2010 FRQ #1- Perfect Competition Graphs

The video tutorial discusses perfect competition, focusing on a 2010 exam question about corn production in a perfectly competitive market. It explains how to draw market and firm graphs, emphasizing the concept of a price taker and zero economic profit. The tutorial further explores the elasticity of demand curves and the impact of increased ethanol demand on corn prices and quantities. Finally, it examines how rising corn prices affect the cereal market, leading to decreased supply due to higher resource costs.

In a perfectly competitive market, what is the economic profit of a firm in the long run?

• Positive economic profit

• Variable economic profit

• Zero economic profit

• Negative economic profit

Why is Farmer Roy's demand curve considered perfectly elastic?

• Because he has a monopoly

• Because he can set his own prices

• Because he is a price maker

• Because he is a price taker

What happens to the market price and quantity of corn when the demand for ethanol increases?

• Price decreases, quantity decreases

• Price decreases, quantity increases

• Price increases, quantity increases

• Price increases, quantity decreases

How does an increase in the price of corn affect the supply of cereal?

• Supply increases

• Supply decreases

• Demand increases

• Demand decreases

If the price of a key resource increases, what is the likely effect on the supply curve?

• The supply curve shifts to the left

• The supply curve becomes vertical

• The supply curve shifts to the right

• The supply curve remains unchanged