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KEY QUESTION

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<ol><li><strong>5) <em>(KEY QUESTION) </em></strong>A small town is served by

many perfectly competing supermarkets, which have <em>constant </em>marginal cost. </li><li><strong>Using a diagram of the market for groceries, show the (long-run) equilibrium price and quantity. </strong></li><li><strong>Mark the deadweight loss in the picture and explain what it is. </strong></li><li><strong>Show the consumer and producer surplus in the figure, and explain what these terms mean<em>. </em></strong></li></ol>

 
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MULTIPLE CHOICE

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<ol><li><strong>4) </strong>MULTIPLE CHOICE (identify the one best answer below and

<em>explain your reasoning for each option</em>): <strong>Read the question carefully! </strong>If a profit-maximising, perfectly competitive firm is producing a quantity at which price is <em>higher </em>than average total cost but <em>lower </em>than average variable cost, then </li><li><strong>keep producing both in the short run and in the long run </strong></li><li><strong>keep producing in the short run but exit the market in the long run </strong></li><li><strong>shut down in the short run but return to production in the long run </strong></li><li><strong>shut down in the short run and exit the market in the long run </strong></li><li><strong>Such situation cannot occur. </strong></li></ol>

 
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firms

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<ol><li><strong>3) </strong>Indicate whether the following statement is TRUE or FALSE and

<em>explain your answer</em>: Since firms in perfect competition can enter and exit the market in the long run, their economic profits are zero in the long run. </li></ol>

 
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industries

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<ol><li><strong>1) </strong>Write down some examples of industries that are (close to)

perfectly competitive. What attributes do they have to be considered perfectly competitive? </li></ol>

 
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