Question 1

2, A) resources are overallocated to this product and productive efficiency is not realized. B) resources are underallocated to this product and productive efficiency is not realized. C) productive efficiency is achieved, but resources are underallocated to this product. D) productive efficiency is achieved, but resources are overallocated to this product." class="answers-bank-image d-inline" rel="preload" > Refer to the diagram. At output level Q2,

Accepted Answer

A)  resources are overallocated to this product and productive efficiency is not realized.
B)  resources are underallocated to this product and productive efficiency is not realized.
C)  productive efficiency is achieved, but resources are underallocated to this product.
D)  productive efficiency is achieved, but resources are overallocated to this product.

Question 2

Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good and the market price of the product.

Accepted Answer

A) True 
 B)False

Question 3

Under what conditions would an increase in demand lead to a lower long-run equilibrium price?

Accepted Answer

A)  The firms in the market are part of a decreasing-cost industry.
B)  The firms in the market produce an inferior good.
C)  Potential new firms in the market are not attracted by economic profits.
D)  Increases in demand cannot lead to lower long-run equilibrium prices.

Question 4

If the price of bottled water is $2 and the marginal cost of producing it is $2.5,

Accepted Answer

A)  bottled water is being produced in an increasing-cost industry.
B)  society will realize a net gain if more bottled water is produced.
C)  resources are being overallocated to bottled water.
D)  resources are being underallocated to all other goods.

Question 5

An industry where a change in the number of firms does not affect the prices of the resources used in the industry will have a long-run supply curve that is

Accepted Answer

A)  vertical.
B)  horizontal.
C)  upsloping.
D)  downsloping.

Question 6

If a purely competitive increasing-cost industry is realizing economic losses, we can expect industry supply to

Accepted Answer

A)  decrease, output to fall, price to rise, and profits to rise.
B)  decrease, output to fall, price to fall, and profits to rise.
C)  increase, output to rise, price to fall, and profits to rise.
D)  decrease, output to rise, price to rise, and profits to rise.

Question 7

Allocative efficiency is achieved when the production of a good occurs where

Accepted Answer

A)  P = minimum ATC.
B)  P = MC.
C)  P = minimum AVC.
D)  total revenue is equal to TFC.

Question 8

Describe the transition of the music listening industry in terms of creative destruction.

Accepted Answer

Cassettes replaced records before being ...

Question 9

If a purely competitive constant-cost industry is realizing economic profits, we can expect industry supply to

Accepted Answer

A)  increase, output to rise, price to fall, and profits to fall.
B)  increase, output to rise, price to rise, and profits to fall.
C)  decrease, output to fall, price to rise, and profits to fall.
D)  increase, output to fall, price to fall, and profits to fall.

Question 10

What is the basic conclusion that is to be drawn from the chapter? On what two facts is this conclusion based?

Accepted Answer

The basic conclusion is that after all l...

Question 11

Suppose the table above represents the long-run cost structure for a firm in a perfectly competitive industry. Based on this information we can conclude that this firm operates in

Accepted Answer

A)  an industry incapable of reaching long-run equilibrium.
B)  a constant-cost industry.
C)  an increasing-cost industry.
D)  a decreasing- cost industry.

Question 12

The long-run supply curve under pure competition will be

Accepted Answer

A)  downward-sloping in a decreasing-cost industry and upward-sloping in an increasing-cost industry.
B)  horizontal in a constant-cost industry and downward-sloping in an increasing-cost industry.
C)  vertical in a constant-cost industry and upward-sloping in a decreasing-cost industry.
D)  upward-sloping in an increasing-cost industry and vertical in a constant-cost industry.

Question 13

If the price of product Y is $25 and its marginal cost is $18,

Accepted Answer

A)  Y is being produced with the least-cost combination of resources.
B)  society will realize a net gain if less of Y is produced.
C)  resources are being underallocated to Y.
D)  resources are being overallocated to Y.

Question 14

The primary force encouraging the entry of new firms into a purely competitive industry is

Accepted Answer

A)  normal profits earned by firms already in the industry.
B)  economic profits earned by firms already in the industry.
C)  government subsidies for start-up firms.
D)  a desire to provide goods for the betterment of society.

Question 15

The long-run supply curve would be perfectly elastic when

Accepted Answer

A)  an increase in demand does not cause a change in product price.
B)  an increase in demand causes an increase in product price.
C)  a decrease in demand causes an increase in short-run supply.
D)  a decrease in demand causes an increase in product price.

Question 16

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 17

Assume that the market for soybeans is purely competitive. Currently, firms growing soybeans are earning positive economic profits. In the long run, we can expect

Accepted Answer

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

Question 18

Which of the following statements is correct?

Accepted Answer

A)  Economic profits induce firms to enter an industry; losses encourage firms to leave.
B)  Economic profits induce firms to leave an industry; profits encourage firms to leave.
C)  Economic profits and losses have no significant impact on the growth or decline of an industry.
D)  Normal profits will cause an industry to expand.

Question 19

In purely competitive market, the entry and exit of firms will push price toward equality with marginal revenue.

Accepted Answer

A) True 
 B)False

Question 20

A constant-cost industry is one in which

Accepted Answer

A)  a higher price per unit will not result in an increased output.
B)  100 units can be produced for $100, then 150 can be produced for $150, 200 for $200, and so forth.
C)  the demand curve and therefore the unit price and quantity sold seldom change.
D)  the total cost of producing 200 or 300 units is no greater than the cost of producing 100 units.

Exam 11: Pure Competition in the Long Run

The long-run supply curve under pure competition will be

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Under what conditions would an increase in demand lead to a lower long-run equilibrium price?

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What is the basic conclusion that is to be drawn from the chapter? On what two facts is this conclusion based?

Correct AnswerverifiedThe basic conclusion is that after all l...View AnswerShow Answer

Assume that the market for soybeans is purely competitive. Currently, firms growing soybeans are earning positive economic profits. In the long run, we can expect

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If a purely competitive constant-cost industry is realizing economic profits, we can expect industry supply to

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If a purely competitive increasing-cost industry is realizing economic losses, we can expect industry supply to

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The primary force encouraging the entry of new firms into a purely competitive industry is

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In purely competitive market, the entry and exit of firms will push price toward equality with marginal revenue.

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Which of the following statements is correct?

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Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good and the market price of the product.

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Describe the transition of the music listening industry in terms of creative destruction.

Correct AnswerverifiedCassettes replaced records before being ...View AnswerShow Answer

If the price of product Y is $25 and its marginal cost is $18,

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A constant-cost industry is one in which

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The long-run supply curve would be perfectly elastic when

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

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An industry where a change in the number of firms does not affect the prices of the resources used in the industry will have a long-run supply curve that is

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Suppose the table above represents the long-run cost structure for a firm in a perfectly competitive industry. Based on this information we can conclude that this firm operates in

Correct AnswerverifiedShow Answer

Allocative efficiency is achieved when the production of a good occurs where

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If the price of bottled water is $2 and the marginal cost of producing it is $2.5,

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Refer to the diagram. At output level Q2,

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The basic conclusion is that after all l...
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Cassettes replaced records before being ...
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Refer to the diagram. At output level Q₂,

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