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LOS c: Describe a perfectly competitive firm's short-run supply curve and explain the impact of changes in demand, entry and exit of firms, and changes in plant size on the long-run equilibrium.

The short-run supply curve for a price taker firm is the portion of the marginal cost (MC) curve:

A)	below the average variable cost (AVC) curve.

B)	above the average variable cost (AVC) curve.

C)	above the average total cost (ATC) curve.

The short-run supply curve for a firm is its MC curve above the AVC curve. Price takers will produce where price (P) equals MC. At prices below the AVC curve the firm will not be able to remain in operation. Above the ATC curve the firm is making economic profits and will continue to expand production along the MC curve.

The short-run supply curve for a firm in a perfectly competitive market is equal to the firm's:

The short-run supply curve for a firm in a perfectly competitive market is equal to the firm's MC curve. A price taker will maximize profits when it produces the output level where P = MC. As price rises, its point of intersection with the MC curve indicates optimal production.

Under perfect competition, the short-run market supply curve is most accurately described by which of the following statements? The market short-run supply curve is the:

A)	sum of the quantities at each price along the average total cost curve for all firms in a given industry.

B)	sum of the quantities at each price along the marginal cost curves for all firms in a given industry.

C)	average of the quantities at each price along the marginal cost curve for all firms in a given industry.

The short-run market supply curve is the horizontal sum of the marginal cost curves for all firms in a given industry. It is the sum of all quantities from all firms at each price along each firm’s marginal cost curve.

The short-run supply curve to a firm operating under perfect competition is most accurately described as the segment of the:

A)	marginal cost (MC) curve below the average total cost (ATC) curve.

B)	average total cost (ATC) curve above the average variable cost (AVC) curve.

C)	marginal cost (MC) curve above the average variable cost (AVC) curve.

The short-run supply curve for a firm under perfect competition is the segment of its MC curve above the AVC curve.

In a perfectly competitive industry, the short-run supply curve for the market is the:

A)	sum of the individual supply curves for all firms in the industry.

B)	marginal cost curve above the average total cost curve.

C)	marginal cost curve above the average variable cost curve.

The short-run supply curve for a firm is its marginal cost curve above the average variable cost curve. The short-run supply curve of the market is the sum of the supply curves for all firms in the industry.

If the market demand for a product increases in a competitive market, then price:

A)	and quantity will increase.

B)	will increase and quantity will decrease.

C)	will decrease and quantity will increase.

If the market demand for a product increases in a competitive market, then the equilibrium price and equilibrium quantity supplied will increase.

Which of the following is most likely the long-term adjustment in a perfectly competitive industry that is characterized by firms incurring economic losses?

A)	Equilibrium price will decrease.

B)	The industry supply curve will shift downward and to the right.

C)	Some existing firms will exit the market.

Some of the existing firms will exit the market, leading to a decrease in industry supply and an increase in equilibrium price. Eventually, the remaining firms in the industry will increase output at the higher market price until economic profit equals zero.

A)	is a horizontal line.

B)	slopes downward to the right.

C)	slopes upward to the right.

The short-run supply curve for a purely competitive market slopes upward to the right. This reflects the fact that firms in the industry will produce more when the price rises.

For a perfectly competitive firm in the short-run, what will be the effect of an increase in market demand on equilibrium price and quantity, respectively?

In the short run, an increase in market demand (a shift to the right) will increase both equilibrium price and quantity.

The fact that firms can make more adjustments to production methods in the long run gives the firm:

A)	the ability to quickly adjust output.

B)	a long-run supply curve that is steeper than its short-run supply curve.

C)	a long-run supply curve that is more elastic than its short-run supply curve.

Firms can adjust the fixed nature of their production costs in the long run through the purchase or sale of fixed assets. Therefore, it costs less to adjust output slowly in response to a change in demand. In the long run, there will be a greater change in the quantity supplied for a given change in price. This is because in the long run firms can change their production capacity.

The long-run supply curve is more elastic and flatter than the short-run supply curve. In the long run, firms in an industry can adjust their production methods and scale.

Which of the following is least likely a characteristic of the long-run industry supply curve?

A)	The long-run supply curve is flatter than the short-run supply curve.

B)	The long-run supply curve is less elastic than the short run supply curve.

C)	In the long run, there will be a greater change of quantity supplied for a given price change, than in the short run.

The long-run supply curve is more elastic and flatter than the short-run supply curve. In the long-run, firms have greater flexibility to alter production scale and methods. Both remaining items in this question are true for the long-run supply curve.

A)	long-run supply curve for constant cost industries is horizontal.

B)	supply curve for the market is typically more elastic over the short run than the long run.

C)	long-run supply curve for decreasing cost industries slopes downward to the right.

The supply curve for products is typically more elastic over a longer time period than over a shorter period.