Question

32.   The relationship that indicates that the perfectly competitive firm in long-run equilibrium is economically efficient is that
A.   long-run marginal cost equals long-run average cost at long-run average cost’s lowest value.
B.   the typical firm earns neither economic profits nor economic losses.
C.   marginal benefit equals long-run marginal cost.
D.   demand equals marginal revenue equals average revenue equals price.

33.   The perfectly competitive lobster market is in long-run equilibrium. Following an increase in demand we would expect the typical firm to earn __________ economic profits in the short run and to experience ___________ production.
A.   positive, increased
B.   positive, constant
C.   zero, increased
D.   zero, constant

34.   Walt’s Widgets is a profit-maximizing perfectly competitive firm. In the long run, if Walt earns zero economic profit, he will
A.   shut down.
B.   decrease his output level but may not shut down.
C.   increase his output level to attract more business.
D.   remain at his current output level.

35.   The perfectly competitive lobster market is in long-run equilibrium. The typical firm earns __________ economic profits. If demand increases then, in the short run, there will be ___________ in production.
A.   positive, an increase
B.   positive, no increase
C.   zero, an increase
D.   zero, no increase

36.   In perfect competition, the industry’s demand curve is __________; the firm’s demand curve is ___________.
A.   horizontal, horizontal
B.   horizontal, downward sloping
C.   downward sloping, horizontal
D.   downward sloping, downward sloping

Answer 1

a) "A"

In a perfectly competitive market, long-run marginal cost equals long-run average cost at long-run average cost’s lowest value. At this point, the firms are only breaking even. Any new firm entering the market will only be breaking even like other firms.

b) "A"

Because of the increased demand in the short run, the firm will experience a profit and increased production.

c) "D"

remain producing at the level where he is producing, in the long run, no firm earns an economic profit but only break even.

d) "C"

In the long run, there will be zero economic profit but if demand increased in the short run they will increase production.

e) "C"

The industry demand curve is downward sloping and the firm demand curve is flat i.e. horizontal.