1. In a constant cost industry, P = AC = $20. Which sequence of events follows an increase in demand?
a. P = AC, firms make no economic profit, existing firms leave output unchanged, new firms enter the industry, profits remain normal, P = AC = $20.
b. P > AC, firms make an economic profit, existing firms expand output, new firms enter the industry, the short-run supply curve shifts left, price falls until profits return to $0.
c. P > AC, firms make an economic profit, existing firms expand output, new firms enter the industry, the short-run supply curve shifts right, price falls until profits return to $0.
d. P < AC, firms suffer an economic loss, existing firms reduce output, new firms enter the industry, the short-run supply curve shifts right, price falls until profits exceed $0.
2. Describe the supply curve of a constant cost industry.
a. Upward sloping
b. Flat
c. Downward sloping, then upward sloping
d. Downward sloping
3. At the profit-maximizing output level P = MC, if P > AC then firms can earn an above-normal profit, causing entry into the industry. True or false?
4. In a competitive market, the amount of a good that is produced is such that social surplus is:
a. Minimized
b. Maximized
c. Zero
d. Hidden
1. In a constant cost industry, P = AC = $20. Which sequence of events follows an increase in demand?
a. P = AC, firms make no economic profit, existing firms leave output unchanged, new firms enter the industry, profits remain normal, P = AC = $20.
b. P > AC, firms make an economic profit, existing firms expand output, new firms enter the industry, the short-run supply curve shifts left, price falls until profits return to $0.
c. P > AC, firms make an economic profit, existing firms expand output, new firms enter the industry, the short-run supply curve shifts right, price falls until profits return to $0.
d. P < AC, firms suffer an economic loss, existing firms reduce output, new firms enter the industry, the short-run supply curve shifts right, price falls until profits exceed $0.
2. Describe the supply curve of a constant cost industry.
a. Upward sloping
b. Flat
c. Downward sloping, then upward sloping
d. Downward sloping
3. At the profit-maximizing output level P = MC, if P > AC then firms can earn an above-normal profit, causing entry into the industry. True or false?
4. In a competitive market, the amount of a good that is produced is such that social surplus is:
a. Minimized
b. Maximized
c. Zero
d. Hidden
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Related textbook solutions
Related questions
1) When positive economic profits exist in an industry:
the market price of the good produced by the industry is less than the marginal cost faced by the industry. |
the market price of the good produced by the industry is less than the average total cost of the industry. |
there is an exit of firms from the industry. |
resources flow from less productive uses to that particular industry. |
2) When price is less than the firms' minimum average total cost, ________.
firms' profits are likely to be maximum |
prices are likely to fall further |
new firms will enter the market |
existing firms will leave the market |
3) The entry of new firms into a perfectly competitive market will cause:
an increase in the profitability of existing firms. |
a decrease in the profitability of existing firms. |
a right shift of the demand curve of the good being produced by the firms. |
a left shift of the demand curve of the good being produced by the firms. |
4) Entry of new firms into an existing market causes:
a downward movement along the market supply curve. |
a leftward shift of the market supply curve. |
an upward movement along the market supply curve. |
a rightward shift of the market supply curve. |
5) The incentive for new firms to enter into a perfectly competitive market is primarily the:
high level of government intervention in the market. |
large number of buyers in the market. |
large number of existing firms in the market. |
positive profits observed for the existing firms in the market. |