CLEP Microeconomics chapter practice4 questions

21 Competitive Markets in the Short Run and Long Run

These questions come directly from the chapter practice in the book. Choose the best answer, check your reasoning, and use the explanation to correct any gap.

Question 1

Question 1 of 4

Competitive firms are earning positive economic profit. In a constant-cost industry, long-run adjustment will tend to

Profit attracts entry. The resulting increase in industry supply lowers market price until economic profit is eliminated.
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C. attract entry, increase market supply, and lower price

Profit attracts entry. The resulting increase in industry supply lowers market price until economic profit is eliminated.

Question 2

Question 2 of 4

Competitive firms are incurring losses but covering average variable cost. What is the expected long-run response?

Persistent losses induce exit, reducing market supply and raising price for firms that remain.
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D. Some firms exit, shifting market supply left.

Persistent losses induce exit, reducing market supply and raising price for firms that remain.

Question 3

Question 3 of 4

After entry and exit have ended in a constant-cost competitive industry, which set of equalities describes a representative firm?

Price taking gives P=MR=MC, while free entry and exit drive price to minimum ATC and economic profit to zero.
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D. P=MC= ATC

Price taking gives P=MR=MC, while free entry and exit drive price to minimum ATC and economic profit to zero.

Question 4

Question 4 of 4

Market demand for a constant-cost competitive product increases. Compared with the original equilibrium, after full long-run adjustment

Entry expands industry output and restores the original constant-cost price; the long-run industry has more firms.
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D. price is unchanged and the industry contains more firms

Entry expands industry output and restores the original constant-cost price; the long-run industry has more firms.

Quiz complete