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Exam 6: Background to Supply: Firms in Competitive Markets

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Question 31

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If a firm continues to employ more workers within the same size factory, it will eventually experience diminishing marginal product.

A) True
B) False

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Question 32

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Average total costs are total costs divided by marginal costs.

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B) False

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Question 33

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Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm sets its price below the current market price, what effect would this have on the market?

In the short run, the market supply curve for a good is the sum of the quantities supplied by each firm at each price.

a) The production function depicts a relationship between which two variables? Also, draw a production function that exhibits diminishing marginal product. b) How would a production function that exhibits decreasing marginal product affect the shape of the total cost curve? Explain or draw a graph. c) What effect, if any, does diminishing marginal product have on the shape of the marginal cost curve?

Use a graph to demonstrate the circumstances that would prevail in a competitive market where firms are earning economic profits. Can this scenario be maintained in the long run? Explain your answer.

Give two reasons why the long-run industry supply curve may slope upward. Use an example to demonstrate your reasons.

A corporation has been steadily losing money on one of its product lines. The factory used to produce that brand cost R20 million to build 10 years ago. The firm now is considering an offer to buy that factory for R15 million. Which of the following statements about the decision to sell or not to sell is correct?

In the long run, the competitive firm's supply curve is the

In the long run, some firms will exit the market if the price of the good offered for sale is less than

In the long run, if the price firms receive for their output is below their average total costs of production, some firms will exit the market.

The market price in a perfectly competitive industry in short-run equilibrium is R3 and the minimum average cost for all firms is R2.50. In the long run, we would expect an increase in

Which of the following markets would most closely satisfy the requirements for a competitive market?

If, as the quantity produced increases, a production function first exhibits increasing marginal product and later diminishing marginal product, the corresponding marginal cost curve will be U-shaped.