module 60 Long-Run Outcomes in Perfect Competition 607
Section
(^11)
(^) Market
(^) Structures:
(^) Perfect
(^) Competition
(^) and
(^) Monopoly
Tackle the Test: Free-Response Questions
- 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*
- 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.