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ECON 202 Exam#3 Questions with Correct Answers
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ECON 202 Exam#3 Questions with Correct Answers
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ECON 202 Exam#3 Questions with Correct AnswersA perfectly competitive firm ? Correct Answer-Must charge the market price and also has a perfectly elastic demand curve.
Where does a firm produce maximize its profit? Correct Answer-When Marginal Revenue = Marginal Cost
What part of the Marginal Cost curve indicates a perfectly competitive firm's short run supply? Correct Answer-
Describe the three shapes for a perfectly competitive firm's long run supply curve Correct Answer-increasing, constant, decreasing
What are the characteristics of perfect competition ? Correct Answer-(1)
a large number of small firms, (2) identical products sold by all firms, (3) perfect resource mobility or the freedom of entry into and exit out of the industry, (4) perfect knowledge of prices and technology.
How do you determine where a competitive firm will produce and what price it will charge? Correct Answer-Profit=(Price)(Quantity produced) - (Average cost)(Quantity produced) the firm does not choose what price to charge, the supply and demand of
the market will determine the price.
What would be shown on a graph if a competitive firm will shut down in
the short run? Correct Answer-Total cost > Total revenue
Where is profit located on a graph? Correct Answer-
In long-run equilibrium in a competitive industry is there a entry or exit cost? Correct Answer-No
When are both the short-run and the long-run average costs at a minimum? Correct Answer-When the firm produces at the long-run competitive equilibrium.
What happens to the long-run equilibrium when there is an increase in demand in a competitive industry? Correct Answer-Increases in demand cause a rapid increase in price followed by a fall in price as more firms enter the industry in the long run. Decreases in demand case a rapid decrease in price followed by a rise in price as firms exit the industry in the long run.
When will entry to a perfectly competitive firm occur? Correct Answer-
When firms are earning positive economic profits
What kind of profits occur in a long run perfectly competitive industry? Correct Answer-Normal profits
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