Question 1

After long-run adjustments, a purely competitive market achieves

Accepted Answer

A)   productive efficiency but not necessarily allocative efficiency.
B)   allocative efficiency but not necessarily productive efficiency.
C)   either productive efficiency or allocative efficiency, but not both.
D)   both productive and allocative efficiency.

Question 2

The difference between the actual price that a producer receives and the minimum acceptable price a producer is willing to accept is

Accepted Answer

A)   the consumer surplus.
B)   the producer surplus.
C)   allocative efficiency.
D)   productive efficiency.

Question 3

Innovations that lower production costs or create new products

Accepted Answer

A)   are rare in competitive industries.
B)   discourage new firms from entering the industry.
C)   often generate short-run economic profits that do not last into the long run.
D)   usually generate long-run economic profits for the innovator.

Question 4

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 5

A decreasing-cost industry is one in which

Accepted Answer

A)   contraction of the industry will decrease unit costs.
B)   input prices fall or technology improves as the industry expands.
C)   the long-run supply curve is perfectly elastic.
D)   the long-run supply curve is upsloping.

Question 6

In long-run equilibrium, a purely competitive firm will operate where price is

Accepted Answer

A)   greater than MR but equal to MC and minimum ATC.
B)   greater than MR and MC, but equal to minimum ATC.
C)   greater than MC and minimum ATC, but equal to MR.
D)   equal to MR, MC, and minimum ATC.

Question 7

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

Accepted Answer

A)   marginal revenue exceeds marginal cost.
B)   price equals marginal cost.
C)   total revenue exceeds total cost.
D)   minimum average total cost is less than the product price.

Question 8

The operation of the invisible hand means the pursuit of private interests promotes social interests in pure competition.

Accepted Answer

A) True 
 B)False

Question 9

When a competitive firm is in long-run equilibrium, its accounting profits are greater than zero.

Accepted Answer

A) True 
 B)False

Question 10

Balin's Burger Barn operates in a perfectly competitive market. Balin's is currently earning economic profits of $20,000 per year. Based on this information, we can conclude that

Accepted Answer

A)   Balin's profits will discourage new firms from entering.
B)   Balin's will increase its market price over the coming months.
C)   Balin's is operating in the short run, but not the long run.
D)   Balin's is operating in the long run.

Question 11

A firm is producing an output such that the benefit from one more unit is more than the cost of producing that additional unit. This means the firm is

Accepted Answer

A)   producing more output than allocative efficiency requires.
B)   producing less output than allocative efficiency requires.
C)   achieving productive efficiency.
D)   producing an inefficient output, but we cannot say whether output should be increased or decreased.

Question 12

Because the equilibrium position of a purely competitive seller entails an equality of price and marginal costs, competition produces an efficient allocation of economic resources.

Accepted Answer

A) True 
 B)False

Question 13

Which statement is correct? The long-run supply curve for a purely competitive

Accepted Answer

A)   decreasing-cost industry will be upward-sloping.
B)   increasing-cost industry will be perfectly elastic.
C)   increasing-cost industry will be upward-sloping.
D)   increasing-cost industry will be less elastic than the short-run supply curve.

Question 14

If the long-run supply curve is upward-sloping, it indicates that resource prices fall when

Accepted Answer

A)   production in the industry decreases in the long run.
B)   production in the industry increases in the long run.
C)   new firms enter the industry.
D)   short-run profits in the industry are positive.

Question 15

Assume a purely competitive increasing-cost industry is initially in long-run equilibrium and that an increase in consumer demand occurs. After all economic adjustments have been completed, product price will be

Accepted Answer

A)   lower, but total output will be larger than originally.
B)   higher, and total output will be larger than originally.
C)   lower, and total output will be smaller than originally.
D)   higher, but total output will be smaller than originally.

Question 16

(Consider This)  Approximately what percentage of start-up firms in the United States go bankrupt within the first two years?

Accepted Answer

A)   9.5
B)   10.2
C)   22
D)   53

Question 17

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 18

The process by which new firms and new products replace existing dominant firms and products is called

Accepted Answer

A)   monopolistic competition.
B)   mergers and acquisitions.
C)   process innovation.
D)   creative destruction.

Question 19

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 20

The MR = MC rule applies

Accepted Answer

A)   in the short run but not in the long run.
B)   in the long run but not in the short run.
C)   in both the short run and the long run.
D)   only to a purely competitive firm.

Exam 11: Pure Competition in the Long Run

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

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Balin's Burger Barn operates in a perfectly competitive market. Balin's is currently earning economic profits of $20,000 per year. Based on this information, we can conclude that

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After long-run adjustments, a purely competitive market achieves

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Assume a purely competitive increasing-cost industry is initially in long-run equilibrium and that an increase in consumer demand occurs. After all economic adjustments have been completed, product price will be

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The MR = MC rule applies

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A decreasing-cost industry is one in which

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Which statement is correct? The long-run supply curve for a purely competitive

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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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If the long-run supply curve is upward-sloping, it indicates that resource prices fall when

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The operation of the invisible hand means the pursuit of private interests promotes social interests in pure competition.

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(Consider This) Approximately what percentage of start-up firms in the United States go bankrupt within the first two years?

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

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Long-run competitive equilibrium

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In long-run equilibrium, a purely competitive firm will operate where price is

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The process by which new firms and new products replace existing dominant firms and products is called

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A firm is producing an output such that the benefit from one more unit is more than the cost of producing that additional unit. This means the firm is

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Innovations that lower production costs or create new products

Correct AnswerverifiedShow Answer

Because the equilibrium position of a purely competitive seller entails an equality of price and marginal costs, competition produces an efficient allocation of economic resources.

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When a competitive firm is in long-run equilibrium, its accounting profits are greater than zero.

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The difference between the actual price that a producer receives and the minimum acceptable price a producer is willing to accept is

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