SOLVED

21) A perfectly competitive wheat farmer in a constant-cost industry produces 1,000 bushels of wheat at a total cost of $50,000. The prevailing market price is $48. What will happen to the market price of wheat in the long run? A) The price remains constant at $48. B) The price falls below $48 C) The price rises above $48. D) There is insufficient information to answer the question. 22) In August 2008, Ethan Nicholas developed the iShoot application for the Apple iPhone 3G, and within five months had earned $800,000 from this program. By May 2009, Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales. This example indicates that in a competitive market, A) earning an economic profit in the long run is extremely easy. B) earning an economic profit in the long run is extremely difficult. C) it is impossible to earn an economic profit in either the short run or the long run. D) economic profits are only earned in the long run. 23) Apple introduced its iPhone 3G in July 2008 and within a month sales had topped 3 million units. By April 2009, more than 25,000 apps for the iPhone 3G were available in the iTunes store, an indication that in a competitive market A) the ease at which a new firm can enter a competitive market is low. B) the ease at which a new firm can enter a competitive market is high. C) entry into the market is blocked. D) entry into the market is restricted in the short run, but becomes easier in the long run. 24) Assume that the tuna fishing industry is perfectly competitive. Which of the following best characterizes the industry if, as demand for tuna increases, fishing boats have to go farther into the ocean to harvest tuna? A) a constant-cost industry B) an increasing-cost industry C) a decreasing-cost industry D) a fixed-cost industry 25) If in the long run a firm makes zero profit, it should exit the industry. 26) A perfectly competitive firm in a constant-cost industry produces 1,000 units of a good at a total cost of $50,000. If the prevailing market price is $48, the number of firms and the industry’s output will decrease in the long run. 27) Suppose there are economies of scale in the production of a specialized memory chip that is used in manufacturing microwaves. This suggests that the microwave industry is a decreasing-cost industry. 28) In an increasing-cost industry the long-run supply curve is upward sloping. 29) What is meant by the term “long-run competitive equilibrium? 30) What is a long-run supply curve? What does a long-run supply curve look like on a perfectly competitive market graph? 31) Use the figure above to answer the following questions. a.How can you determine that the figure represents a graph of a perfectly competitive firm? Be specific; indicate which curve gives you the information and how you use this information to arrive at your conclusion. b.What is the market price? c.What is the profit-maximizing output? d.What is total revenue at the profit-maximizing output? e.What is the total cost at the profit-maximizing output? a.The perfectly competitive firm is a price taker and therefore faces a perfectly elastic demand curve which is also the MR curve. b.Market price = $40 c.Profit maximizing output = 200 d.Total revenue = $40 × 200 = $8,000 e.Total cost = ATC × total output = $24 × 200 = $4,800