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20 Mar 2018

9) In the long run, all firms in an industry that is monopolistically competitive A) set price equal to marginal cost. B) make zero economic profit. C) make an economic profit. D) produce at their efficient scale. E) incur an economic profit.

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Related questions

1. If the price faced by a competitive firm is greater than its average variable cost, the firm:

a. should produce the output level where P=MC and it is making a positive profit
b. should produce that output level where P=MC and it is incurring loss
c. should produce that output level where P=MC and it may make a positive profit or incur a loss
d. none of the above

2. When a firm in perfect competition is maximizing profits and produces that level of output where price, marginal revenue, marginal cost, average total cost, long-run marginal cost, and long run average total cost are all equal, the firm:

a. earns a positive economic profit and it serves to signal other competing firms to enter the market
b. earns a positive economic profit that can be continued in the long run
c. earns zero economic profit and is in a long run equilibrium
d. incurs a loss and will shut own in the long run

Poinsettia growing is a perfectly competitive industry and all poinsettia growers have the same cost curves. The market price of poinsettias is $5 a pot and each grower maximizes profit by producing 2,600 pots a week. The average total cost of producing Poinsettias is $20 a pot. The minimum average variable cost is $4 a pot and the minimum average total cost is $12 a pot. In the short-run, does each grower incur an economic loss or make a profit? How much?

Answer with a positive number.

Because firms in the industry are ______, some firms will ______ the market in the long-run. The number of poinsettia growers will ______.

A. making an economic profit; enter; increase

B. incurring an economic loss; exit; decrease

C .incurring an economic loss; enter and some firms will exit; increase or decrease depending on the relative number of entering and exiting firms

D. making an economic profit; exit and some firms will enter; decrease or increase depending on the relative number of exiting and entering firms

E.making zero economic profit; shut down and exit; decrease

A perfectly competitive industry is initially in a short-run equilibrium in which all firms are earning zero economic profits but in which firms are operating below their minimum efficient scale. Explain the long-run adjustments that will take place for the industry to attain long-run equilibrium with firms operating at their minimum efficient scale.

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