Perfect Competition and Market Dynamics

The video tutorial covers the concept of profit maximization in a perfectly competitive market. It explains the equilibrium between market and firm prices, emphasizing the role of firms as price takers. The tutorial provides guidance on graphing market and firm dynamics, calculating profit and total cost, and understanding the impact of price changes on revenue. It also discusses the effects of government subsidies on long-run market equilibrium, highlighting how these can attract new firms and alter market dynamics.

In a perfectly competitive market, how does the market price compare to the firm's price?

• Market price is higher than the firm's price.

• Market price is lower than the firm's price.

• Market price fluctuates independently of the firm's price.

• Market price is equal to the firm's price.

What does the side-by-side graph for the market and firm illustrate?

• Only the firm's supply curve.

• The firm's losses over time.

• Market price and quantity, and firm's economic profits.

• Only the market demand curve.

How is total revenue calculated in a perfectly competitive market?

• Price times quantity.

• Price plus quantity.

• Price divided by quantity.

• Quantity minus price.

What happens to a firm's total revenue if it raises its price in a perfectly competitive market?

• Total revenue increases.

• Total revenue decreases slightly.

• Total revenue drops to zero.

• Total revenue remains the same.

In long-run equilibrium, what must the average total cost (ATC) do?

• Touch the profit-maximizing point.

• Be above the market price.

• Be below the marginal cost.

• Equal the firm's total revenue.

How do lump sum subsidies affect a firm's marginal cost curve?

• They eliminate the marginal cost.

• They decrease the marginal cost.

• They increase the marginal cost.

• They do not affect the marginal cost.

What is the short-run effect of a lump sum subsidy on a firm's quantity?

• Quantity becomes zero.

• Quantity increases.

• Quantity decreases.

• Quantity remains the same.

What long-run market change occurs when firms make profits due to subsidies?

• New firms enter the market.

• Supply decreases.

• Firms exit the market.

• Demand decreases.

In the long run, what happens to the market price when new firms enter due to subsidies?

• Price increases.

• Price decreases.

• Price remains constant.

• Price becomes unpredictable.

What is the overall effect on quantity in the long run when subsidies attract new firms?

• Quantity remains the same.

• Quantity decreases.

• Quantity increases.

• Quantity becomes zero.