Question 1

In the long run, an industry can expand when existing firms expand by investing in new capital.

Accepted Answer

A) True 
 B)False

Question 2

In the long run, if a firm cannot cover its costs, then the profit-maximizing firm

Accepted Answer

A) increases output and lowers price. 
B) continues to produce as long as total revenue exceeds fixed costs. 
C) seeks more rewarding opportunities in some other industry. 
D) continues to produce so that it maximizes its opportunity costs. 
E) continues to produce as long as total revenue exceeds variable costs. 
A) increases output and lowers price. 
B) continues to produce as long as total revenue exceeds fixed costs. 
C) seeks more rewarding opportunities in some other industry. 
D) continues to produce so that it maximizes its opportunity costs. 
E) continues to produce as long as total revenue exceeds variable costs.

Question 3

External diseconomies of scale occur when firm entry results in lower unit costs for firms in the industry.

Accepted Answer

A) True 
 B)False

Question 4

If the government subsidizes the production of wind energy, then the industry produces

Accepted Answer

A) more energy in the short run and firm entry occurs in the long run. 
B) more energy in the short run and firm exit occurs in the long run. 
C) less energy in the short run and firm entry occurs in the long run. 
D) less energy in the short run and firm exit occurs in the long run. 
E) the same amount of energy in both the short run and long run. 
A) more energy in the short run and firm entry occurs in the long run. 
B) more energy in the short run and firm exit occurs in the long run. 
C) less energy in the short run and firm entry occurs in the long run. 
D) less energy in the short run and firm exit occurs in the long run. 
E) the same amount of energy in both the short run and long run.

Question 5

If an industry that experiences external economies is in a long-run equilibrium, then an increase in market demand causes

Accepted Answer

A) a decrease in price in the short run, with the price returning to its former level in the long run. 
B) an increase in price in the short run, with the price returning to its former level in the long run. 
C) an increase in price in the short run, but the price falls below its former level in the long run. 
D) an increase in price in the short run, with the price rising above its former level in the long run. 
E) nothing to change in the market. 
A) a decrease in price in the short run, with the price returning to its former level in the long run. 
B) an increase in price in the short run, with the price returning to its former level in the long run. 
C) an increase in price in the short run, but the price falls below its former level in the long run. 
D) an increase in price in the short run, with the price rising above its former level in the long run. 
E) nothing to change in the market.

Question 6

When firms exit an industry,

Accepted Answer

A) firm profits typically fall. 
B) market supply decreases, pushing market price higher. 
C) market supply decreases, decreasing the firm's output price. 
D) demand decreases and economic profits continue to decline. 
E) market supply decreases, increasing price and bringing firms back into the industry. 
A) firm profits typically fall. 
B) market supply decreases, pushing market price higher. 
C) market supply decreases, decreasing the firm's output price. 
D) demand decreases and economic profits continue to decline. 
E) market supply decreases, increasing price and bringing firms back into the industry.

Question 7

External economies of scale occur when

Accepted Answer

A) a firm's supply curve is downward-sloping. 
B) an increase in firm output results in lower long-run average total costs. 
C) an increase in the number of firms in an industry causes production costs to decline. 
D) marginal product increases when input increases. 
E) all firms in an industry experience decreasing marginal costs. 
A) a firm's supply curve is downward-sloping. 
B) an increase in firm output results in lower long-run average total costs. 
C) an increase in the number of firms in an industry causes production costs to decline. 
D) marginal product increases when input increases. 
E) all firms in an industry experience decreasing marginal costs.

Question 8

In the long-run competitive equilibrium model, capital is allocated in the most efficient manner.

Accepted Answer

A) True 
 B)False

Question 9

Cost saving technologies result in an increase in economic profits in both the short run and the long run.

Accepted Answer

A) True 
 B)False

Question 10

If higher taxes raise the unit cost of a competitive industry, then in the long run, industry supply

Accepted Answer

A) and market price decrease. 
B) decreases and market price increases. 
C) increases and market price decreases. 
D) and market price increase. 
E) and market price remain constant. 
A) and market price decrease. 
B) decreases and market price increases. 
C) increases and market price decreases. 
D) and market price increase. 
E) and market price remain constant.

Question 11

If an industry has a horizontal long-run industry supply curve, then which of the following must be true?

Accepted Answer

A) An increase in market demand results in firm entry, and so market price declines in the long run. 
B) An increase in market demand results in industry expansion, and so market price increases in the long run. 
C) A decrease in market demand results in firm exit, and so market price in the long run remains the same as before the market demand change. 
D) A decrease in market demand results in firm exit, and so market price in the long run declines in the long run. 
E) Any change in market demand has no effects on firms. 
A) An increase in market demand results in firm entry, and so market price declines in the long run. 
B) An increase in market demand results in industry expansion, and so market price increases in the long run. 
C) A decrease in market demand results in firm exit, and so market price in the long run remains the same as before the market demand change. 
D) A decrease in market demand results in firm exit, and so market price in the long run declines in the long run. 
E) Any change in market demand has no effects on firms.

Question 12

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

Accepted Answer

A) Existing firms will produce less and some firms will exit the market so that the market supply curve will shift to the left. 
B) Some existing firms will produce more while some other firms will exit the market so that the market supply curve will remain the same. 
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) Existing firms will produce less and some firms will exit the market so that the market supply curve will shift to the left. 
B) Some existing firms will produce more while some other firms will exit the market so that the market supply curve will remain the same. 
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 13

Exhibit 9-2  
-Refer to Exhibit 9-2. If the market demand curve is D1, then the firm earns normal profit.

Accepted Answer

A) True 
 B)False

Question 14

Can individual firm expansion affect market supply? Explain.

Accepted Answer

Yes. When an individual firm expands, it

Question 15

Industry expansion cannot occur without firms entering an industry.

Accepted Answer

A) True 
 B)False

Question 16

In the long run, firms enter an industry when

Accepted Answer

A) firms in the industry realize positive economic profits. 
B) firms in the industry realize economic losses. 
C) other firms exit the industry. 
D) economic profits in the industry are zero. 
E) firms in the industry become price-makers. 
A) firms in the industry realize positive economic profits. 
B) firms in the industry realize economic losses. 
C) other firms exit the industry. 
D) economic profits in the industry are zero. 
E) firms in the industry become price-makers.

Question 17

A competitive firm's long-run equilibrium exists where price

Accepted Answer

A) equals MC at minimum ATC. 
B) equals TR. 
C) exceeds AFC. 
D) equals both AVC and MC. 
E) exceeds ATC. 
A) equals MC at minimum ATC. 
B) equals TR. 
C) exceeds AFC. 
D) equals both AVC and MC. 
E) exceeds ATC.

Question 18

In the long-run equilibrium, which of the following is at its minimum point?

Accepted Answer

A) Price 
B) Average variable cost 
C) Average fixed cost 
D) Average total cost 
E) Marginal cost 
A) Price 
B) Average variable cost 
C) Average fixed cost 
D) Average total cost 
E) Marginal cost

Question 19

List some external economies of scale and some external diseconomies of scale that might be realized by an airline in an airport. How do these economies or diseconomies of scale affect the shape of the long-run industry supply curve?

Accepted Answer

Examples of external economies of scale

Question 20

When market demand increases in a competitive industry,

Accepted Answer

A) the number of firms increases, causing short-run market supply to increase. 
B) firms become less efficient. 
C) firms' marginal cost curves shift to the right. 
D) economic profits stay at zero because of competition. 
E) market price increases, making it possible for ATC curves to shift up. 
A) the number of firms increases, causing short-run market supply to increase. 
B) firms become less efficient. 
C) firms' marginal cost curves shift to the right. 
D) economic profits stay at zero because of competition. 
E) market price increases, making it possible for ATC curves to shift up.

Exam 9: The Rise and Fall of Industries

In the long run, an industry can expand when existing firms expand by investing in new capital.

In the long run, if a firm cannot cover its costs, then the profit-maximizing firm

External diseconomies of scale occur when firm entry results in lower unit costs for firms in the industry.

If the government subsidizes the production of wind energy, then the industry produces

If an industry that experiences external economies is in a long-run equilibrium, then an increase in market demand causes

When firms exit an industry,

External economies of scale occur when

In the long-run competitive equilibrium model, capital is allocated in the most efficient manner.

Cost saving technologies result in an increase in economic profits in both the short run and the long run.

If higher taxes raise the unit cost of a competitive industry, then in the long run, industry supply

If an industry has a horizontal long-run industry supply curve, then which of the following must be true?

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

Exhibit 9-2 -Refer to Exhibit 9-2. If the market demand curve is D1, then the firm earns normal profit.

Can individual firm expansion affect market supply? Explain.

Industry expansion cannot occur without firms entering an industry.

In the long run, firms enter an industry when

A competitive firm's long-run equilibrium exists where price

In the long-run equilibrium, which of the following is at its minimum point?

List some external economies of scale and some external diseconomies of scale that might be realized by an airline in an airport. How do these economies or diseconomies of scale affect the shape of the long-run industry supply curve?

When market demand increases in a competitive industry,

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 9-2 -Refer to Exhibit 9-2. If the market demand curve is D₁, then the firm earns normal profit.