Micro Review

Question 1

In a perfectly competitive market, in response to a permanent decrease in demand:

Answer 1

​the short run equilibrium price will be lower than the eventual long run equilibrium price.

Question 2

In long-run equilibrium, the perfectly competitive firm produces:​

Answer 2

​at the lowest point on its long-run average cost curve.

b. ​where P = MC = AC.	
c. ​where its long-run average cost curve is tangent to its horizontal demand curve.	
d. ​at a level of output such that all of the above are true.

Question 3

Farmer Brady sells wheat in a market where sellers are price takers. Which of the following is true in regard to Farmer Brady’s production and pricing decisions?

Answer 3

It would be senseless for Farmer Brady to try to increase sales by lowering the price of his product. His entire output can be sold at the market price.

Question 4

Darlene runs a fruit and vegetable stand in a medium-sized community where there are many such stands. Her weekly total revenue equals $3,500. Her weekly total cost of running the stand equals $3,500, consisting of $2,500 of variable costs and $1,000 of fixed costs. An economist would likely advise Darlene to:

Answer 4

keep the stand open because it is generating a normal profit

Question 5

Marginal revenue for a perfectly competitive firm equals:​

Answer 5

​average revenue at all levels of output.

Question 6

Why can’t a firm in a perfectly competitive industry charge a price above the market-clearing price?

Answer 6

Numerous competitors produce the same product and charge the market price.

Question 7

The behavior of an individual perfectly competitive firm has a perceptible influence on the market price.

Answer 7

FALSE

Question 8

When market price is $2, a competitive profit-maximizing firm’s total cost is:​ Q=3

Answer 8

$6

Question 9

​Assume that a firm’s total revenue is less than its total cost for the level of output it is producing. In the short run, this firm should:

Answer 9

NOT ENOUGH INFO

Question 10

As exit from a perfectly competitive industry that is currently unprofitable pushes up the market price, producers will move from a situation where price ____ average total cost to one where price ____ average total cost.

Answer 10

is less than, equals

Question 11

​”I’m losing money, but since my fixed costs are so high, I simply cannot afford to shut down.” If the firm were attempting to maximize profit, this decision may be:

Answer 11

correct if the firm is covering all of its variable costs.

Question 12

A perfectly competitive firm faces a demand curve that is:​

Answer 12

horizontal and perfectly elastic.

Question 13

Which of the following statements is not characteristic of a perfectly competitive industry in long-run equilibrium?Ceteris paribus, there is no tendency for firms to either enter or exit the industry.

Answer 13

​A profit-maximizing firm may produce any output level at which P < LRATC.

Question 14

If perfectly competitive industry B is currently realizing economic profits, we would expect that:​

Answer 14

industry output will rise, good B will fall in price, and economic profits will tend to disappear.