competitive market

Several years ago, Alcoa was effectively the sole seller of aluminum because the firm owned nearly all of the aluminum ore reserves in the world. This market was not perfectly competitive because this situation violated the:

• A) price-taking assumption.

• B) homogeneous product assumption.

• C) free entry assumption.

• D) A and B are correct.

• E) A and C are correct.

Use the following statements to answer this question:

I. Markets that have only a few sellers cannot be highly competitive.

II. Markets with many sellers are always perfectly competitive.

• I and II are true.

• I is true and II is false.

• II is true and I is false.

• I and II are false.

Which of the following costs may provide barriers to entry in a market?

• A) High research and development expenditures

• B) License fees

• C) Sunk costs associated with specialized facilities

• D) A and C

• E) A, B and C

The shaded area in the graph shows:

• the increase in profit when output is reduced from 8 to 7 units of output.

• the profit that could be made if output increases from 7 to 8 units of output.

• the deadweight loss associated with the power of the price taking firm.

• the amount of profit when 8 units of output are produced.

The figure describes the cost and revenue structure of a perfectly competitive coffee farm, on a per-unit basis. What is the profit maximizing number of sacks when the price of coffee in the market is $380 dollars?

• 6 sacks

• 14 sacks

• 22 sacks

• 14 or 22 sacks

Use the following statements to answer this question:

I. Under perfect competition, an upward shift in the marginal cost curve (perhaps due to a higher price for a variable input) also shifts the average variable cost curve upward.

II. Under perfect competition, an upward shift in the marginal cost curve (perhaps due to a higher price for a variable input) reduces firm output but may increase firm profits.

• I and II are true.

• I is true and II is false.

• II is true and I is false.

• I and II are false.

In a supply-and-demand graph, producer surplus can be pictured as the:

• vertical intercept of the supply curve.

• area between the demand curve and the supply curve to the left of equilibrium output.

• area under the supply curve to the left of equilibrium output.

• area under the demand curve to the left of equilibrium output.

• area between the equilibrium price line and the supply curve to the left of equilibrium output.

An industry has 1000 competitive firms, each producing 50 tons of output. At the current market price of $10, half of the firms have a short-run supply curve with a slope of 1; the other half each have a short-run supply curve with slope 2. The short-run elasticity of market supply is:

• 1/50.

• 3/10

• 1/5

• 2/5

• 3/5

Imposition of an output tax on all firms in a competitive industry will result in:

• a downward shift in each firm's marginal cost curve.

• a downward shift in each firm's average cost curve.

• a leftward shift in the market supply curve.

• the entry of new firms into the industry.

• higher profits for the industry as price rises.

Suppose all firms have constant marginal costs that are the same for each firm in the short run. In this case, the market level supply curve is ________ and producer surplus equals ________.

• perfectly inelastic; fixed costs

• perfectly inelastic; zero

• perfectly elastic; fixed costs

• ) perfectly elastic; zero