Question 1

Which of the following does not need to be true for long-run equilibrium to be attained?

Accepted Answer

A) Constant returns to scale are reached. 
B) The latest in technology is utilized. 
C) Profit is being maximized. 
D) There is no incentive to enter or exit the industry. 
E) Economic profits equal zero. 
A) Constant returns to scale are reached. 
B) The latest in technology is utilized. 
C) Profit is being maximized. 
D) There is no incentive to enter or exit the industry. 
E) Economic profits equal zero.

Question 2

All else being constant, when firms leave a competitive market, then

Accepted Answer

A) market supply decreases and market price rises. 
B) both market demand and market supply decrease. 
C) market supply decreases and market price falls. 
D) market demand decreases and market price falls. 
E) market demand increases and market price rises. 
A) market supply decreases and market price rises. 
B) both market demand and market supply decrease. 
C) market supply decreases and market price falls. 
D) market demand decreases and market price falls. 
E) market demand increases and market price rises.

Question 3

A reduction in capital cost shifts the long-run average total cost curve down.

Accepted Answer

A) True 
 B)False

Question 4

If price is greater than minimum average total cost in a competitive industry, entry occurs.

Accepted Answer

A) True 
 B)False

Question 5

Define the term industry.

Accepted Answer

An industry is a gro

Question 6

Exhibit 9-2  
-As firms enter a competitive industry,

Accepted Answer

A) both market demand and industry output increase. 
B) industry economic profits increase. 
C) output price falls and individual firms increase output. 
D) output price falls and cost curves shift down. 
E) output price falls and industry output increases. 
A) both market demand and industry output increase. 
B) industry economic profits increase. 
C) output price falls and individual firms increase output. 
D) output price falls and cost curves shift down. 
E) output price falls and industry output increases.

Question 7

In long-run competitive equilibrium, market price equals a firm's average total cost.

Accepted Answer

A) True 
 B)False

Question 8

If an innovation lowers the marginal cost of production for firms in a competitive industry, then in the long run, the number of firms

Accepted Answer

A) increases and firms in the industry make normal profits. 
B) does not change and firms in the industry make profits. 
C) decreases and firms in the industry incur losses. 
D) decreases and firms in the industry make profits. 
E) decreases and firms in the industry make normal profits. 
A) increases and firms in the industry make normal profits. 
B) does not change and firms in the industry make profits. 
C) decreases and firms in the industry incur losses. 
D) decreases and firms in the industry make profits. 
E) decreases and firms in the industry make normal profits.

Question 9

In the long-run competitive equilibrium, consumers pay for the lowest cost that a firm incurs.

Accepted Answer

A) True 
 B)False

Question 10

When an industry expansion brings about additional specialization of resources, thus reducing production costs in that industry, we call this

Accepted Answer

A) returns from specialization. 
B) external economies of scale. 
C) the law of demand. 
D) decreasing marginal costs. 
E) the law of increasing returns. 
A) returns from specialization. 
B) external economies of scale. 
C) the law of demand. 
D) decreasing marginal costs. 
E) the law of increasing returns.

Question 11

Exhibit 9-1  
-Refer to Exhibit 9-1. If the market demand curve is D1, what happens in the long run?

Accepted Answer

A) Firm entry occurs. 
B) Firm exit occurs. 
C) Some firms increase capital input. 
D) Some firms increase labor input. 
E) Most firms do nothing. 
A) Firm entry occurs. 
B) Firm exit occurs. 
C) Some firms increase capital input. 
D) Some firms increase labor input. 
E) Most firms do nothing.

Question 12

The fact that the expansion of the Zinfandel grape industry has resulted in the development of agricultural schools in winemaking is an example of

Accepted Answer

A) internal economies of scale. 
B) external economies of scale. 
C) internal diseconomies of scale. 
D) external diseconomies of scale. 
E) a waste of resources. 
A) internal economies of scale. 
B) external economies of scale. 
C) internal diseconomies of scale. 
D) external diseconomies of scale. 
E) a waste of resources.

Question 13

The number of firms increases in the long run when the industry realizes profits.

Accepted Answer

A) True 
 B)False

Question 14

An industry with an upward-sloping long-run supply curve experiences

Accepted Answer

A) external diseconomies of scale. 
B) the law of increasing costs. 
C) diminishing returns. 
D) a loss of efficiency. 
E) external economies of scale. 
A) external diseconomies of scale. 
B) the law of increasing costs. 
C) diminishing returns. 
D) a loss of efficiency. 
E) external economies of scale.

Question 15

A change in production costs may occur for any of the following reasons except when

Accepted Answer

A) new production technology is introduced. 
B) a new, cheaper, rival product is introduced. 
C) the price of an input falls. 
D) demand of other industries for a key input increases. 
E) the use of cost savings management is introduced. 
A) new production technology is introduced. 
B) a new, cheaper, rival product is introduced. 
C) the price of an input falls. 
D) demand of other industries for a key input increases. 
E) the use of cost savings management is introduced.

Question 16

Consider a competitive industry with a large number of toy-producing firms. Describe how that industry adjusts to a decline in the demand for toys. Explain your answer graphically, showing both the typical toy firm's marginal cost and average total cost curves, as well as the market supply and demand curves. Distinguish between the short run and the long run.

Accepted Answer

@#IMG-DLM& As demand decreases, in the short run,

Question 17

One reason old industries die off is that entrepreneurs create new industries that replace the old ones.

Accepted Answer

A) True 
 B)False

Question 18

Firm demand in a competitive industry, like market demand, is downward-sloping.

Accepted Answer

A) True 
 B)False

Question 19

If higher taxes raise the unit cost of a competitive industry, then producers

Accepted Answer

A) decrease production in the short run and the number of producers decreases in the long run. 
B) decrease production in the short run and the number of producers increases in the long run. 
C) increase production in the short run and the number of producers decreases in the long run. 
D) increase production in the short run and the number of producers increases in the long run. 
E) keep production constant in the short run and the number of producers remains the same in the long run. 
A) decrease production in the short run and the number of producers decreases in the long run. 
B) decrease production in the short run and the number of producers increases in the long run. 
C) increase production in the short run and the number of producers decreases in the long run. 
D) increase production in the short run and the number of producers increases in the long run. 
E) keep production constant in the short run and the number of producers remains the same in the long run.

Question 20

List three reasons for the rise and fall of industries.

Accepted Answer

New ideas, cost-redu

Exam 9: The Rise and Fall of Industries

Which of the following does not need to be true for long-run equilibrium to be attained?

All else being constant, when firms leave a competitive market, then

A reduction in capital cost shifts the long-run average total cost curve down.

If price is greater than minimum average total cost in a competitive industry, entry occurs.

Define the term industry.

Exhibit 9-2 -As firms enter a competitive industry,

In long-run competitive equilibrium, market price equals a firm's average total cost.

If an innovation lowers the marginal cost of production for firms in a competitive industry, then in the long run, the number of firms

In the long-run competitive equilibrium, consumers pay for the lowest cost that a firm incurs.

When an industry expansion brings about additional specialization of resources, thus reducing production costs in that industry, we call this

Exhibit 9-1 -Refer to Exhibit 9-1. If the market demand curve is D1, what happens in the long run?

The fact that the expansion of the Zinfandel grape industry has resulted in the development of agricultural schools in winemaking is an example of

The number of firms increases in the long run when the industry realizes profits.

An industry with an upward-sloping long-run supply curve experiences

A change in production costs may occur for any of the following reasons except when

One reason old industries die off is that entrepreneurs create new industries that replace the old ones.

Firm demand in a competitive industry, like market demand, is downward-sloping.

If higher taxes raise the unit cost of a competitive industry, then producers

List three reasons for the rise and fall of industries.

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

Filters

Exhibit 9-1 -Refer to Exhibit 9-1. If the market demand curve is D₁, what happens in the long run?