DP Economics Questionbank

On Figure 2, draw and label appropriate additional curves to show how a perfectly competitive market will move from short-run equilibrium to long-run equilibrium.

Using your answer to part (c)(ii), explain how the market adjustment takes place.

Using the relationship P = AR > MR > AC > MC and/or figures provided in Table 1:

Determine whether Firm A is productively efficient at the current level of output. You must give a reason for your choice.

Using the relationship P = AR > MR > AC > MC and/or figures provided in Table 1:

Explain why allocative efficiency is achieved, in the absence of externalities, at a level of output where price (average revenue) is equal to marginal cost.

Using a perfectly competitive firm diagram, explain the effect of declining prices of coffee beans on the profits of Honduras’ coffee farmers in the short run (paragraph [2]).

Using a perfect competition diagram, explain whether farmers in the Philippines are making an economic profit or loss (Table 1).

Explain why a loss-making firm in perfect competition would shut down in the long run.

Identify the level of output at which the firm would achieve productive efficiency.

Using this information, draw and label the average revenue curve on Figure 2.

(ii) Using Figure 2, identify the quantity of cans per month Firm B must produce in order to maximize profits.

(iii) Calculate the economic profit when Firm B is producing at the output level identified in part (ii).

State two characteristics of a perfectly competitive market.