Question 1

When a purely competitive firm is in long-run equilibrium, price is equal to

Accepted Answer

A)   marginal cost but may be greater or less than average cost.
B)   minimum average cost and also to marginal cost.
C)   minimum average cost but may be greater or less than marginal cost.
D)   marginal revenue but may be greater or less than both average and marginal cost.

Question 2

Which of the following is not an assumption that we make in analyzing pure competition in the long run?

Accepted Answer

A)   Firms are free to enter into or exit from a purely competitive market.
B)   We may talk about a "representative" firm by assuming that competitive firms all have identical cost curves.
C)   Firms may increase output by expanding their plant sizes.
D)   Profits are not relevant to firm behavior anymore, because competitive firms earn zero profits in the long run.

Question 3

If there is allocative efficiency in a purely competitive market for a product, the maximum price consumers are willing to pay is

Accepted Answer

A)   less than marginal benefit.
B)   greater than marginal cost.
C)   equal to the amount of efficiency or deadweight losses.
D)   equal to the minimum price producers are willing to accept.

Question 4

Which of the following distinguishes the short run from the long run in pure competition?

Accepted Answer

A)   Firms can enter and exit the market in the long run but not in the short run.
B)   Firms attempt to maximize profits in the long run but not in the short run.
C)   Firms use the MR = MC rule to maximize profits in the short run but not in the long run.
D)   The quantity of labor hired can vary in the long run but not in the short run.

Question 5

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 6

Assume that a decline in consumer demand occurs in a purely competitive industry that is initially in long-run equilibrium. We can

Accepted Answer

A)   predict that the new price will be greater than the original price.
B)   predict that the new price will be less than the original price.
C)   predict that the new price will be the same as the original price.
D)   not compare the original and the new prices without knowing what cost conditions exist in the industry.

Question 7

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 8

Some economists are now proposing that patents may be detrimental to technological advance in industries with complicated multiple-component products.

Accepted Answer

A) True 
 B)False

Question 9

If the price in a competitive market falls and goes below the equilibrium price, then consumer surplus might increase, but producer surplus will definitely decrease.

Accepted Answer

A) True 
 B)False

Question 10

Creative destruction entails both costs as well as benefits to society.

Accepted Answer

A) True 
 B)False

Question 11

An underallocation of resources is occurring in a purely competitive industry whenever the price of the product is greater than marginal cost.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

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

Question 13

A long-run supply curve that is downward-sloping indicates that the firms' ATC curves

Accepted Answer

A)   shift up when the industry expands.
B)   shift down when the industry contracts.
C)   shift down when the industry expands.
D)   do not shift when the industry contracts.

Question 14

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 15

In the long run, pure competition forces firms to produce at the minimum possible average total cost and the firms will charge a product price equal to that cost.

Accepted Answer

A) True 
 B)False

Question 16

An increasing-cost industry is the result of

Accepted Answer

A)   higher resource prices that occur as the industry expands.
B)   a change in the industry's minimum efficient scale.
C)   X-inefficiency.
D)   the law of diminishing returns.

Question 17

If a purely competitive firm is currently facing a situation where the price of its product is lower than the average variable cost, but it believes that the market demand for its product will increase soon, then

Accepted Answer

A)   the firm will produce a low level of output in the short run and leave the industry in the long run.
B)   the firm will shut down in the short run and leave the industry in the long run.
C)   the firm will produce a low level of output in the short run but expand its plant in the long run as demand increases.
D)   the firm will shut down in the short run, but stay in the industry in the long run if it expects the product price to rise high enough soon.

Question 18

Entrepreneurs in purely competitive industries

Accepted Answer

A)   have no incentive to innovate because in the long run they will earn no economic profits.
B)   innovate to lower operating costs and generate short-run economic profits.
C)   utilize pricing strategies to generate short-run economic profits.
D)   rarely try to innovate because of a lack of financial resources.

Question 19

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 20

Productive efficiency refers to a condition where marginal cost is equal to marginal revenue in the long run.

Accepted Answer

A) True 
 B)False

Exam 11: Pure Competition in the Long Run

If a purely competitive firm is currently facing a situation where the price of its product is lower than the average variable cost, but it believes that the market demand for its product will increase soon, then

Correct AnswerverifiedShow Answer

If there is allocative efficiency in a purely competitive market for a product, the maximum price consumers are willing to pay is

Correct AnswerverifiedShow Answer

Assume that a decline in consumer demand occurs in a purely competitive industry that is initially in long-run equilibrium. We can

Correct AnswerverifiedShow Answer

In the long run, pure competition forces firms to produce at the minimum possible average total cost and the firms will charge a product price equal to that cost.

Correct AnswerverifiedShow Answer

An increasing-cost industry is the result of

Correct AnswerverifiedShow Answer

Creative destruction entails both costs as well as benefits to society.

Correct AnswerverifiedShow Answer

If the price in a competitive market falls and goes below the equilibrium price, then consumer surplus might increase, but producer surplus will definitely decrease.

Correct AnswerverifiedShow Answer

Which of the following is not an assumption that we make in analyzing pure competition in the long run?

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

An underallocation of resources is occurring in a purely competitive industry whenever the price of the product is greater than marginal cost.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When a purely competitive firm is in long-run equilibrium, price is equal to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following distinguishes the short run from the long run in pure competition?

Correct AnswerverifiedShow Answer

Entrepreneurs in purely competitive industries

Correct AnswerverifiedShow Answer

A long-run supply curve that is downward-sloping indicates that the firms' ATC curves

Correct AnswerverifiedShow Answer

Productive efficiency refers to a condition where marginal cost is equal to marginal revenue in the long run.

Correct AnswerverifiedShow Answer

Some economists are now proposing that patents may be detrimental to technological advance in industries with complicated multiple-component products.

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

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified