Question

13-For the perfectly competitive broccoli producers in California, the FIRM’s demand curve for broccoli is

a horizontal line.

downward sloping.

nonexistent.

upward sloping.

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Question 14

A firm maximizes its profit by producing the amount of output such that marginal

revenue equals marginal cost.

revenue exceeds marginal cost.

revenue is maximized.

cost is minimized.

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Question 15

For a perfectly competitive firm, the shutdown point (the point at which it is better to quit operating rather than operate at a loss) occurs when the price is just below the minimum point on the

average fixed cost curve.

average total cost curve.

marginal cost curve.

average variable cost curve.

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Question 16

For a perfectly competitive syrup producer whose average total cost curve does not change, an economic profit could turn into an economic loss if the

market demand for syrup decreases.

marginal cost curve shifts downward.

market demand for syrup does not change.

market demand for syrup increases.

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Question 17

When firms in a perfectly competitive market are earning an economic profit, in the long run

no new firms will enter the market.

new firms will enter the market.

firms will exit the market.

the average total cost of production will fall.

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Question 18

In the long run, a perfectly competitive firm earns

a positive economic profit.

zero economic profit, that is, a normal profit.

negative economic profit, that is, an economic loss.

zero accounting profit.

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Question 19

Technology reduces the average cost of production, so in the long run

perfectly competitive firms produce at a lower average cost.

the market price of affected goods and services fall.

firms with older plants either exit the market or adopt the new technology.

All of the above answers are correct.

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Question 20

We define a monopoly as a market with

one supplier and no barriers to entry.

one supplier with barriers to entry.

many suppliers with no barriers to entry.

many suppliers with barriers to entry.

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Question 21

A natural monopoly

arises as a result of legal barriers to entry.

occurs when one firm controls a natural resource.

arises when one firm can meet the entire market demand at a lower price than two or more firms.

Both answers (a) and (b) are correct.

Answer 1

13

a) Horizontal. A perfectly competitive firm can sell any amount of goods at the prevailing market price.

14.

MR equals MC. The additional revenue received by producing one more unit should equal the additional cost of producing that unit. This is the profit-maximization rule.

15.

Average variable point. Shutdown point is when P= minimum AVC.

16.

When demand for syrup decreases. In this case the market price of syrup will fall and ATC will be greater than P. Long term equilibrium occurs when P=MC=minimum ATC.