Question 1

Free entry and exit refers to industries with very low start-up costs.

Accepted Answer

A) True 
 B)False

Question 2

In a competitive industry where the typical firm is making economic profit,

Accepted Answer

A) entry occurs as long as economic profit can be made. 
B) entry occurs until supply equals demand. 
C) entry occurs until price equals minimum average variable cost. 
D) entry occurs until price equals marginal cost. 
E) exit occurs as firms are sold to the highest bidders. 
A) entry occurs as long as economic profit can be made. 
B) entry occurs until supply equals demand. 
C) entry occurs until price equals minimum average variable cost. 
D) entry occurs until price equals marginal cost. 
E) exit occurs as firms are sold to the highest bidders.

Question 3

When long-run industry supply has a negative slope,

Accepted Answer

A) firms experience the law of decreasing costs. 
B) short-run industry supply is also negatively sloped. 
C) marginal product is negative. 
D) we have a phenomenon that cannot occur. 
E) industry expansion makes cost savings possible. 
A) firms experience the law of decreasing costs. 
B) short-run industry supply is also negatively sloped. 
C) marginal product is negative. 
D) we have a phenomenon that cannot occur. 
E) industry expansion makes cost savings possible.

Question 4

Suppose an industry that experiences external diseconomies is in a long-run equilibrium. A decrease in demand causes a(n)

Accepted Answer

A) decrease in price in the short run, with price returning to its former level in the long run. 
B) decrease in price in the short run, with price returning to less than its former level in the long run. 
C) decrease in price in the short run, with price rising above its former level in the long run. 
D) decrease in output in the short run, with output returning to its former level in the long run. 
E) increase in output in the short run and even more increase in the long run. 
A) decrease in price in the short run, with price returning to its former level in the long run. 
B) decrease in price in the short run, with price returning to less than its former level in the long run. 
C) decrease in price in the short run, with price rising above its former level in the long run. 
D) decrease in output in the short run, with output returning to its former level in the long run. 
E) increase in output in the short run and even more increase in the long run.

Question 5

An industry tends to expand as market demand increases.

Accepted Answer

A) True 
 B)False

Question 6

If zero economic profit is being earned in a competitive industry,

Accepted Answer

A) firms leave the industry. 
B) firms permanently shut down. 
C) firms enter the industry. 
D) no firms enter or leave the industry. 
E) firms temporarily shut down. 
A) firms leave the industry. 
B) firms permanently shut down. 
C) firms enter the industry. 
D) no firms enter or leave the industry. 
E) firms temporarily shut down.

Question 7

Consider developments in the computing industry. Old leading firms rely on using large computers, called mainframes, to serve their commercial customers. Because of the increased capability of personal computers, new firms in the industry can use personal computers or small workstations to provide the same services as the leading firms but at lower average costs. Describe the impact of these new arrivals on the computing industry in the short run and in the long run.

Accepted Answer

The new computing technology causes the

Question 8

The definition of a market is broader than that of an industry.

Accepted Answer

A) True 
 B)False

Question 9

In a system of competitive markets, capital, like all inputs, is allocated to its most highly valued uses, making its allocation efficient.

Accepted Answer

A) True 
 B)False

Question 10

The long-run competitive equilibrium model can be used to predict the number of firms in an industry given a certain level of market demand.

Accepted Answer

A) True 
 B)False

Question 11

If a change in market demand results in no change in price in the long run, then it is true that the long-run industry supply curve does not exist.

Accepted Answer

A) True 
 B)False

Question 12

An industry is

Accepted Answer

A) a group of firms that produce similar products. 
B) a collection of production facilities. 
C) a group of consumers who wish to purchase similar products. 
D) supply and demand for a product. 
E) a union of workers from different firms. 
A) a group of firms that produce similar products. 
B) a collection of production facilities. 
C) a group of consumers who wish to purchase similar products. 
D) supply and demand for a product. 
E) a union of workers from different firms.

Question 13

When an industry is in decline, firms do not necessarily exit; they may just shrink.

Accepted Answer

A) True 
 B)False

Question 14

External economies of scale occur when an industry expansion results in lower unit costs for firms.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following statements is false?

Accepted Answer

A) Given the nature of cost curves, positive economic profits can only induce entry of new firms. 
B) Entry and expansion can occur at the same time in the same industry. 
C) When positive economic profits prevail in an industry, firms often expand. 
D) When economic profits are negative, firms might leave an industry. 
E) An industry ceases to either expand or contract when economic profits are zero. 
A) Given the nature of cost curves, positive economic profits can only induce entry of new firms. 
B) Entry and expansion can occur at the same time in the same industry. 
C) When positive economic profits prevail in an industry, firms often expand. 
D) When economic profits are negative, firms might leave an industry. 
E) An industry ceases to either expand or contract when economic profits are zero.

Question 16

In a competitive market, the presence of short-run economic profits would, in the long run, cause economic profits to

Accepted Answer

A) disappear because market costs increase. 
B) disappear because firms are able to take advantage of economies of scale. 
C) continue. 
D) decline but be larger than zero. 
E) disappear because the market supply curve has shifted to the right. 
A) disappear because market costs increase. 
B) disappear because firms are able to take advantage of economies of scale. 
C) continue. 
D) decline but be larger than zero. 
E) disappear because the market supply curve has shifted to the right.

Question 17

In the long run, firms reduce capital input under which of the following conditions?

Accepted Answer

A) Economies of scale 
B) Diseconomies of scale 
C) Constant returns to scale 
D) When average total cost increases with output 
E) When price equals marginal cost 
A) Economies of scale 
B) Diseconomies of scale 
C) Constant returns to scale 
D) When average total cost increases with output 
E) When price equals marginal cost

Question 18

When firms in an industry are all producing at the minimum of average total costs,

Accepted Answer

A) consumers pay the highest possible price. 
B) firms begin to leave the industry. 
C) per unit costs are at their lowest. 
D) there is no consumer surplus. 
E) price is greater than marginal cost. 
A) consumers pay the highest possible price. 
B) firms begin to leave the industry. 
C) per unit costs are at their lowest. 
D) there is no consumer surplus. 
E) price is greater than marginal cost.

Question 19

Justify the claim of economists that capital is efficiently allocated in competitive markets.

Accepted Answer

In a competitive system, capital is allo

Question 20

By definition, when market supply (the sum of firms' marginal cost curves) equals market demand, long-run equilibrium is achieved.

Accepted Answer

A) True 
 B)False

Exam 9: The Rise and Fall of Industries

Free entry and exit refers to industries with very low start-up costs.

In a competitive industry where the typical firm is making economic profit,

When long-run industry supply has a negative slope,

Suppose an industry that experiences external diseconomies is in a long-run equilibrium. A decrease in demand causes a(n)

An industry tends to expand as market demand increases.

If zero economic profit is being earned in a competitive industry,

The definition of a market is broader than that of an industry.

In a system of competitive markets, capital, like all inputs, is allocated to its most highly valued uses, making its allocation efficient.

The long-run competitive equilibrium model can be used to predict the number of firms in an industry given a certain level of market demand.

If a change in market demand results in no change in price in the long run, then it is true that the long-run industry supply curve does not exist.

An industry is

When an industry is in decline, firms do not necessarily exit; they may just shrink.

External economies of scale occur when an industry expansion results in lower unit costs for firms.

Which of the following statements is false?

In a competitive market, the presence of short-run economic profits would, in the long run, cause economic profits to

In the long run, firms reduce capital input under which of the following conditions?

When firms in an industry are all producing at the minimum of average total costs,

Justify the claim of economists that capital is efficiently allocated in competitive markets.

By definition, when market supply (the sum of firms' marginal cost curves) equals market demand, long-run equilibrium is achieved.

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Efficiency of Markets

Costs and the Changes at Firms Over Time

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth Around the World

International Trade

International Finance

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