Question 1

The long-run competitive equilibrium results in efficient allocation of capital.

Accepted Answer

A) True 
 B)False

Question 2

A technological breakthrough that reduces the cost of materials in a perfectly competitive industry would, in the long run,

Accepted Answer

A) lead to higher profits. 
B) raise prices. 
C) lower the output produced by each firm. 
D) increase the number of producers. 
E) decrease the number of producers. 
A) lead to higher profits. 
B) raise prices. 
C) lower the output produced by each firm. 
D) increase the number of producers. 
E) decrease the number of producers.

Question 3

Suppose a competitive industry is in long-run equilibrium. When demand increases, market price

Accepted Answer

A) decreases in the short and long run. 
B) rises in the short run and falls in the long run. 
C) decreases in the short run and rises in the long run. 
D) rises in the short and long run. 
E) rises in the short run and rises more in the long run. 
A) decreases in the short and long run. 
B) rises in the short run and falls in the long run. 
C) decreases in the short run and rises in the long run. 
D) rises in the short and long run. 
E) rises in the short run and rises more in the long run.

Question 4

Exhibit 9-1  
-Refer to Exhibit 9-1. If the market demand curve is D3, what happens over time?

Accepted Answer

A) Some existing firms increase capital input. 
B) Firm exit occurs. 
C) Some existing firms decrease labor input. 
D) Market price decreases. 
E) Most firms do nothing. 
A) Some existing firms increase capital input. 
B) Firm exit occurs. 
C) Some existing firms decrease labor input. 
D) Market price decreases. 
E) Most firms do nothing.

Question 5

External diseconomies of scale occur when

Accepted Answer

A) industry expansion leads to a decrease in marginal product. 
B) long-run marginal cost increases with output. 
C) problems with managing a large firm cause long-run average total costs to rise with output. 
D) industry expansion causes demand to increase. 
E) industry expansion causes input prices to rise. 
A) industry expansion leads to a decrease in marginal product. 
B) long-run marginal cost increases with output. 
C) problems with managing a large firm cause long-run average total costs to rise with output. 
D) industry expansion causes demand to increase. 
E) industry expansion causes input prices to rise.

Question 6

In a long-run equilibrium, a firm produces where

Accepted Answer

A) constant returns to scale are reached. 
B) short-run average total cost is at a minimum. 
C) long-run average total cost is at a minimum. 
D) price equals marginal cost. 
E) all of these are true. 
A) constant returns to scale are reached. 
B) short-run average total cost is at a minimum. 
C) long-run average total cost is at a minimum. 
D) price equals marginal cost. 
E) all of these are true.

Question 7

An industry previously in long-run equilibrium might experience economic profits for any of the following reasons except when

Accepted Answer

A) new, cost-saving production technology is developed. 
B) new markets open up as trade barriers are reduced. 
C) prices of inputs in the production process increase. 
D) substitutes for the industry's output cease to be produced. 
E) market demand increases. 
A) new, cost-saving production technology is developed. 
B) new markets open up as trade barriers are reduced. 
C) prices of inputs in the production process increase. 
D) substitutes for the industry's output cease to be produced. 
E) market demand increases.

Question 8

The long-run competitive equilibrium model describes what happens to an industry after

Accepted Answer

A) all existing firms disappear. 
B) only one firm survives. 
C) the government intervenes. 
D) the entry and exit of firms over time. 
E) the market no longer exists. 
A) all existing firms disappear. 
B) only one firm survives. 
C) the government intervenes. 
D) the entry and exit of firms over time. 
E) the market no longer exists.

Question 9

External diseconomies cause the long-run industry supply curve to

Accepted Answer

A) first rise and then fall. 
B) slope upward. 
C) be flat. 
D) not exist. 
E) slope downward. 
A) first rise and then fall. 
B) slope upward. 
C) be flat. 
D) not exist. 
E) slope downward.

Question 10

Explain why a sudden decrease in demand in a competitive industry causes price to fluctuate more in the short run than in the long run, compared to the original equilibrium price.

Accepted Answer

In the short run, the number of firms ca

Question 11

Which of the following statements is false about capital in an industry?

Accepted Answer

A) An industry experiencing economic profits gains capital. 
B) Increased government taxation of an industry prevents some capital movement. 
C) The movement of capital occurs in the short run and the long run. 
D) Market forces cause capital to move where it is most highly valued. 
E) The movement of capital is determined by how profitable industries are. 
A) An industry experiencing economic profits gains capital. 
B) Increased government taxation of an industry prevents some capital movement. 
C) The movement of capital occurs in the short run and the long run. 
D) Market forces cause capital to move where it is most highly valued. 
E) The movement of capital is determined by how profitable industries are.

Question 12

In a competitive market, capital allocation is efficient when it causes price to

Accepted Answer

A) equal marginal cost. 
B) equal average variable cost. 
C) be greater than marginal cost. 
D) be greater than average variable cost. 
E) be greater than average total cost. 
A) equal marginal cost. 
B) equal average variable cost. 
C) be greater than marginal cost. 
D) be greater than average variable cost. 
E) be greater than average total cost.

Question 13

Firms leave a competitive industry in the long run when

Accepted Answer

A) price is less than the minimum of marginal cost. 
B) price is less than the minimum of average variable cost. 
C) the return on investment is less than 10 percent. 
D) price is less than the minimum of average total cost. 
E) price is equal to the minimum of average total cost. 
A) price is less than the minimum of marginal cost. 
B) price is less than the minimum of average variable cost. 
C) the return on investment is less than 10 percent. 
D) price is less than the minimum of average total cost. 
E) price is equal to the minimum of average total cost.

Question 14

Which of the following statements is false?

Accepted Answer

A) The long-run equilibrium model takes into account the entry and exit of firms. 
B) The long-run equilibrium model is an attempt to explain the behavior of industries. 
C) Firms enter an industry when economic profits are positive. 
D) The long-run equilibrium model can be applied only to U.S.industries. 
E) Firms exit an industry in the long run when economic profits are negative. 
A) The long-run equilibrium model takes into account the entry and exit of firms. 
B) The long-run equilibrium model is an attempt to explain the behavior of industries. 
C) Firms enter an industry when economic profits are positive. 
D) The long-run equilibrium model can be applied only to U.S.industries. 
E) Firms exit an industry in the long run when economic profits are negative.

Question 15

If, at the equilibrium level of output, a typical competitive firm's price is greater than its ATC, the firm

Accepted Answer

A) should raise the price. 
B) should lower the price. 
C) should decrease output. 
D) finds that new firms are attracted to this industry. 
E) should increase output. 
A) should raise the price. 
B) should lower the price. 
C) should decrease output. 
D) finds that new firms are attracted to this industry. 
E) should increase output.

Question 16

With free entry and exit in a competitive market, capital

Accepted Answer

A) moves to declining industries. 
B) moves to growing industries. 
C) does not move. 
D) becomes more expensive. 
E) does not reflect market demand. 
A) moves to declining industries. 
B) moves to growing industries. 
C) does not move. 
D) becomes more expensive. 
E) does not reflect market demand.

Question 17

External diseconomies of scale are caused by internal management problems when firms get very large.

Accepted Answer

A) True 
 B)False

Question 18

The entry and exit of firms occurs in the long run.

Accepted Answer

A) True 
 B)False

Question 19

Explain why diseconomies of scale occur. Do you think diseconomies or economies of scale are more prevalent? Why?

Accepted Answer

Diseconomies of scale occur because when

Exam 9: The Rise and Fall of Industries

The long-run competitive equilibrium results in efficient allocation of capital.

A technological breakthrough that reduces the cost of materials in a perfectly competitive industry would, in the long run,

Suppose a competitive industry is in long-run equilibrium. When demand increases, market price

Exhibit 9-1 -Refer to Exhibit 9-1. If the market demand curve is D3, what happens over time?

External diseconomies of scale occur when

In a long-run equilibrium, a firm produces where

An industry previously in long-run equilibrium might experience economic profits for any of the following reasons except when

The long-run competitive equilibrium model describes what happens to an industry after

External diseconomies cause the long-run industry supply curve to

Explain why a sudden decrease in demand in a competitive industry causes price to fluctuate more in the short run than in the long run, compared to the original equilibrium price.

Which of the following statements is false about capital in an industry?

In a competitive market, capital allocation is efficient when it causes price to

Firms leave a competitive industry in the long run when

Which of the following statements is false?

If, at the equilibrium level of output, a typical competitive firm's price is greater than its ATC, the firm

With free entry and exit in a competitive market, capital

External diseconomies of scale are caused by internal management problems when firms get very large.

The entry and exit of firms occurs in the long run.

Explain why diseconomies of scale occur. Do you think diseconomies or economies of scale are more prevalent? Why?

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 D₃, what happens over time?