All the supply of peppermint oil is produced from mint plants grown in one county by several competitive growers (the number of growers is not limited). The quality of land in the county varies greatly. Would you expect the long-run market supply curve to slope upward, downward, or remain constant? Why? What will be an […]
Suppose all firms in a competitive market are currently in both short-run and long-run equilibrium. What impact will a lump sum tax have on each firm in the short run? in the long run? What will be an ideal response? ANSWER In the short run, the lump sum tax represents a fixed cost. The […]
If firms in a competitive market are not identical, then an increase in cost will A) shift marginal cost to the right. B) push the most inefficient firms out of the market. C) push the most efficient firms out of the market. D) Need more information. ANSWER B
Suppose that for each firm in the competitive market for potatoes, long-run average cost is minimized at $0.20 per pound when 500 pounds are grown. The demand for potatoes is Q = 10,000/p. If the long-run supply curve is horizontal, then how many pounds of potatoes will be consumed in total? A) 0 B) 500 […]
Suppose a monopolist’s demand curve is P = 60 – Q, its cost function is TC = 10Q + 50, and its marginal cost is 10. If a governmental agency wished to set the price so that it created the smallest deadweight loss without causing the monopolist to have negative economic profits, this price would […]
Baseball teams shut down in the winter. This is an example of A) permanently leaving the industry because price is less than average fixed cost. B) temporarily leaving the industry because price is less than average variable cost. C) temporarily leaving the industry because price is less than average fixed cost. D) permanently leaving the […]
Firms in long-run perfect competition produce at A) increasing returns to scale. B) decreasing returns to scale. C) constant returns to scale. D) no returns to scale. ANSWER C
If the government wants to regulate a natural monopoly, it will force the firm to set price equal to A) average cost. B) marginal cost. C) marginal revenue. D) None of the above. ANSWER A
The government forcing a monopoly telecommunications company to allow other firms to use its cables is an attempt to A) regulate prices. B) decrease the monopoly market power by eliminating a natural monopoly. C) decrease the monopoly market power by increasing competition. D) None of the above. ANSWER C
Which of the following markets would reach long-run equilibrium fastest? A) online retail B) auto dealers C) oil extraction D) World Series tickets ANSWER A
