Question

2. If perfectly competitive firms earn economic profit in the short run, then we would expect that in the long run

Multiple Choice

• supply will decrease.

• existing firms will leave the market

• demand will decrease.

• new firms will enter the market.

3. Which of the following is consistent with a perfectly or monopolistically competitive market?

Multiple Choice

• marginal revenue lower than price for each firm

• exit of small firms when profits are high for large firms

• a small number of firms

• zero economic profit for firms in the long-run

4. Because of the ease of entry into the market of monopoly, profits are competed away by the new firms.

True or False

True/False

5. A perfectly competitive firm

Multiple Choice

• can influence industry price in a significant way, but cannot influence industry output.

• becomes dominant in an industry through successful competition.

• produces such a small share of industry output that it has an insignificant influence on industry price.

• can influence industry output in a significant way, but cannot influence industry price.

6. Flour would be considered which of the following factors of production?

Multiple Choice

• entrepreneurship

• capital

• land

• labor

Answer 1

Ans.2- new firms will enter the market

If firms are earning economic profits in the short run then it will provide incentive to new firms in order to enter the industry and hence new firms will enter the industry.

Ans.3- zero economic profit for firms in the long-run

Both perfectly and Monopolistically competitive firms earn 0 profits in the long run due to free entry and exit of firms.

Ans.4- False

There are huge barriers to entry in a monopoly market.

Ans.5- produces such a small share of industry output that it has an insignificant influence on industry price.

There are thousands of firms in a perfectly competitive industry and therefore none of the firms can't affect industry price.