Question 1

When there is allocative efficiency in a purely competitive market for a product, the minimum price producers are willing to accept 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 maximum price consumers are willing to pay.

Question 2

If the long-run supply curve of a purely competitive industry slopes upward, this implies that the prices of relevant resources

Accepted Answer

A)   will fall as the industry expands.
B)   are constant as the industry expands.
C)   rise as the industry contracts.
D)   rise as the industry expands.

Question 3

With the creation and growth of the Internet, vacationers can now book their own flights, hotels, rental cars, and other travel logistics online. If this capability resulted in creative destruction, which of the following industries would we have expected to decline the most as a result?

Accepted Answer

A)   airlines
B)   travel agencies
C)   tourist information
D)   hotels

Question 4

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 5

Which of the following will not hold true for a competitive firm in long-run equilibrium?

Accepted Answer

A)   P equals AFC.
B)   P equals minimum ATC.
C)   MC equals minimum ATC.
D)   P equals MC.

Question 6

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 7

Which of the following statements is true for a long-run supply curve that slopes upward?

Accepted Answer

A)   If total market output is increased, unit costs of production increase.
B)   If total market output is unchanged, unit costs of production increase.
C)   The total cost of producing 15 units is no larger than the cost of producing 10 units.
D)   If total market output is decreased, total costs of production will remain unchanged.

Question 8

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 9

Suppose an increase in product demand occurs in a decreasing-cost industry. As a result,

Accepted Answer

A)   the new long-run equilibrium price will be lower than the original long-run equilibrium price.
B)   equilibrium quantity will decline.
C)   firms will eventually leave the industry.
D)   the new long-run equilibrium price will be higher than the original price.

Question 10

Resources are efficiently allocated when production occurs at that output at which

Accepted Answer

A)   P equals MR.
B)   P equals AVC.
C)   P exceeds MR.
D)   P equals MC.

Question 11

The plusses and minuses of the patent system include the following except

Accepted Answer

A)   giving inventors an incentive to bear the research and development costs of new products.
B)   allowing stodgy old firms to survive longer than they should against innovative rivals.
C)   preventing the existence of "patent trolls" or firms whose main purpose is to sue companies.
D)   possibly hindering creative destruction, especially in complex products that encompass several patents.

Question 12

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 13

Pure competition produces a socially optimal allocation of resources in the long run because

Accepted Answer

A)   marginal cost equals marginal revenue.
B)   marginal cost equals average total cost.
C)   marginal revenue equals price.
D)   marginal cost equals price.

Question 14

Long-run supply curves for a purely competitive industry can never be downsloping.

Accepted Answer

A) True 
 B)False

Question 15

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 16

If the entry or exit of firms does not affect the resource prices in an industry, we refer to it as a

Accepted Answer

A)   fixed-price industry.
B)   price-controlled industry.
C)   constant-cost industry.
D)   price-taking industry.

Question 17

Karlee's Kreations sells handbags in a purely competitive market. Karlee's is currently breaking even. Based on this information, we can conclude that Karlee's Kreations

Accepted Answer

A)   must be operating in long-run equilibrium.
B)   will leave this market in the long run because no economic profits are being earned.
C)   will continue operating in this market only if the market price rises.
D)   may be operating in either short-run or long-run equilibrium.

Question 18

Assume a purely competitive firm is maximizing profit at some output at which long-run average total cost is at a minimum. Then

Accepted Answer

A)   the firm is earning an economic profit.
B)   there is no tendency for the firm's industry to expand or contract.
C)   allocative but not productive efficiency is being achieved.
D)   other firms will enter this industry.

Question 19

(Consider This)  Which of the following statements is true about U.S. firms?

Accepted Answer

A)   Over half are bankrupt within the first two years after starting up.
B)   Over half are bankrupt within the first five years after starting up.
C)   Nearly 65 percent last 10 years or more.
D)   The life expectancy of a U.S. firm is approximately 22 years.

Question 20

When a purely competitive industry is in long-run equilibrium, which statement is true?

Accepted Answer

A)   Average total cost is less than marginal cost.
B)   Price and average total cost are equal.
C)   Marginal cost is at its maximum level.
D)   Marginal revenue is greater than price.

Exam 11: Pure Competition in the Long Run

Which of the following statements is correct?

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(Consider This) Which of the following statements is true about U.S. firms?

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Which of the following statements is true for a long-run supply curve that slopes upward?

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

Karlee's Kreations sells handbags in a purely competitive market. Karlee's is currently breaking even. Based on this information, we can conclude that Karlee's Kreations

Correct AnswerverifiedShow Answer

When a purely competitive industry is in long-run equilibrium, which statement is true?

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Suppose an increase in product demand occurs in a decreasing-cost industry. As a result,

Correct AnswerverifiedShow Answer

The plusses and minuses of the patent system include the following except

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Long-run supply curves for a purely competitive industry can never be downsloping.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The long-run supply curve would be perfectly elastic when

Correct AnswerverifiedShow Answer

Resources are efficiently allocated when production occurs at that output at which

Correct AnswerverifiedShow Answer

If the entry or exit of firms does not affect the resource prices in an industry, we refer to it as a

Correct AnswerverifiedShow Answer

With the creation and growth of the Internet, vacationers can now book their own flights, hotels, rental cars, and other travel logistics online. If this capability resulted in creative destruction, which of the following industries would we have expected to decline the most as a result?

Correct AnswerverifiedShow Answer

Assume a purely competitive firm is maximizing profit at some output at which long-run average total cost is at a minimum. Then

Correct AnswerverifiedShow Answer

Which of the following will not hold true for a competitive firm in long-run equilibrium?

Correct AnswerverifiedShow Answer

Pure competition produces a socially optimal allocation of resources in the long run because

Correct AnswerverifiedShow Answer

If the long-run supply curve of a purely competitive industry slopes upward, this implies that the prices of relevant resources

Correct AnswerverifiedShow Answer

When there is allocative efficiency in a purely competitive market for a product, the minimum price producers are willing to accept is

Correct AnswerverifiedShow Answer

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