Chapter 10: Perfect Competition in a Single Market
Multiple Choice Questions
Suppose domestic beef producers face demand of QD = 1000 - 5P. In the very short run 500 head of beef are produced. Suppose mad cow disease strikes a portion of the national herd, and the amount brought to market falls to 400. The price per head will rise to
110
120
250
300
Suppose domestic beef producers face demand of QD = 1000 - 5P. Suppose the Chinese acquire a taste for beef such that their demand is QD = 500 - 5P. Market demand is now
1000 - 10P for all P
1500 - 10P for all P
1500 - 5P for all P
1000 - 5P for P > 100 and 1500 - 10P for P < 100
The short-run market supply curve is
the horizontal summation of each firm’s short-run supply curve.
the vertical summation of each firm’s short-run supply curve.
the horizontal summation of each firm’s short-run average cost curve.
the vertical summation of each firm’s short-run average cost curve.
In the short run, an increase in market demand will usually lead to a(n)
decrease in price and an increase in quantity.
decrease in price and a decrease in quantity.
increase in price and an increase in quantity.
increase in price and a decrease in quantity.
A demand curve will shift out for any of the following reasons except
preference for a good increases.
price of a substitute falls.
income rises.
price of a complement falls.
If the market for bottled spring water is characterized by a very elastic supply curve and a very inelastic demand curve, an outward shift in the supply curve would be reflected primarily in the form of
higher prices.
higher output.
lower prices.
lower output.
Suppose that the price elasticity of demand for a product is –1 and that the price elasticity of supply is +1. Assume also that the income elasticity of demand is +2. Then an increase in income of 10% will raise equilibrium price by
10%.
5%.
20%.
an annual amount that cannot be determined.
Under perfect competition, if an industry is characterized by positive economic profits in the short run
firms will leave the market in the long run and the short-run supply curve will shift outward.
firms will enter the market in the long run and the short-run supply curve will shift outward.
firms will enter the market in the long run and the short-run supply curve will shift inward.
firms will leave the market in the long run and the short-run supply curve will shift inward.
Positive economic profits exist for a firm in the long run if price is above
long-run average cost.
long-run marginal cost.
long-run total cost.
long-run variable cost.
Firms in long-run equilibrium in a perfectly competitive industry will produce at the low points of their average total cost curves because
free entry implies that long-run profits will be zero no matter how much each firm produces.
firms seek maximum profits and to do so they must choose to produce where average costs are minimized.
firms maximize profits and free entry implies that maximum profits will be zero.
firms in the industry desire to operate efficiently.