ECO3600-01
Quiz #10 (10 points) NAME:__________________________________
True/False (1 point each)
___1) Short run market supply in a perfectly competitive market is the summation of the marginal
cost curves of all the individual firms.
___2) The long run market supply curve in a perfectly competitive market is likely to be highly
inelastic.
Multiple Choice (1 point each)
___3) Product homogeneity implies that
a) consumers only care about the price.
b) consumers know automatically which seller produces the highest quality goods.
c) the demand curve a competitive firm faces is downward sloping.
d) consumers can judge quality by price.
___4) Free entry and exit does not exist when
a) there is no differential impediments across firms in the mobility of resources into and out of
an industry.
b) a firm experiences economies of scale.
c) an incumbent firm has an exclusive government patent.
d) a firm experiences diseconomies of scale.
___5) A competitive firm maximizes profit at the output level where
a) price minus average total cost is the largest.
b) the slope of total revenue equals the slope of total cost.
c) average total cost equals marginal cost.
d) marginal revenue exceeds marginal cost by the greatest amount.
___6) In the short run, if price falls, the firm will respond by
a) shutting down.
b) equating average variable cost to marginal revenue.
c) reducing output along its marginal cost curve as long as marginal revenue exceeds
average variable cost.
d) none of the above.
Short Answer: (4 points) Starting in initial long run equilibrium, graph the short run effects of
an increase in demand. Then describe the long run effects. Assume this is a perfectly
competitive, constant cost industry.
Graphs: Explain:
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