AP_Krugman_Textbook

module 60 Long-Run Outcomes in Perfect Competition 607

Section

(^11)
(^) Market
(^) Structures:
(^) Perfect
(^) Competition
(^) and
(^) Monopoly
Tackle the Test: Free-Response Questions

1. Draw a correctly labeled graph showing a perfectly competitive
   firm in long-run equilibrium.

Answer (7 points)

1 point:Axes are correctly labeled.

1 point:Demand curve is horizontal and labeled with some combination of “P,”
“MR,”or “D.”

1 point:Marginal cost curve is labeled and slopes upward.

1 point:Profit-maximizing quantity is labeled on horizontal axis where MC =
MR.

1 point:Average total cost curve is labeled and U–sha ped.

1 point:Average total cost is equal to price at the profit-maximizing output

1 point:Marginal cost curve crosses the average total cost curve at the lowest
point on the average total cost curve

Price,
cost

Quantity

MC

ATC

MR = P = D

Q*

2. Draw correctly labeled side-by-side graphs to show the
   long-run adjustment that would take place if perfectly
   competitive firms were earning a profit.