Question

31 In perfectly competitive industries: A. the shont-run market supply curves are positively sloped в. long-rusniustry supply curve,are positively sloped. C. the short-run D. All of the above E. Only B and C are correct market supply curves are more clastic than the long-run industry supply curvers s3. Assame a perfectly-competitive, increasing-cost industry composed of identical firms is initially in long-run equilibrium. Given a decrease in demand, in the short ran: equilbrium price decreases, equilibrium output increases, the output of the typical firm increases, and all firms earn economic profits equilibriam price decreases equilibrium output decreases, the output of the typical firm decreases, and all firms incur losses C. equilbrium price increases, equilibrium output decrcases, the output of the typical firm decreases, and all firms incur losses D. equilibrium price increases, equilibriam E. fims leave the industry and the MC and ATC curves of the typical firm shift down 4. Assume a perfectly competitive, iscreasing-cost industry compesed of identical firms was quantity increases, the output of the typical firm increases, and all firms earn economic profits because of falling input prices decrease ia demand, each firm has noved to its new sbort-run equilibrium. Then, in the further process of long-run adjustment which of the follewing will happen? D. Answers A, B and C are all true and C are true A. Market price increases and market output decreases C. The upward-sloping, short-run market supply curve shifts to the let. 35. The term "productive efficiency refers to: R. Firms leave the industry, and the MC, AVC, and the ATC curves of the typical firm shifts down E. Only answers A A. Figure 5 theproductorefil brio positionofacompetitive fin. prod cing de socially optimal level ofoutput. D. fulfilling the condition P MC 36 Ifa perfectly competitive industry is producing where price exceeds marginal cost, then: B. A. the firm will fail to maximize profits, but resources will be efficiently allocated. B. the firm will fail to maximize profies and resources will he overallocated to the product LRS C. the firm will fail to maximize profits and resources will be underallocated to the product D. resources will be underallocased to the product, but the firm will maximize profits 37. If every firem in a perfectly competitive industry experiences the same technokogical improvement, then: A. the firm's short-run supply curves will shift to the right B. the industry's short-run supply eurve will shilt to the right C. the industry's long-run supply curve will shift downward or to the right D. All of the above statements are true E. Only A and B are true. o, op, a 38. In a perfectly competitive, constant-cest industry, the leng-run equilibrium price is determined А. primarily by demand. B. primarily by cost. C by spply and deraand D. ettirely bycot A. may be in short-run equilibrium, bat not in long-run equilibrium C. may be in short-run and long-run equilibrium. B. may be in long-run equilibrium, but not short-run equilibriarn D. is not in short-run and long-run equilibrium 40. Refer to the competitive industry shown in Figure 5 above where Si and Sa are short-run industry supply curves, Di and Di are market demand curves, and LRS is the long-run industry supply curve. This industry is said to be: A an iscreasing-cost industry where input prices increase as firms enter. B. a coastant-cost industry where input prices remain constant as firms enter. C. a decreasing-cost industry where input prices decrease as firms enter D. There is not enough information to determine the industay ype. Figure 6 Shert-run 41. Regarding the competitive indastry shown ia Figare 6, which of the following statements is true? A. As firms enter the industry in the long run, input prices decrease B. If the industry was initially in long-run equilibrium, the long-run effect of an increase in demand is a decrease in price and an increase in quantity C. The MC and ATC curves of the typical firm will shift dowa as firms enter in the long run. D. All of the above statements are true E. Only A and C are true Long-Fue

Answer 1

(32) (A)

Short run market supply curve is upward rising. But long run supply curve can be upward rising, downward sloping or horizontal on basis of whether it is increasing cost, decreasing cost or constant cost industry.

(33) (B)

Decrease in demand will shift demand curve leftward, decreasing price and quantity. Since firms were earning zero profit in initial long run equilibrium, this fall in price and quantity will cause firms incur loss in short run.

(34) (C)

Decrease in demand will shift demand curve leftward, decreasing price and quantity. Since firms were earning zero profit in initial long run equilibrium, this fall in price and quantity will cause firms incur loss in short run. Some firms will exit the market in long run, causing market supply curve to shift leftward. Since it is increasing cost industry, price will increase and output will decrease.

(35) (B)

When production occurs at minimum average total cost, there is productive efficiency.

NOTE: As per Answering Policy, 1st 4 questions are answered.