Question

Exhibit 7-17 Marginal revenue and cost per unit curves DMC ATC Price and costs per unit (dollars) AVC 0 20 100 40 60 80 Quantity of output (units per day) 16. As shown in Exhibit 7-17, the price at which the firm earns zero economic profit in the short-runis a. $10 per unit. b. $15 per unit. c. $40 per unit. d. more than $20 per unit. e. $20 per unit. 17. In long-run equilibrium, the typical perfectly competitive firm has no incentive to: a. change output. b. change plant size. c. enter or leave the industry. d. do any of the above. 18. In long-run equilibrium for a perfectly competitive firm, price equals which of the following? a. Economies of real cost. b. Maximum total revenue. c. Diseconomies of scale cost. d. Minimum point on the long-run average cost curve. 19. The long-run equilibrium condition for perfect competition is a. P=AVC - MR = MC. b. P = ATC=MR = MC. c. Q = AVC = MR = MC. d. Q = ATC = MR = MC. e. TR = ATC = MR = MC.

Answer 1

16. e
Firm earns zero economic profit when marginal cost is equal to average total cost.
17. c
In the long run firms earn zero economic profit which gives no incentive to enter or exit.

18. d
In the long run firms earn zero economic profit by charging price equal to average cost.
19. b