33) u) Assume that all firms in this industry have identical cost curves and tha

Question

33) u) Assume that all firms in this industry have identical cost curves and that the market is perfectly competitive. Entire Market Single Representative Firm 2s 25 s2 20 15 10t K 10 S2 MC 20 ATC 53 AVC 200 250 300 350 400 450 0 15 20 25 30 35 40 45 S Quantity (Number of Units) Quantity (Number of Units) The firm depicted in the graph on the right faces a demand curve that is: A) horizontal at the market price. B) the same as the marginal cost curve. C) the same as the market demand curve. D) less than the market demand curve. 34) Factors of production are the most likely to earn economic rent when they: B) are used by many different firms. D) cannot easily be duplicated. A) are fixed in the short run. C) have high reservation prices 35) Ingrid has been waiting for the show "Mamma Mia!" to come to town. When it finally does come, tickets cost $60. Ingrid's reservation price is $75. But when Ingrid tries to buy a ticket, they are sold out. Ingrid decides to try to buy a ticket from a scalper (a person who purchased extra tickets at the box office with the intent to resell them at a higher price). If Ingrid finds someone who is willing to sell her a ticket for $70, she should: A) not purchase the ticket because it is overpriced B) purchase the ticket even though doing reduce total economic surplus. C) not purchase the ticket because the cost to the scalper was only $60. D) purchase the ticket because doing so will make her $5 better off.

Explanation / Answer

33. Option A. Horizontal at the market price.

Explanation: A firm in the perfectly competitive market is a price taker and it does not have any market power. It can sell goods only at the existing market price. It will lose all customers and face zero demand even if the perfectly competitive firm increases the price slightly. Therefore, the demand curve faced by a perfectly competitive firm is horizontal at the market price.

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