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41) If a firm in a perfectly competitive industry experiences persistent losses, in the long run it should

A) shut down temporarily and wait for market conditions to change.

B) exit the industry.

C) raise its price to cover average total cost.

D) continue to operate if it can raise the demand for its product through advertising and quality improvements.

42) Assume that a perfectly competitive market is in long-run equilibrium. Suppose as a result of a health hazard associated with the industry's product, demand decreases drastically. What is the immediate result of this event?

A) The market price falls, and the typical firm suffers an economic loss.

B) The market supply increases to offset the fall in demand.

C) The typical firm's average total cost curve shifts downward.

D) The typical firm's marginal cost curve shifts to the left.

Figure 12-17

 

The graphs in Figure 12-17 represent the perfectly competitive market demand and supply curves for the apple industry and demand and cost curves for a typical firm in the industry.

43) Refer to Figure 12-17.  Which of the following statements is true?

A) The current market price is $3, but the firm will be able to increase the price in the future.

B) The current market price is $3, but the price will fall in the long run as a result of a decrease in demand.

C) The current market price is $3, but the price will fall in the long run as new firms enter the market.

D) The current market price is $3, but the price will increase in the future as the market demand increases.

44) Refer to Figure 12-17.  Which of the following statements is true?

A) The firm will produce 30 thousand pounds of apples in the short run and earn an economic profit. New firms will enter the market and shift the market supply curve to the left.

B) The firm will produce 30 thousand pounds of apples in the short run and earn an economic profit, but it would earn a greater profit if it produced at the lowest point on the ATC curve.

C) The firm will produce 30 thousand pounds of apples in the short run and earn an economic profit. New firms will enter the industry; as a result, the firm will be forced to exit the industry in the long run.

D) The firm will produce 30 thousand pounds of apples in the short run and earn an economic profit. In the long run, the firm will break even.

45) Refer to Figure 12-17.  The graphs depict a short-run equilibrium. How will this differ from the long-run equilibrium? (Assume this is a constant-cost industry.)

A) Fewer firms will be in the market in the long run than in the short run.

B) The price will be higher in the long run than in the short run.

C) The market supply curve will be further to the left in the long run than in the short run.

D) The firm's profit will be lower in the long run than in the short run.

46) Assume that firms in a perfectly competitive market are earning economic profits. Which of the following statements describes the change in market price and output as a result of the entry of new firms into this market?

A) The market demand curve shifts to the right, causing price to rise and market output to increase.

B) The market demand curve shifts to the left, causing price to fall and market output to decrease.

C) The short-run market supply curve shifts to the right, causing price to fall and total market output to increase.

D) The short-run market supply curve shifts to the left, causing price to rise and total market output to decrease.

47) A firm could continue to operate for years without ever earning a profit as long as it is producing an output where

A) MR < ATC.

B) ATC > AVC.

C) MR > AVC.

D) AFC < AVC.

48) A firm would decide to shut down if its production resulted in

A) MR < ATC.

B) ATC > AVC.

C) AFC > AVC.

D) MR < AVC.

49) If in the long run a firm makes zero profit, it should exit the industry.

50) 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.

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