Question 1

If the long-run supply curve is upward sloping, it indicates that resource prices fall when

Accepted Answer

A) production in the industry decreases in the long run. 
B) production in the industry increases in the long run. 
C) new firms enter the industry. 
D) short-run profits in the industry are positive. 
A) production in the industry decreases in the long run. 
B) production in the industry increases in the long run. 
C) new firms enter the industry. 
D) short-run profits in the industry are positive.

Question 2

Assume that the market for corn is purely competitive. Currently, firms growing corn are suffering economic losses. In the long run, we can expect

Accepted Answer

A) new firms to enter, causing the market price of corn to fall. 
B) new firms to enter, causing the market price of corn to rise. 
C) some firms to exit, causing the market price of corn to fall. 
D) some firms to exit, causing the market price of corn to rise. 
A) new firms to enter, causing the market price of corn to fall. 
B) new firms to enter, causing the market price of corn to rise. 
C) some firms to exit, causing the market price of corn to fall. 
D) some firms to exit, causing the market price of corn to rise.

Question 3

The accompanying graphs are for a purely competitive market in the short run. The graphs suggest that as long run adjustments consequently occur, the firms in the industry will find that

Accepted Answer

A) profits will increase. 
B) profits will decrease. 
C) profits will be unchanged. 
D) No predictions can be made based on the information given. 
A) profits will increase. 
B) profits will decrease. 
C) profits will be unchanged. 
D) No predictions can be made based on the information given.

Question 4

Allocative efficiency means that

Accepted Answer

A) the product is produced at the lowest unit-cost possible. 
B) society's scarce resources are used to produce products that align with consumer preferences. 
C) the product is sold at a price equal to the average cost of producing it. 
D) the marginal benefit of the product exceeds its marginal cost. 
A) the product is produced at the lowest unit-cost possible. 
B) society's scarce resources are used to produce products that align with consumer preferences. 
C) the product is sold at a price equal to the average cost of producing it. 
D) the marginal benefit of the product exceeds its marginal cost.

Question 5

Assume the market for ball bearings is purely competitive. Currently, each of the firms in this market is earning positive economic profits. In the long run, as adjustments occur in the industry, we can expect the market price of ball bearings to

Accepted Answer

A) increase and individual firms' profits to decrease. 
B) increase and individual firms' profits to increase. 
C) decrease and individual firms' profits to increase. 
D) decrease and individual firms' profits to decrease. 
A) increase and individual firms' profits to decrease. 
B) increase and individual firms' profits to increase. 
C) decrease and individual firms' profits to increase. 
D) decrease and individual firms' profits to decrease.

Question 6

We would expect an industry to expand if firms in that industry are

Accepted Answer

A) earning normal profits. 
B) earning economic profits. 
C) breaking even. 
D) earning accounting profits. 
A) earning normal profits. 
B) earning economic profits. 
C) breaking even. 
D) earning accounting profits.

Question 7

Suppose losses cause industry X to contract and, as a result, the prices of relevant inputs decline. Industry X is

Accepted Answer

A) a constant-cost industry. 
B) a decreasing-cost industry. 
C) an increasing-cost industry. 
D) encountering X-inefficiency. 
A) a constant-cost industry. 
B) a decreasing-cost industry. 
C) an increasing-cost industry. 
D) encountering X-inefficiency.

Question 8

Approximately what percentage of start-up firms in the United States go bankrupt within the first two years?

Accepted Answer

A) 9.5 
B) 10.2 
C) 22 
D) 53 
A) 9.5 
B) 10.2 
C) 22 
D) 53

Question 9

Which firms will be the most likely to leave the industry when it is incurring losses?

Accepted Answer

In the real world, managerial talents di

Question 10

If for a firm P = minimum ATC = MC, then

Accepted Answer

A) neither allocative efficiency nor productive efficiency is being achieved. 
B) productive efficiency is being achieved, but allocative efficiency is not. 
C) both allocative efficiency and productive efficiency are being achieved. 
D) allocative efficiency is being achieved, but productive efficiency is not. 
A) neither allocative efficiency nor productive efficiency is being achieved. 
B) productive efficiency is being achieved, but allocative efficiency is not. 
C) both allocative efficiency and productive efficiency are being achieved. 
D) allocative efficiency is being achieved, but productive efficiency is not.

Question 11

The accompanying graph shows the long-run supply and demand curves in a purely competitive market. We know that in this market, the marginal

Accepted Answer

A) cost equals marginal benefit at P₁ Q₁. 
B) benefit exceeds marginal cost at the output level of Q₂. 
C) cost exceeds marginal benefit at the output level of Q₂. 
D) benefit equals marginal cost at all points on the supply curve. 
A) cost equals marginal benefit at P₁ Q₁. 
B) benefit exceeds marginal cost at the output level of Q₂. 
C) cost exceeds marginal benefit at the output level of Q₂. 
D) benefit equals marginal cost at all points on the supply curve.

Question 12

"The long-run industry supply curve in a constant-cost industry graphs as a horizontal line. " Explain.

Accepted Answer

In a constant-cost industry, the entry a

Question 13

The accompanying graph represents the purely competitive market for a product. When the market is at equilibrium, the consumer surplus would be represented by the area

Accepted Answer

A) a + b + c + d. 
B) a + b + c. 
C) a. 
D) b + c. 
A) a + b + c + d. 
B) a + b + c. 
C) a. 
D) b + c.

Question 14

When a profit-maximizing competitive firm decides to produce at a loss because its price is below average cost but above average variable cost, that is a long-run decision.

Accepted Answer

A) True 
 B)False

Question 15

Suppose that Betty's Beads is a typical firm operating in a perfectly competitive market. Currently Betty's MR = $25, MC = $23, ATC = $20, and AVC = $16. Based on this information, we can conclude that

Accepted Answer

A) Betty's is in long-run equilibrium. 
B) Betty's experience will encourage new firms to enter the market. 
C) Betty's experience will encourage some existing firms in this market to leave. 
D) Betty's experience will discourage firms from entering the market. 
A) Betty's is in long-run equilibrium. 
B) Betty's experience will encourage new firms to enter the market. 
C) Betty's experience will encourage some existing firms in this market to leave. 
D) Betty's experience will discourage firms from entering the market.

Question 16

The accompanying graph represents the purely competitive market for a product. When the market is at equilibrium, the producer surplus would be represented by the area

Accepted Answer

A) b + c. 
B) b. 
C) c. 
D) b + c + d. 
A) b + c. 
B) b. 
C) c. 
D) b + c + d.

Question 17

The costs of competition's creative destruction are often widespread, while the benefits often accrue to only a few.

Accepted Answer

A) True 
 B)False

Question 18

When entrepreneurs in competitive industries successfully innovate to lower production costs, it usually results in long-run economic profits for the firm.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following conditions is true for a purely competitive firm in long-run equilibrium?

Accepted Answer

A) P> MC = minimum ATC. B) P> MC > minimum ATC. C) P = MC = minimum ATC. D) P< MC < minimum ATC. A) P> MC = minimum ATC. B) P> MC > minimum ATC. C) P = MC = minimum ATC. D) P< MC < minimum ATC.

Question 20

Which of the following distinguishes the short run from the long run in pure competition?

Accepted Answer

A) Firms can enter and exit the market in the long run but not in the short run. 
B) Firms attempt to maximize profits in the long run but not in the short run. 
C) Firms use the MR = MC rule to maximize profits in the short run but not in the long run. 
D) The quantity of labor hired can vary in the long run but not in the short run. 
A) Firms can enter and exit the market in the long run but not in the short run. 
B) Firms attempt to maximize profits in the long run but not in the short run. 
C) Firms use the MR = MC rule to maximize profits in the short run but not in the long run. 
D) The quantity of labor hired can vary in the long run but not in the short run.

Exam 11: Pure Competition in the Long Run

If the long-run supply curve is upward sloping, it indicates that resource prices fall when

Assume that the market for corn is purely competitive. Currently, firms growing corn are suffering economic losses. In the long run, we can expect

The accompanying graphs are for a purely competitive market in the short run. The graphs suggest that as long run adjustments consequently occur, the firms in the industry will find that

Allocative efficiency means that

Assume the market for ball bearings is purely competitive. Currently, each of the firms in this market is earning positive economic profits. In the long run, as adjustments occur in the industry, we can expect the market price of ball bearings to

We would expect an industry to expand if firms in that industry are

Suppose losses cause industry X to contract and, as a result, the prices of relevant inputs decline. Industry X is

Approximately what percentage of start-up firms in the United States go bankrupt within the first two years?

Which firms will be the most likely to leave the industry when it is incurring losses?

If for a firm P = minimum ATC = MC, then

The accompanying graph shows the long-run supply and demand curves in a purely competitive market. We know that in this market, the marginal

"The long-run industry supply curve in a constant-cost industry graphs as a horizontal line. " Explain.

The accompanying graph represents the purely competitive market for a product. When the market is at equilibrium, the consumer surplus would be represented by the area

When a profit-maximizing competitive firm decides to produce at a loss because its price is below average cost but above average variable cost, that is a long-run decision.

Suppose that Betty's Beads is a typical firm operating in a perfectly competitive market. Currently Betty's MR = $25, MC = $23, ATC = $20, and AVC = $16. Based on this information, we can conclude that

The accompanying graph represents the purely competitive market for a product. When the market is at equilibrium, the producer surplus would be represented by the area

The costs of competition's creative destruction are often widespread, while the benefits often accrue to only a few.

When entrepreneurs in competitive industries successfully innovate to lower production costs, it usually results in long-run economic profits for the firm.

Which of the following conditions is true for a purely competitive firm in long-run equilibrium?

Which of the following distinguishes the short run from the long run in pure competition?

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, RD, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

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The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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