Question

1. Which of the following best explains why the number of firms is fixed in the short run in perfect competition?

Marginal costs are too high to allow firms to operate profitably.

Firms would wait to see how the long run develops.

Capital is fixed in the short run.

Firms would never want to enter a perfectly competitive industry.

2. Which of the following best explains why the number of firms is fixed in the short run in perfect competition?

Firms want to wait t see how the long run plays out.

Marginal costs are too high to allow firms to operate profitably.

Firms would never want to enter a perfectly competitive industry.

Capital is fixed in the short run and so a firm not in the industry cannot increase its capital from zero.

3. In perfect competition, if the long run supply curve is positively sloped, this industry exhibits increasing costs.

True

False

4.If the market demand increases in perfect competition, in the new long run equilibrium firms will make economic profits.

True

False

5. The short run equilibrium price in perfect competition is that where:

no firms wish to enter the industry.

quantity demanded equals quantity supplied on the market diagram.

firms are just covering average variable costs.

economic profit is zero.

Answer 1

FIRST TWO QUESTIONS ARE SAME

1.&2. Capital is fixed in the short run and so a firm not in the industry cannot increase its capital from zero.

3. True

4. False

In long run economic profit is always zero.

5. quantity demanded equals quantity supplied on the market diagram.