Q4. In a CFA study seminar, the following comments were made:

Comment 1: “In the short run, an increase in demand in a perfectly competitive industry will result in negative economic profit for some firms in the industry.”

Comment 2: “In the long run, a permanent increase in demand in a perfectly competitive industry will result in zero economic profit for the firms in the industry.”

With respect to these comments:

A)   both are correct.

B)   both are incorrect.

C)   only one is correct.

Q5. If the market demand for a product decreases in a competitive market, then the quantity supplied by an individual firm will:

A)   decrease and firms will exit the market in the long run.

B)   decrease and firms will enter the market in the long run.

C)   increase and firms will enter the market in the long run.

Q6. A technology that all of the firms in a perfectly competitive industry are using in their production process has been banned by new legislation. What will most likely be the effect if these firms stop using this technology?

A)   Firms will adopt a different technology that reduces their costs of production.

B)   The quantity that the industry will supply at a given price will be reduced.

C)   Profit will no longer be maximized at the level of output where marginal cost is equal to the market price.

[此贴子已经被作者于2009-1-6 13:53:11编辑过]

答案和详解如下：

Q4. In a CFA study seminar, the following comments were made:

Comment 1: “In the short run, an increase in demand in a perfectly competitive industry will result in negative economic profit for some firms in the industry.”

Comment 2: “In the long run, a permanent increase in demand in a perfectly competitive industry will result in zero economic profit for the firms in the industry.”

With respect to these comments:

A)   both are correct.

B)   both are incorrect.

C)   only one is correct.

Correct answer is C)

Comment 1 is incorrect because an increase in industry demand will increase equilibrium price and output. At the higher price, firms will earn positive economic profits in the short run because the higher price will exceed average total cost. Over the long run, however, new firms will enter the market to exploit the positive economic profits, causing prices to decline until all firms are again earning zero economic profit.

Q5. If the market demand for a product decreases in a competitive market, then the quantity supplied by an individual firm will:

A)   decrease and firms will exit the market in the long run.

B)   decrease and firms will enter the market in the long run.

C)   increase and firms will enter the market in the long run.

Correct answer is A)

If the market demand for a product decreases in a competitive market, then the quantity supplied by an individual firm will decrease and firms will exit the market in the long run because the price will be less than average total costs.

Q6. A technology that all of the firms in a perfectly competitive industry are using in their production process has been banned by new legislation. What will most likely be the effect if these firms stop using this technology?

A)   Firms will adopt a different technology that reduces their costs of production.

B)   The quantity that the industry will supply at a given price will be reduced.

C)   Profit will no longer be maximized at the level of output where marginal cost is equal to the market price.

Correct answer is B)

If all the firms in a competitive industry have adopted a technology for production, it is presumably the technology that minimizes their production costs . If that technology is outlawed, firms will have to revert to the second-best technology, which will increase their costs of production. This is represented by a shift to the left in the industry supply curve. At each price level, the quantity supplied will be less than before.

Just as a technological improvement will cause firms that adopt it early to earn economic profits that attract new entrants to the industry, prohibition of the cost-minimizing technology will cause economic losses and typically force some firms to exit the industry. Under perfect competition, profit is always maximized at the level of output where marginal cost equals the market price. The state of technology is one factor that determines the level of output at which this occurs.

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