Lesson test: Competition and supply

Sign in

Libre University uses your GitHub account. Signing in is only needed to sit a final test, so the score is kept on your profile.

Competition and supply

1.[2p]
A price-taking firm has $C (q) = 500 + 5 q + 0.05 q^{2}$ and faces a price of £25. How many units does it produce?

CorrectNot quite: 200

2.[3p]
The same firm faces a price of £8. What is its profit, as a signed number in pounds?

CorrectNot quite: -455

3.[3p]
Why does the shutdown decision compare price with average variable cost rather than average total cost?

Fixed cost is paid whether or not the firm operates, so it cancels between the two branches

Correct

Average total cost is not known in the short run

The answer is: Fixed cost is paid whether or not the firm operates, so it cancels between the two branches

Variable cost is the only cost that appears in marginal cost

The answer is: Fixed cost is paid whether or not the firm operates, so it cancels between the two branches

Firms always cover their fixed costs from other products

The answer is: Fixed cost is paid whether or not the firm operates, so it cancels between the two branches

4.[1p]
Only the rising portion of the marginal cost curve can be a supply curve.

True

Correct

False

The answer is: True

5.[3p]
One hundred firms each with supply $q = 10 (p - 5)$ face demand $Q = 25000 - 500 p$ . What is the equilibrium price in pounds?

CorrectNot quite: 20

6.[3p]
In long-run competitive equilibrium, why must price equal the minimum of average total cost?

Profit maximisation gives $p = MC$ and free entry gives $p = ATC$ , and these agree only at the minimum of ATC

Correct

Firms choose the output that minimises average cost regardless of price

The answer is: Profit maximisation gives $p = \mathrm{MC}$ and free entry gives $p = \mathrm{ATC}$, and these agree only at the minimum of ATC

Consumers refuse to pay more than average cost

The answer is: Profit maximisation gives $p = \mathrm{MC}$ and free entry gives $p = \mathrm{ATC}$, and these agree only at the minimum of ATC

Marginal cost is constant in the long run

The answer is: Profit maximisation gives $p = \mathrm{MC}$ and free entry gives $p = \mathrm{ATC}$, and these agree only at the minimum of ATC

7.[3p]
Which conditions are conventionally required for price taking?

Select all that apply

Many buyers and sellers, each small relative to the market

Correct

A homogeneous product

Correct

Free entry and exit in the long run

Correct

Market demand for the product is elastic

The answer is: Many buyers and sellers, each small relative to the market, A homogeneous product, Free entry and exit in the long run

8.[2p]
What did Baumol, Panzar and Willig argue in 1982?

A market with few firms can behave competitively if entry is free and exit is costless

Correct

Perfect competition requires at least fifty firms

The answer is: A market with few firms can behave competitively if entry is free and exit is costless

Contestable markets always contain a single firm

The answer is: A market with few firms can behave competitively if entry is free and exit is costless

Free entry is irrelevant once fixed costs are sunk

The answer is: A market with few firms can behave competitively if entry is free and exit is costless

9.[3p]
Match each condition to what it determines.

$p = MC$
$p < AVC$
$p < ATC$
$MC = \min ATC$

shut down in the short run
the long-run equilibrium price
how much to produce now
leave the industry in the long run

Show the answer

$p = MC$ : how much to produce now $p < AVC$ : shut down in the short run $p < ATC$ : leave the industry in the long run $MC = \min ATC$ : the long-run equilibrium price

1.[2p] A price-taking firm has C(q)=500+5q+0.05q2 and faces a price of £25. How many units does it produce?

2.[3p] The same firm faces a price of £8. What is its profit, as a signed number in pounds?

3.[3p] Why does the shutdown decision compare price with average variable cost rather than average total cost?

4.[1p] Only the rising portion of the marginal cost curve can be a supply curve.

5.[3p] One hundred firms each with supply q=10(p-5) face demand Q=25000-500p. What is the equilibrium price in pounds?

6.[3p] In long-run competitive equilibrium, why must price equal the minimum of average total cost?

7.[3p] Which conditions are conventionally required for price taking?

8.[2p] What did Baumol, Panzar and Willig argue in 1982?

9.[3p] Match each condition to what it determines.

1.[2p]
A price-taking firm has $C (q) = 500 + 5 q + 0.05 q^{2}$ and faces a price of £25. How many units does it produce?

2.[3p]
The same firm faces a price of £8. What is its profit, as a signed number in pounds?

3.[3p]
Why does the shutdown decision compare price with average variable cost rather than average total cost?

4.[1p]
Only the rising portion of the marginal cost curve can be a supply curve.

5.[3p]
One hundred firms each with supply $q = 10 (p - 5)$ face demand $Q = 25000 - 500 p$ . What is the equilibrium price in pounds?

6.[3p]
In long-run competitive equilibrium, why must price equal the minimum of average total cost?

7.[3p]
Which conditions are conventionally required for price taking?

8.[2p]
What did Baumol, Panzar and Willig argue in 1982?

9.[3p]
Match each condition to what it determines.