Question 1

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

Accepted Answer

A) There are incentives for firms to enter the industry. 
B) There are incentives for firms to exit the industry. 
C) There is no incentive for firms to enter or exit the industry. 
D) There are incentives for firms to produce more output. 
E) There are incentives for firms to change plant size. 
A) There are incentives for firms to enter the industry. 
B) There are incentives for firms to exit the industry. 
C) There is no incentive for firms to enter or exit the industry. 
D) There are incentives for firms to produce more output. 
E) There are incentives for firms to change plant size.

Question 2

How might a change in technology in one industry negatively affect another? Give an example.

Accepted Answer

Two narrowly defined industries can be p

Question 3

If market demand increases, a competitive firm sees

Accepted Answer

A) its cost curves shift up. 
B) its profit-maximizing output level increase. 
C) its marginal cost fall. 
D) its profits decrease. 
E) the demand curve facing the firm shift down. 
A) its cost curves shift up. 
B) its profit-maximizing output level increase. 
C) its marginal cost fall. 
D) its profits decrease. 
E) the demand curve facing the firm shift down.

Question 4

Suppose the government gives a subsidy to each gallon of milk sold in a competitive milk industry. Describe what happens to the price of milk in the short run and the long run when farmers are free to enter and exit. What happens to milk output and the number of farmers in the short run and the long run?

Accepted Answer

A subsidy to milk lowers the average cos

Question 5

A normal profit may be defined as

Accepted Answer

A) the minimum amount of profit required to keep a business operating in the long run. 
B) an accounting profit equal to the sum of all opportunity costs. 
C) the maximum amount of profit that a business has ever made. 
D) economic profit that is equal to accounting profit. 
E) accounting profit equal to zero. 
A) the minimum amount of profit required to keep a business operating in the long run. 
B) an accounting profit equal to the sum of all opportunity costs. 
C) the maximum amount of profit that a business has ever made. 
D) economic profit that is equal to accounting profit. 
E) accounting profit equal to zero.

Question 6

Exhibit 9-1  
-Refer to Exhibit 9-1. When does firm entry occur?

Accepted Answer

A) When demand is at D3 
B) When demand is at D1 
C) When demand is at D2 
D) When price is P1 or greater 
E) When price is P2 or less 
A) When demand is at D3 
B) When demand is at D1 
C) When demand is at D2 
D) When price is P1 or greater 
E) When price is P2 or less

Question 7

If the computer industry exhibits external economies of scale, then its expansion is likely to result in

Accepted Answer

A) more firms outside the computer industry. 
B) fewer firms outside the computer industry. 
C) more firms within the computer industry. 
D) fewer but bigger firms within the computer industry. 
E) no impact on industries other than computer manufacturing. 
A) more firms outside the computer industry. 
B) fewer firms outside the computer industry. 
C) more firms within the computer industry. 
D) fewer but bigger firms within the computer industry. 
E) no impact on industries other than computer manufacturing.

Question 8

Firms may enter or exit a competitive industry

Accepted Answer

A) in the short run. 
B) in the long run. 
C) in either the short run or the long run. 
D) only when they are no longer price-takers. 
E) immediately after they begin operation. 
A) in the short run. 
B) in the long run. 
C) in either the short run or the long run. 
D) only when they are no longer price-takers. 
E) immediately after they begin operation.

Question 9

Free entry and exit means that

Accepted Answer

A) banks charge no interest on a loan to start a firm. 
B) there are no artificial barriers to entering and exiting an industry. 
C) no investment is necessary in order to enter an industry. 
D) it costs nothing to start a firm. 
E) a firm is free to enter and exit a nation without having to pay high tax levies. 
A) banks charge no interest on a loan to start a firm. 
B) there are no artificial barriers to entering and exiting an industry. 
C) no investment is necessary in order to enter an industry. 
D) it costs nothing to start a firm. 
E) a firm is free to enter and exit a nation without having to pay high tax levies.

Question 10

Exhibit 9-1  
-Refer to Exhibit 9-1. Which demand curve results in normal profits?

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 11

Exhibit 9-1  
-Refer to Exhibit 9-1. If all firms are identical, the equilibrium number of firms in the industry is

Accepted Answer

A) 125,000. 
B) 3,333. 
C) 2,500. 
D) 3,000. 
E) 250,000. 
A) 125,000. 
B) 3,333. 
C) 2,500. 
D) 3,000. 
E) 250,000.

Question 12

Exhibit 9-2  
-Refer to Exhibit 9-2. If the demand curve shifts from D1 to D2, then

Accepted Answer

A) some firms enter the industry. 
B) some firms exit the industry. 
C) the number of firms does not change. 
D) firms earn a normal profit. 
E) most firms earn a loss. 
A) some firms enter the industry. 
B) some firms exit the industry. 
C) the number of firms does not change. 
D) firms earn a normal profit. 
E) most firms earn a loss.

Question 13

Explain why a long-run equilibrium can occur only when firms in the industry are at the minimum of their average total cost curves.

Accepted Answer

All firms that survive in a competitive

Question 14

When external diseconomies of scale occur, as compared to the original equilibrium, an increase in market demand causes

Accepted Answer

A) price to increase more in the long run than in the short run. 
B) industry output to increase more in the short run than in the long run. 
C) industry output to rise and then fall. 
D) price to fall in the long run. 
E) price to increase less in the long run than in the short run. 
A) price to increase more in the long run than in the short run. 
B) industry output to increase more in the short run than in the long run. 
C) industry output to rise and then fall. 
D) price to fall in the long run. 
E) price to increase less in the long run than in the short run.

Question 15

When economic profits equal zero for firms in an industry, there is no entry or exit.

Accepted Answer

A) True 
 B)False

Question 16

Exhibit 9-1  
-Refer to Exhibit 9-1. Which of the following describes a long-run competitive equilibrium?

Accepted Answer

A) When market demand is at D2, each firm produces more than 75 units. 
B) When market demand is at D2, each firm produces 75 units. 
C) When market demand is at D2, each firm produces fewer than 75 units. 
D) When market demand is at D2, each firm produces 250,000 units. 
E) When price is P2, each firm produces 250,000 units. 
A) When market demand is at D2, each firm produces more than 75 units. 
B) When market demand is at D2, each firm produces 75 units. 
C) When market demand is at D2, each firm produces fewer than 75 units. 
D) When market demand is at D2, each firm produces 250,000 units. 
E) When price is P2, each firm produces 250,000 units.

Question 17

When an industry is in decline,

Accepted Answer

A) it is indicative of a weak economy. 
B) it might be due to an increase in demand for the product. 
C) it is common for firms to earn economic losses. 
D) firm entry occurs. 
E) all firms eventually leave the industry. 
A) it is indicative of a weak economy. 
B) it might be due to an increase in demand for the product. 
C) it is common for firms to earn economic losses. 
D) firm entry occurs. 
E) all firms eventually leave the industry.

Question 18

Suppose a dentist has total revenue of $320,000, and his total costs are $250,000 for the year. Also suppose the dentist left a job paying $112,000 a year to start his own practice. What is the dentist's accounting profit?

Accepted Answer

A) -$28,000 
B) -$42,000 
C) $182,000 
D) $70,000 
E) $112,000 
A) -$28,000 
B) -$42,000 
C) $182,000 
D) $70,000 
E) $112,000

Question 19

In a competitive industry, firm demand is

Accepted Answer

A) downward-sloping. 
B) vertical. 
C) nonexistent. 
D) horizontal. 
E) unchanging. 
A) downward-sloping. 
B) vertical. 
C) nonexistent. 
D) horizontal. 
E) unchanging.

Question 20

Suppose a market equilibrium occurs at a quantity of 6,500 units. Also suppose that the typical firm's constant returns to scale extend from a production level of 20 units to a production level of 50 units. Calculate the maximum and minimum number of firms that could prevail in this industry.

Accepted Answer

130 to 325
Maximum: (industry

Exam 9: The Rise and Fall of Industries

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

How might a change in technology in one industry negatively affect another? Give an example.

If market demand increases, a competitive firm sees

A normal profit may be defined as

Exhibit 9-1 -Refer to Exhibit 9-1. When does firm entry occur?

If the computer industry exhibits external economies of scale, then its expansion is likely to result in

Firms may enter or exit a competitive industry

Free entry and exit means that

Exhibit 9-1 -Refer to Exhibit 9-1. Which demand curve results in normal profits?

Exhibit 9-1 -Refer to Exhibit 9-1. If all firms are identical, the equilibrium number of firms in the industry is

Exhibit 9-2 -Refer to Exhibit 9-2. If the demand curve shifts from D1 to D2, then

Explain why a long-run equilibrium can occur only when firms in the industry are at the minimum of their average total cost curves.

When external diseconomies of scale occur, as compared to the original equilibrium, an increase in market demand causes

When economic profits equal zero for firms in an industry, there is no entry or exit.

Exhibit 9-1 -Refer to Exhibit 9-1. Which of the following describes a long-run competitive equilibrium?

When an industry is in decline,

Suppose a dentist has total revenue of $320,000, and his total costs are $250,000 for the year. Also suppose the dentist left a job paying $112,000 a year to start his own practice. What is the dentist's accounting profit?

In a competitive industry, firm demand is

Suppose a market equilibrium occurs at a quantity of 6,500 units. Also suppose that the typical firm's constant returns to scale extend from a production level of 20 units to a production level of 50 units. Calculate the maximum and minimum number of firms that could prevail in this 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 demand curve shifts from D₁ to D₂, then