Question 1

Suppose that a competitive market is initially in long-run equilibrium. Which of the following are the most likely results of a decrease in market demand?

Accepted Answer

A) Some existing firms will produce more while some other firms will exit the market so that the market supply curve will remain the same. 
B) Existing firms will produce less and some firms will exit the market so that the market supply curve will shift to the left. 
C) Existing firms will produce more and new firms will enter the market so that the market supply curve will shift to the right. 
D) Existing firms will produce less while new firms will enter the market so that the effect on the market supply curve is uncertain. 
E) Nothing will change in the market. 
A) Some existing firms will produce more while some other firms will exit the market so that the market supply curve will remain the same. 
B) Existing firms will produce less and some firms will exit the market so that the market supply curve will shift to the left. 
C) Existing firms will produce more and new firms will enter the market so that the market supply curve will shift to the right. 
D) Existing firms will produce less while new firms will enter the market so that the effect on the market supply curve is uncertain. 
E) Nothing will change in the market.

Question 2

Three reasons for the rise and fall of industries are

Accepted Answer

A) government subsidy, cost-reducing technology, and changing tastes. 
B) new ideas, cost-reducing technology, and changing tastes. 
C) government subsidy, population growth, and cost-reducing technology. 
D) population growth, cost-reducing technology, and changing tastes. 
E) new ideas, necessity, and changing tastes. 
A) government subsidy, cost-reducing technology, and changing tastes. 
B) new ideas, cost-reducing technology, and changing tastes. 
C) government subsidy, population growth, and cost-reducing technology. 
D) population growth, cost-reducing technology, and changing tastes. 
E) new ideas, necessity, and changing tastes.

Question 3

The long-run equilibrium for a competitive firm occurs when its average total cost continues to decline.

Accepted Answer

A) True 
 B)False

Question 4

Consider developments in movie theaters, which have suffered declining sales because more customers watch movies on videos and DVDs instead of going to the theater to see movies. Explain how this change in people's preferences affects movie theaters in the short run and in the long run.

Accepted Answer

The decline in the demand for movies in

Question 5

When economic losses occur in an industry,

Accepted Answer

A) the industry ceases to exist. 
B) the only way the industry can change is by firms leaving it. 
C) the only way the industry can change is by firms divesting themselves of capital. 
D) firms in the industry may divest; others may exit the industry. 
E) the industry expands with more firms. 
A) the industry ceases to exist. 
B) the only way the industry can change is by firms leaving it. 
C) the only way the industry can change is by firms divesting themselves of capital. 
D) firms in the industry may divest; others may exit the industry. 
E) the industry expands with more firms.

Question 6

Which of the following is true in a long-run competitive equilibrium?

Accepted Answer

A) Price is greater than average total cost. 
B) Profits are greater than zero. 
C) Marginal cost is greater than average total cost. 
D) Market supply is greater than market demand. 
E) There is no incentive to enter or exit the industry. 
A) Price is greater than average total cost. 
B) Profits are greater than zero. 
C) Marginal cost is greater than average total cost. 
D) Market supply is greater than market demand. 
E) There is no incentive to enter or exit the industry.

Question 7

Exhibit 9-1  
-Refer to Exhibit 9-1. Which demand curve results in economic losses?

Accepted Answer

A) D1 
B) D2 
C) D3 
D) Both D1 and D2 
E) Both D2 and D3 
A) D1 
B) D2 
C) D3 
D) Both D1 and D2 
E) Both D2 and D3

Question 8

Explain what happens to firm output and profits in the long run when higher energy costs raise the marginal cost of production for firms in a competitive industry.

Accepted Answer

As a result of the higher marginal produ

Question 9

If the typical firm in an industry is experiencing economies of scale,

Accepted Answer

A) short-run equilibrium cannot exist. 
B) some firms exit the industry. 
C) industry expansion occurs. 
D) long-run equilibrium is achieved. 
E) firms need to divest and become smaller. 
A) short-run equilibrium cannot exist. 
B) some firms exit the industry. 
C) industry expansion occurs. 
D) long-run equilibrium is achieved. 
E) firms need to divest and become smaller.

Question 10

Draw a diagram of a competitive industry in a long-run equilibrium. Be sure to illustrate both the market and a representative firm. When would entry occur? When would exit occur?

Accepted Answer

If market demand increased for

Question 11

Given the following data for a typical firm in a competitive industry, sketch the two short-run average total cost curves and the two marginal cost curves, and answer the following:

Accepted Answer

The answer of Given the following data for a typical...

Question 12

External economies of scale occur when costs go down as an industry expands.

Accepted Answer

A) True 
 B)False

Question 13

The difference between accounting profit and economic profit is

Accepted Answer

A) total costs. 
B) implicit costs. 
C) total opportunity costs. 
D) normal profits. 
E) marginal cost. 
A) total costs. 
B) implicit costs. 
C) total opportunity costs. 
D) normal profits. 
E) marginal cost.

Question 14

When industry expansion causes input prices to rise, we call this

Accepted Answer

A) external diseconomies of scale. 
B) the law of increasing costs. 
C) internal diseconomies of scale. 
D) increasing returns. 
E) diminishing returns. 
A) external diseconomies of scale. 
B) the law of increasing costs. 
C) internal diseconomies of scale. 
D) increasing returns. 
E) diminishing returns.

Question 15

Which of the following conditions results in firms producing at the minimum average total cost in the long run?

Accepted Answer

A) Free entry and exit of firms 
B) Government price control 
C) Economies of scale 
D) Diseconomies of scale 
E) Industry expansion 
A) Free entry and exit of firms 
B) Government price control 
C) Economies of scale 
D) Diseconomies of scale 
E) Industry expansion

Question 16

Suppose a mechanic uses $150,000 of his own money to start a business. The rate of interest he could earn in a savings account is 5 percent, and the rate of interest he could earn by investing in bonds is 8 percent. What is the opportunity cost of capital when the mechanic uses his money to start his own business?

Accepted Answer

A) $8,000/year 
B) $7,500/year 
C) $150,000 
D) $12,000/year 
E) $19,500/year 
A) $8,000/year 
B) $7,500/year 
C) $150,000 
D) $12,000/year 
E) $19,500/year

Question 17

External economies of scale cause an industry's long-run supply curve to slope upward.

Accepted Answer

A) True 
 B)False

Question 18

A firm in a long-run equilibrium state

Accepted Answer

A) produces at the minimum of average variable cost. 
B) produces at the minimum of marginal cost. 
C) suffers accounting profit losses. 
D) enjoys economies of scale. 
E) makes no economic profit. 
A) produces at the minimum of average variable cost. 
B) produces at the minimum of marginal cost. 
C) suffers accounting profit losses. 
D) enjoys economies of scale. 
E) makes no economic profit.

Question 19

In economics, firms can enter an industry in the short run.

Accepted Answer

A) True 
 B)False

Question 20

The market demand curve in a competitive market is

Accepted Answer

A) vertical. 
B) downward-sloping. 
C) horizontal. 
D) unit elastic. 
E) perfectly elastic. 
A) vertical. 
B) downward-sloping. 
C) horizontal. 
D) unit elastic. 
E) perfectly elastic.

Exam 9: The Rise and Fall of Industries

Suppose that a competitive market is initially in long-run equilibrium. Which of the following are the most likely results of a decrease in market demand?

Three reasons for the rise and fall of industries are

The long-run equilibrium for a competitive firm occurs when its average total cost continues to decline.

Consider developments in movie theaters, which have suffered declining sales because more customers watch movies on videos and DVDs instead of going to the theater to see movies. Explain how this change in people's preferences affects movie theaters in the short run and in the long run.

When economic losses occur in an industry,

Which of the following is true in a long-run competitive equilibrium?

Exhibit 9-1 -Refer to Exhibit 9-1. Which demand curve results in economic losses?

Explain what happens to firm output and profits in the long run when higher energy costs raise the marginal cost of production for firms in a competitive industry.

If the typical firm in an industry is experiencing economies of scale,

Draw a diagram of a competitive industry in a long-run equilibrium. Be sure to illustrate both the market and a representative firm. When would entry occur? When would exit occur?

Given the following data for a typical firm in a competitive industry, sketch the two short-run average total cost curves and the two marginal cost curves, and answer the following:

External economies of scale occur when costs go down as an industry expands.

The difference between accounting profit and economic profit is

When industry expansion causes input prices to rise, we call this

Which of the following conditions results in firms producing at the minimum average total cost in the long run?

External economies of scale cause an industry's long-run supply curve to slope upward.

A firm in a long-run equilibrium state

In economics, firms can enter an industry in the short run.

The market demand curve in a competitive market is

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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