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c.
operating costs.
d.
fixed costs.
59. 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.
60. If the profit-maximizing quantity of production for a competitive firm occurs at a point where the firm’s average 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.
61. 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.
62. 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)
63. 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.
64. 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.
65. 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.
66. 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.
67. 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.
68. 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.
69. 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.
70. 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.
71. When firms in a perfectly competitive market face the same costs, in the long run they must be operating
a.
under diseconomies of scale.
b.
with small, but positive, levels of profit.
c.
at their efficient scale.
d.
where price is equal to average fixed cost.
72. Regardless of the cost structure of firms in a competitive market, in the long run
a.
firms will experience rising demand for their products.
b.
the marginal firm will earn zero economic profit.
c.
firms will experience a less competitive market environment.
d.
exit and entry is likely to lead to a horizontal long-run supply curve.
73. In a long-run equilibrium, the marginal firm has
a.
price equal to average total cost.
b.
total revenue equal to total cost.
c.
economic profit equal to zero.
d.
All of the above are correct.
74. In a long-run equilibrium, the marginal firm has
a.
price equal to minimum marginal cost.
b.
total revenue equal to total cost.
c.
accounting profit equal to zero.
d.
All of the above are correct.
75. In the long-run equilibrium of a market with free entry and exit, if all firms have the same cost structure, then
a.
marginal cost exceeds average total cost.
b.
the price of the good exceeds average total cost.
c.
average total cost exceeds the price of the good.
d.
firms are operating at their efficient scale.
76. In the long-run equilibrium of a market with free entry and exit, marginal firms are operating
a.
at the point where average variable cost equals marginal cost.
b.
at the minimum point on their marginal cost curves.
c.
at their efficient scale.
d.
where accounting profit is zero.
77. Consider a competitive market with a large number of identical firms. The firms in this market do not use any
resources that are available only in limited quantities. In long-run equilibrium, market price is determined by
a.
the minimum point on the firms' average variable cost curve.
b.
the minimum point on the firms' average total cost curve.
c.
the portion of the marginal cost curve below average variable cost.
d.
a firm’s level of sunk costs.
78. If all firms have the same costs of production, then in long-run equilibrium,
a.
price exceeds average total cost for all firms.
b.
price exceeds marginal cost for all firms.
c.
some firms may earn positive economic profits.
d.
all firms have zero economic profits and just cover their opportunity costs.
79. Suppose that firms in a competitive industry are earning positive economic profits. All else equal, in the long run, we
would expect the number of firms in the industry to
a.
increase.
b.
decrease.
c.
remain the same.
d.
We do not have enough information with which to answer this question.
80. Suppose that some firms in a competitive industry are earning zero economic profits, while others are experiencing
losses. All else equal, in the long run, we would expect the number of firms in the industry to
a.
increase.
b.
decrease.
c.
remain the same.
d.
We do not have enough information with which to answer this question.
81. In the long run,
a.
competitive firms’ profits are zero.
b.
competitive firms’ variable costs are zero.
c.
competitive firms’ ATC curves shift upward or downward to ensure that all demand is satisfied.
d.
the number of firms in the market is fixed.
Figure 14-13
Suppose a firm in a competitive industry has the following cost curves:
82. Refer to Figure 14-13. If the price is $6 in the short run, what will happen in the long run?
a.
Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit
the industry.
b.
Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the
industry.
c.
Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the
industry.
d.
Because the price is below the firm’s average variable costs, the firms will shut down.
83. Refer to Figure 14-13. If the price is $4.50 in the short run, what will happen in the long run?
a.
Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit
the industry.
b.
Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the
industry.
c.
Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the
industry.
d.
Because the price is below the firm’s average variable costs, the firms will shut down.
84. Refer to Figure 14-13. If the price is $3.50 in the short run, what will happen in the long run?
a.
Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit
the industry.
b.
Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the
industry.
c.
Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the
industry.
d.
Because the price is below the firm’s average variable costs, the firms will shut down.
85. Refer to Figure 14-13. If the price is $2 in the short run, what will happen in the long run?
a.
Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit
the industry.
b.
Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the
industry.
c.
Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the
industry.
d.
Because the price is below the firm’s average variable costs, the firms will shut down.
86. Consider a competitive market with a large number of identical firms. The firms in this market do not use any
resources that are available only in limited quantities. In this market, an increase in demand will
a.
increase price in the short run but not in the long run.
b.
increase price in the long run but not in the short run.
c.
increase price both in the short and the long run.
d.
not affect price in either the short or the long run.
87. A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will
a.
fall in the short run. All firms will shut down, and some of them will exit the industry. Price will then rise to
reach the new long-run equilibrium.
b.
fall in the short run. No firms will shut down, but some of them will exit the industry. Price will then rise to
reach the new long-run equilibrium.
c.
fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will
then rise to reach the new long-run equilibrium.
d.
not fall in the short run because firms will exit to maintain the price.
88. A competitive market is in long-run equilibrium. If demand increases, we can be certain that price will
a.
rise in the short run. Some firms will enter the industry. Price will then rise to reach the new long-run
equilibrium.
b.
rise in the short run. Some firms will enter the industry. Price will then fall to reach the new long-run
equilibrium.
c.
fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will
then rise to reach the new long-run equilibrium.
d.
not rise in the short run because firms will enter to maintain the price.
89. In the transition from the short run to the long run, the number of firms in a competitive industry is
a.
fixed.
b.
increasing at a constant rate.
c.
decreasing.
d.
able to adjust to market conditions.
90. The long-run supply curve for a competitive industry
a.
may be horizontal if entry into the industry lowers average total cost.
b.
may be upward-sloping if higher-cost firms enter the industry.
c.
will be horizontal if there is free entry into the industry.
d.
will be upward-sloping if there are barriers to entry into the industry.
91. The long-run supply curve for a competitive industry may be upward sloping if
a.
there are barriers to entry.
b.
firms that enter the industry are able to do so at lower average total costs than the existing firms in the
industry.
c.
some resources are available only in limited quantities.
d.
accounting profits are positive.
92. If all existing firms and all potential firms have the same cost curves, there are no inputs in limited quantities, and the
market is characterized by free entry and exit, then the long-run market supply curve
a.
is horizontal and equal to the minimum of long-run marginal cost for each firm.
b.
must slope downward.
c.
must slope upward.
d.
is horizontal and equal to the minimum of long-run average cost for each firm.
93. When all firms and potential firms in a market have the same cost curves, the long-run equilibrium of a competitive
market with free entry and exit will be characterized by firms
a.
earning small but positive economic profits.
b.
facing the prospect of future losses.
c.
operating at the efficient scale.
d.
that work together to raise market prices.
94. When entry and exit behavior of firms in an industry does not affect a firm's cost structure,
a.
the long-run market supply curve must be horizontal.
b.
the long-run market supply curve must be upward-sloping.
c.
the long-run market supply curve must be downward-sloping.
d.
we do not have sufficient information to determine the shape of the long-run market supply curve.
95. When some resources used in production are only available in limited quantities, it is likely that the long-run supply
curve in a competitive market is
a.
downward sloping.
b.
upward sloping.
c.
horizontal.
d.
vertical.
96. When a competitive market experiences an increase in demand that increases production costs for existing firms and
potential new entrants, which of the following is most likely to arise?
a.
The long-run market supply curve will be upward sloping.
b.
The condition of free entry into the market will be violated.
c.
Producer profits will fall in the long run.
d.
The long-run market supply curve will be horizontal as new firms enter and drive the price downward.
97. When firms in a competitive market have different costs, it is likely that
a.
free entry and exit in the market will be violated.
b.
the market will no longer be considered competitive.
c.
long-run market supply will be downward sloping.
d.
some firms will earn positive economic profits in the long run.
98. A long-run supply curve is flatter than a short-run supply curve because
a.
firms can enter and exit a market more easily in the long run than in the short run.
b.
long-run supply curves are sometimes downward sloping.
c.
competitive firms have more control over demand in the long run.
d.
firms in a competitive market face identical cost structures.
99. A market might have an upward-sloping long-run supply curve if
a.
firms have different costs.
b.
consumers exercise market power over producers.
c.
all factors of production are essentially available in unlimited supply.
d.
the entry of new firms into the market has no effect on the cost structure of firms in the market.
100. When new entrants into a competitive market have higher costs than existing firms,
a.
accounting profits will be the primary determinant of entry into the market.
b.
sunk costs become an important determinant of the short-run entry strategy.
c.
market price will rise.
d.
long-run supply is constant.
101. Suppose a competitive market has a horizontal long-run supply curve and is in long-run equilibrium. If demand
decreases, we can be certain that in the short-run,
a.
at least some firms will shut down.
b.
price will fall below marginal cost for some firms.
c.
price will fall below average total cost for some firms.
d.
at least some firms will enter the industry.
102. The long-run market supply curve in a competitive market will
a.
always be horizontal.
b.
be the portion of the MC that lies above the minimum of AVC for the marginal firm.
c.
typically be more elastic than the short-run supply curve.
d.
be above the competitive firm's efficient scale.
103. In the long run the market supply
a.
must always be horizontal.
b.
could be upward sloping if the cost of production falls as new firms enter the market.
c.
could be upward sloping if the cost of production rises as new firms enter the market.
d.
could be upward sloping if technological improvements lower the cost of producing in the market.
104. Suppose that a competitive market is initially in equilibrium. Then demand increases. If some resources used in
production are not available in sufficient quantities for entering firms,
a.
the long-run market supply curve will be upward sloping.
b.
the long-run market supply curve will be perfectly elastic.
c.
in the long run firms will suffer economic losses, leading them to exit the industry.
d.
the number of firms will decrease, and the market will become a monopoly.
105. Suppose that a competitive market is initially in equilibrium. Then demand increases. If entering firms face the same
costs as existing firms and sufficient resources are available for entering firms,
a.
the long-run market supply curve will be upward sloping.
b.
the long-run market supply curve will be perfectly elastic.
c.
in the long run firms will suffer economic losses, leading them to exit the industry.
d.
the number of firms will decrease, and the market will become a monopoly.
106. In a market with a fixed number of firms, as long as price is above average
a.
variable cost, each firm’s marginal-cost curve is its supply curve.
b.
variable cost, each firm’s average-total-cost curve is its supply curve.
c.
total cost, each firm’s marginal-cost curve is its supply curve.
d.
total cost, each firm’s average-total-cost curve is its supply curve.
107. Suppose the long-run supply curve for a good is upward-sloping. The upward slope could be explained by
a.
increases in production costs resulting from more firms coming into the market.
b.
a breakdown of the “free entry and exit” feature of competition.
c.
a breakdown of the “price taking” feature of competition.
d.
a stable demand curve for the good, that is, a demand curve that never shifts.
108. Suppose the long-run supply curve for a good is upward-sloping. The upward slope could be explained by
a.
decreases in production costs resulting from more firms coming into the market.
b.
a breakdown of the “free entry and exit” feature of competition.
c.
a breakdown of the “price taking” feature of competition.
d.
the fact that a resource used in the production of the good is available only in limited quantities.
Figure 14-14
109. Refer to Figure 14-14. When the market is in long-run equilibrium at point W in panel (b), the firm represented in
panel (a) will
a.
have a zero economic profit.
b.
have a negative accounting profit.
c.
exit the market.
d.
choose to increase production to increase profit.
110. Refer to Figure 14-14. Assume that the market starts in equilibrium at point W in panel (b). An increase in demand
from D0 to D1 will result in
a.
a new market equilibrium at point X.
b.
an eventual increase in the number of firms in the market and a new long-run equilibrium at point Z.
c.
rising prices and falling profits for existing firms in the market.
d.
falling prices and falling profits for existing firms in the market.
111. Refer to Figure 14-14. Assume that the market starts in equilibrium at point W in panel (b) and that panel (a)
illustrates the cost curves facing individual firms. Suppose that demand increases from D0 to D1. Which of the following
statements is correct?
a.
Points W, Y, and Z represent both short-run and long-run equilibria.
b.
Points W, Y, Z, and X represent short-run equilibria.
c.
Points W, Y, and Z represent long-run equilibria.
d.
Points W and Z represent long-run equilibria.
112. Refer to Figure 14-14. Assume that the market starts in equilibrium at point W in panel (b) and that panel (a)
illustrates the cost curves facing individual firms. Suppose that demand increases from D0 to D1. Which of the following
statements is not correct?
a.
Point W is a long-run equilibrium point.
b.
Points W, Y, and Z are short-run equilibria points.
c.
Point Y is a long-run equilibrium point.
d.
Point Z is a long-run equilibrium point.
113. Refer to Figure 14-14. If the market starts in equilibrium at point Z in panel (b), a decrease in demand will
ultimately lead to
a.
more firms in the industry but lower levels of output for each firm.
b.
fewer firms in the market.
c.
a new long-run equilibrium at point X in panel (b).
d.
lower prices once the new long-run equilibrium is reached.
114. Refer to Figure 14-14. Suppose a firm in a competitive market, like the one depicted in panel (a), observes market
price rising from P1 to P2. Which of the following could explain this observation?
a.
The entry of new firms into the market.
b.
The exit of existing consumers from the market.
c.
An increase in market supply from S0 to S1.
d.
An increase in market demand from D0 to D1.
