Question 1

Assume that the market for corn is purely competitive.Currently, firms growing corn are suffering economic losses.In the long run, we can expect

Accepted Answer

A)  new firms to enter, causing the market price of corn to fall.
B)  new firms to enter, causing the market price of corn to rise.
C)  some firms to exit, causing the market price of corn to fall.
D)  some firms to exit, causing the market price of corn to rise.

Question 2

The "invisible hand" in a competitive market pushes the firms in the market to

Accepted Answer

A)  charge a price that is equal to their marginal revenue.
B)  produce an output level that allows them to earn some positive economic profits.
C)  use resources and produce output that maximize consumer and produce surplus.
D)  operate where their individual demand curve is above their long-run average cost curve.

Question 3

We would expect an industry to expand if firms in that industry are

Accepted Answer

A)  earning normal profits.
B)  earning economic profits.
C)  breaking even.
D)  earning accounting profits.

Question 4

An upward-sloping long-run supply curve indicates a constant-cost industry.

Accepted Answer

A) True 
 B)False

Question 5

The term productive efficiency refers to

Accepted Answer

A)  any short-run equilibrium position of a competitive firm.
B)  the production of the product mix most desired by consumers.
C)  the production of a good at the lowest average total cost.
D)  fulfilling the condition P = MC.

Question 6

The long-run market supply curve would be downward-sloping if the representative firms'

Accepted Answer

A)  demand curves shift up as the industry expands.
B)  ATC curves shift down as the industry expands.
C)  supply curves shift left as the industry expands.
D)  demand curves shift down as the industry expands.

Question 7

Purely competitive industry X has constant costs and its product is an inferior good.The industry is currently in long-run equilibrium.The economy now goes into a recession and average incomes decline.The result will be

Accepted Answer

A)  an increase in output and in the price of the product.
B)  an increase in output, but not in the price, of the product.
C)  a decrease in the output, but not in the price, of the product.
D)  a decrease in output and in the price of the product.

Question 8

If a purely competitive firm is producing where price exceeds marginal cost, then

Accepted Answer

A)  the firm will fail to maximize profit, but resources will be efficiently allocated.
B)  the firm will fail to maximize profit and resources will be overallocated to the product.
C)  the firm will fail to maximize profit and resources will be underallocated to the product.
D)  resources will be underallocated to the product, but the firm will maximize profit.

Question 9

Suppose that an industry's long-run supply curve is downsloping.This suggests that

Accepted Answer

A)  it is an increasing-cost industry.
B)  relevant inputs have become more expensive as the industry has expanded.
C)  technology has become less efficient as a result of the industry's expansion.
D)  it is a decreasing-cost industry.

Question 10

When a purely competitive firm is in long-run equilibrium, it is said to achieve allocative efficiency because

Accepted Answer

A)  total revenue is at a maximum.
B)  marginal cost equals marginal revenue.
C)  average cost equals marginal cost.
D)  average cost is at a minimum.

Question 11

If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then

Accepted Answer

A)  the selling price for this firm is above the market equilibrium price.
B)  new firms will enter this market.
C)  some existing firms in this market will leave.
D)  there must be price fixing by the industry's firms.

Question 12

It is possible for a competitive firm that is maximizing profits in the short run to make its profits even bigger in the long run by expanding its plant, assuming that the product price stays the same.

Accepted Answer

A) True 
 B)False

Question 13

Assume that society places a higher value on the last unit of X produced than the value of the resources used to produce that unit.With no spillovers, this information means that

Accepted Answer

A)  total cost is greater than total revenue.
B)  price is greater than marginal cost.
C)  marginal cost is greater than price.
D)  resources are being overallocated to X.

Question 14

Assume a purely competitive, increasing-cost industry is in long-run equilibrium.If a decline in demand occurs, firms will

Accepted Answer

A)  leave the industry, price will decrease, and quantity produced will increase.
B)  enter the industry and price and quantity will both increase.
C)  leave the industry and price and output will both increase.
D)  leave the industry and price and output will both decline.

Question 15

Long-run competitive equilibrium

Accepted Answer

A)  is realized only in constant-cost industries.
B)  will never change once it is realized.
C)  is not economically efficient.
D)  results in zero economic profits.

Question 16

When a competitive firm sees the price fall below the minimum possible average total cost in the long run, then it will decide that it could do better by moving to a different industry.

Accepted Answer

A) True 
 B)False

Question 17

Creative destruction is something that our society should try to avoid, through government regulation of business.

Accepted Answer

A) True 
 B)False  False

Question 18

Allocative efficiency is achieved by equalizing consumer surplus and producer surplus.

Accepted Answer

A) True 
 B)False  False

Question 19

Assume a purely competitive decreasing-cost industry is initially in long-run equilibrium but then there is a decrease in market demand for the product.After all economic adjustments to this new situation have taken place, product price will be

Accepted Answer

A)  higher, but total output will be lower.
B)  lower, and total output will be lower.
C)  higher, and total output will be higher.
D)  lower, but total output will be higher.

Question 20

Under pure competition, in the long run

Accepted Answer

A)  neither allocative efficiency nor productive efficiency is achieved.
B)  both allocative efficiency and productive efficiency are achieved.
C)  productive efficiency is achieved, but allocative efficiency is not.
D)  allocative efficiency is achieved, but productive efficiency is not. B

Exam 11: Pure Competition in the Long Run

Assume that the market for corn is purely competitive.Currently, firms growing corn are suffering economic losses.In the long run, we can expect

Correct AnswerverifiedShow Answer

The "invisible hand" in a competitive market pushes the firms in the market to

Correct AnswerverifiedShow Answer

We would expect an industry to expand if firms in that industry are

Correct AnswerverifiedShow Answer

An upward-sloping long-run supply curve indicates a constant-cost industry.

Correct AnswerverifiedShow Answer

The term productive efficiency refers to

Correct AnswerverifiedShow Answer

The long-run market supply curve would be downward-sloping if the representative firms'

Correct AnswerverifiedShow Answer

Purely competitive industry X has constant costs and its product is an inferior good.The industry is currently in long-run equilibrium.The economy now goes into a recession and average incomes decline.The result will be

Correct AnswerverifiedShow Answer

If a purely competitive firm is producing where price exceeds marginal cost, then

Correct AnswerverifiedShow Answer

Suppose that an industry's long-run supply curve is downsloping.This suggests that

Correct AnswerverifiedShow Answer

When a purely competitive firm is in long-run equilibrium, it is said to achieve allocative efficiency because

Correct AnswerverifiedShow Answer

If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then

Correct AnswerverifiedShow Answer

It is possible for a competitive firm that is maximizing profits in the short run to make its profits even bigger in the long run by expanding its plant, assuming that the product price stays the same.

Correct AnswerverifiedShow Answer

Assume that society places a higher value on the last unit of X produced than the value of the resources used to produce that unit.With no spillovers, this information means that

Correct AnswerverifiedShow Answer

Assume a purely competitive, increasing-cost industry is in long-run equilibrium.If a decline in demand occurs, firms will

Correct AnswerverifiedShow Answer

Long-run competitive equilibrium

Correct AnswerverifiedShow Answer

When a competitive firm sees the price fall below the minimum possible average total cost in the long run, then it will decide that it could do better by moving to a different industry.

Correct AnswerverifiedShow Answer

Creative destruction is something that our society should try to avoid, through government regulation of business.

Correct AnswerverifiedFalse

Allocative efficiency is achieved by equalizing consumer surplus and producer surplus.

Correct AnswerverifiedFalse

Assume a purely competitive decreasing-cost industry is initially in long-run equilibrium but then there is a decrease in market demand for the product.After all economic adjustments to this new situation have taken place, product price will be

Correct AnswerverifiedShow Answer

Under pure competition, in the long run

Correct AnswerverifiedB

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False

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B