass the lower production costs on to consumers in the long
run.
38. The textile industry is composed of a large number of small firms. In recent years, these firms have suffered
economic losses, and many sellers have left the industry. Economic theory suggests that these conditions will
a.
shift the demand curve outward so that price will rise to the level of production cost.
b.
cause the remaining firms to collude so that they can produce more efficiently.
c.
cause the market supply to decline and the price of textiles to rise.
d.
cause firms in the textile industry to suffer long-run economic losses.
39. If there is an increase in market demand in a perfectly competitive market, then in the short run
a.
there will be no change in the demand curves faced by individual firms in the market.
b.
the demand curves for firms will shift downward.
c.
the demand curves for firms will become more elastic.
d.
profits will rise.
40. If there is an increase in market demand in a perfectly competitive market, then in the short run prices will
a.
rise.
b.
remain unchanged at the minimum of average total cost.
c.
fall.
d.
remain unchanged at the minimum of marginal cost.
76 ❖ Chapter 14/Firms in Competitive Markets
41. Which of the following statements is not correct?
a.
In a long-run equilibrium, marginal firms make zero economic profit.
b.
To maximize profit, firms should produce at a level of output where price equals average variable
cost.
c.
The amount of gold in the world is limited. Therefore, the gold jewelry market probably has a long–
run supply curve that is upward sloping.
d.
Long-run supply curves are typically more elastic than short-run supply curves.
42. Which of the following statements is not correct about competitive firms?
a.
In a long-run equilibrium, firms must be operating at their efficient scale.
b.
In the short run, the number of firms in an industry may be fixed.
c.
In the long run, the number of firms can adjust to changing market conditions.
d.
In the short run, firms must be operating at a level of output where price equals average variable
cost.
Scenario 14-4
As part of an estate settlement Mary received $1 million. She decided to use the money to purchase a small
business in Anywhere, USA. Her business operates in a perfectly competitive industry. If Mary would have
invested the $1 million in a risk-free bond fund she could have earned $100,000 each year. She also quit her
job with Lucky.Com Inc. to devote all of her time to her new business. Her salary at Lucky.Com Inc. was
$75,000 per year.
43. Refer to Scenario 14-4. At the end of the first year of operating her new business, Mary’s accountant reported
an accounting profit of $150,000. What was Mary’s economic profit?
a.
-$150,000
b.
-$50,000
c.
-$25,000
d.
$25,000
44. Refer to Scenario 14-4. What are Mary’s opportunity costs of operating her new business?
a.
$25,000
b.
$75,000
c.
$100,000
d.
$175,000
45. Refer to Scenario 14-4. How large would Mary’s accounting profits need to be to allow her to attain zero
economic profit?
a.
$100,000
b.
$125,000
c.
$175,000
d.
$225,000
Chapter 14/Firms in Competitive Markets ❖ 77
Scenario 14-5
A study sponsored by the Food Consumer Safety Board found that consumption of irradiated tomatoes
increased the health of laboratory rats. As a result of national press coverage of the report, the demand for
irradiated tomatoes increased dramatically. Organic farmers were able to switch from organic production of
tomatoes to irradiated production with no additional cost. Assume that the tomato market satisfies all of the
assumptions of perfect competition.
46. Refer to Scenario 14-5. As a result of the increase in the demand for tomatoes, we would predict that in the
short run that the
a.
production of tomatoes would be at efficient scale.
b.
price of tomatoes would rise.
c.
total cost for existing irradiated tomato producers must rise.
d.
number of firms in the market would fall as prices fall and firms exit the market.
47. Refer to Scenario 14–5. If the increased production of irradiated tomatoes caused a rise in the marginal trans-
portation costs of moving irradiated tomatoes to market, the
a.
short-run market supply curve for irradiated tomatoes would be affected but not the long-run
market supply.
b.
long-run market supply curve for irradiated tomatoes would be perfectly elastic.
c.
long-run market supply of irradiated tomatoes would be downward sloping.
d.
long-run market supply of irradiated tomatoes would be upward sloping.
48. When a profit-maximizing firm in a competitive market has zero economic profit, accounting profit
a.
is negative.
b.
is at least zero.
c.
is also zero.
d.
could be positive, negative or zero.
49. As a general rule, when accountants calculate profit they account for explicit costs but usually ignore
a.
certain outlays of money by the firm.
b.
implicit costs.
c.
operating costs.
d.
fixed costs.
50. In calculating accounting profit, accountants typically don‘t include
a.
long-run costs.
b.
sunk costs.
c.
explicit costs of production.
d.
opportunity costs that do not involve an outflow of money.
78 ❖ Chapter 14/Firms in Competitive Markets
51. If the profit–maximizing quantity of production for a competitive firm occurs at a point where the firm’s aver-
age total cost of production is falling as production increases, then the firm
a.
will be earning positive economic profit at the profit-maximizing quantity.
b.
will have economic profit less than zero at the profit-maximizing quantity.
c.
will have zero economic profit at the profit-maximizing quantity.
d.
should increase the quantity of production to increase profit.
52. In a perfectly competitive market, the process of entry and exit will end when
a.
price equals minimum marginal cost.
b.
marginal revenue equals marginal cost.
c.
economic profits are zero.
d.
accounting profits are zero.
53. In a perfectly competitive market, the process of entry and exit will end when
(i)
accounting profits are zero.
(ii)
economic profits are zero.
(iii)
price equals minimum marginal cost.
(iv)
price equals minimum average total cost.
a.
(i) and (ii) only
b.
(ii) and (iii) only
c.
(ii) and (iv) only
d.
(i), (ii), (iii), and (iv)
54. In a competitive market with free entry and exit, if all firms have the same cost structure, then
a.
all firms will operate at their efficient scale in the short run.
b.
all firms will operate at their efficient scale in the long run.
c.
the price of the product will differ across firms.
d.
Both a and b are correct.
55. In a perfectly competitive market, the process of entry and exit will end when firms face
a.
marginal revenue equal to long-run average total cost.
b.
total revenue equal to average total cost.
c.
average revenue greater than marginal cost.
d.
accounting profits equal to zero.
Chapter 14/Firms in Competitive Markets ❖ 79
56. In the long run, each firm in a competitive industry earns
a.
zero accounting profits.
b.
zero economic profits.
c.
positive economic profits.
d.
positive, negative, or zero economic profits.
57. In the long run, each firm in a competitive industry earns
a.
zero accounting profits.
b.
zero economic profits.
c.
positive economic profits.
d.
Both a and b are correct.
58. In the long run, assuming that the owner of a firm in a competitive industry has positive opportunity costs, she
a.
should exit the industry unless her economic profits are positive.
b.
will earn zero accounting profits but positive economic profits.
c.
will earn zero economic profits but positive accounting profits.
d.
should ignore opportunity costs because they are a type of sunk cost that disappears in the long run.
59. In the long-run equilibrium of a competitive market, the number of firms in the market adjusts until the market
demand is satisfied at a price equal to the minimum of
a.
average fixed cost for the marginal firm.
b.
marginal cost of the marginal firm.
c.
average total cost of the marginal firm.
d.
average variable cost of the marginal firm.
60. When firms are neither entering nor exiting a perfectly competitive market,
a.
total revenue must equal total variable cost for each firm.
b.
economic profits must be zero.
c.
price must equal average variable cost for each firm.
d.
Both a and c are correct.
61. When firms are neither entering nor exiting a perfectly competitive market,
a.
total revenue must equal total cost for each firm.
b.
economic profits must be zero.
c.
price must equal the minimum of marginal cost for each firm.
d.
Both a and b are correct.