Question 1

Allocative efficiency is achieved by equalizing consumer surplus and producer surplus.

Accepted Answer

A) True 
 B)False

Question 2

If the entry or exit of firms does not affect the resource prices in an industry, we refer to it as a

Accepted Answer

A) fixed-price industry. 
B) price-controlled industry. 
C) constant-cost industry. 
D) price-taking industry. 
A) fixed-price industry. 
B) price-controlled industry. 
C) constant-cost industry. 
D) price-taking industry.

Question 3

Assume a purely competitive decreasing-cost industry is initially in long-run equilibrium but then there is a decrease in market demand for the product. After all economic adjustments to this new situation have taken place, product price will be

Accepted Answer

A) higher, but total output will be lower. 
B) lower, and total output will be lower. 
C) higher, and total output will be higher. 
D) lower, but total output will be higher. 
A) higher, but total output will be lower. 
B) lower, and total output will be lower. 
C) higher, and total output will be higher. 
D) lower, but total output will be higher.

Question 4

If a purely competitive firm is producing where price exceeds marginal cost, then

Accepted Answer

A) the firm will fail to maximize profit, but resources will be efficiently allocated. 
B) the firm will fail to maximize profit and resources will be overallocated to the product. 
C) the firm will fail to maximize profit and resources will be underallocated to the product. 
D) resources will be underallocated to the product, but the firm will maximize profit. 
A) the firm will fail to maximize profit, but resources will be efficiently allocated. 
B) the firm will fail to maximize profit and resources will be overallocated to the product. 
C) the firm will fail to maximize profit and resources will be underallocated to the product. 
D) resources will be underallocated to the product, but the firm will maximize profit.

Question 5

In long-run equilibrium, a competitive firm produces where P = MR = MC = minimum ATC and the firm earns normal economic profits.

Accepted Answer

A) True 
 B)False

Question 6

The industry represented by the accompanying graph must be one where

Accepted Answer

A) resource prices rise when the industry contracts. 
B) resource prices rise when the industry expands. 
C) resource prices fall when the industry contracts. 
D) resource prices are unaffected by the industry's expansion. 
A) resource prices rise when the industry contracts. 
B) resource prices rise when the industry expands. 
C) resource prices fall when the industry contracts. 
D) resource prices are unaffected by the industry's expansion.

Question 7

A purely competitive firm

Accepted Answer

A) must earn a normal profit in the short run. 
B) cannot earn economic profit in the long run. 
C) may realize either economic profit or losses in the long run. 
D) cannot earn economic profit in the short run. 
A) must earn a normal profit in the short run. 
B) cannot earn economic profit in the long run. 
C) may realize either economic profit or losses in the long run. 
D) cannot earn economic profit in the short run.

Question 8

Augi's Art Shack sells art supplies in a perfectly competitive market. The firm is currently realizing economic profits of $25,000 in the short run. In the long run we would expect Augi's to

Accepted Answer

A) realize economic profits greater than $0 but less than $25,000. 
B) realize economic profits of $0. 
C) realize economic losses greater than $0 but smaller than $25,000 
D) shut down. 
A) realize economic profits greater than $0 but less than $25,000. 
B) realize economic profits of $0. 
C) realize economic losses greater than $0 but smaller than $25,000 
D) shut down.

Question 9

Which of the following will not hold true for a competitive firm in long-run equilibrium?

Accepted Answer

A) P equals AFC. 
B) P equals minimum ATC. 
C) MC equals minimum ATC. 
D) P equals MC. 
A) P equals AFC. 
B) P equals minimum ATC. 
C) MC equals minimum ATC. 
D) P equals MC.

Question 10

If the long-run supply curve of a purely competitive industry slopes upward, this implies that the prices of relevant resources

Accepted Answer

A) will fall as the industry expands. 
B) are constant as the industry expands. 
C) rise as the industry contracts. 
D) rise as the industry expands. 
A) will fall as the industry expands. 
B) are constant as the industry expands. 
C) rise as the industry contracts. 
D) rise as the industry expands.

Question 11

Suppose a purely competitive, increasing-cost industry is in long-run equilibrium. Now assume that a decrease in consumer demand occurs. After all resulting adjustments have been completed, the new equilibrium price

Accepted Answer

A) and industry output will be less than the initial price and output. 
B) will be greater than the initial price, but the new industry output will be less than the original output. 
C) will be less than the initial price, but the new industry output will be greater than the original output. 
D) and industry output will be greater than the initial price and output. 
A) and industry output will be less than the initial price and output. 
B) will be greater than the initial price, but the new industry output will be less than the original output. 
C) will be less than the initial price, but the new industry output will be greater than the original output. 
D) and industry output will be greater than the initial price and output.

Question 12

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

Accepted Answer

A) cost equals marginal benefit. 
B) benefit exceeds marginal cost. 
C) cost exceeds marginal benefit. 
D) cost equals zero. 
A) cost equals marginal benefit. 
B) benefit exceeds marginal cost. 
C) cost exceeds marginal benefit. 
D) cost equals zero.

Question 13

Creative destruction is least beneficial to

Accepted Answer

A) workers in the "destroyed" industries. 
B) workers in the "created" industries. 
C) consumers. 
D) society as a whole. 
A) workers in the "destroyed" industries. 
B) workers in the "created" industries. 
C) consumers. 
D) society as a whole.

Question 14

Resources are efficiently allocated when production occurs at that output at which

Accepted Answer

A) P equals MR. 
B) P equals AVC. 
C) P exceeds MR. 
D) P equals MC. 
A) P equals MR. 
B) P equals AVC. 
C) P exceeds MR. 
D) P equals MC.

Question 15

The theory of creative destruction was advanced many years ago by

Accepted Answer

A) Bill Gates. 
B) Alfred Marshall. 
C) Joseph Schumpeter. 
D) Adam Smith. 
A) Bill Gates. 
B) Alfred Marshall. 
C) Joseph Schumpeter. 
D) Adam Smith.

Question 16

Efficiency or deadweight losses occur in purely competitive markets when P = MC = lowest ATC.

Accepted Answer

A) True 
 B)False

Question 17

Refer to the diagram. By producing at output level Q,

Accepted Answer

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

Question 18

The diagram shows the average total cost curve for a purely competitive firm. At the long-run equilibrium level of output, this firm's total revenue

Accepted Answer

A) is $10. 
B) is $40. 
C) is $400. 
D) cannot be determined from the information provided. 
A) is $10. 
B) is $40. 
C) is $400. 
D) cannot be determined from the information provided.

Question 19

In the long run for a purely competitive market, firms will earn only normal profits.

Accepted Answer

A) True 
 B)False

Question 20

If there is a decrease in demand for a product in a purely competitive industry, it results in an industry contraction that will end when the product price is

Accepted Answer

A) greater than its marginal cost. 
B) equal to its marginal cost. 
C) less than its marginal cost. 
D) greater than its average cost. 
A) greater than its marginal cost. 
B) equal to its marginal cost. 
C) less than its marginal cost. 
D) greater than its average cost.

Exam 11: Pure Competition in the Long Run

Allocative efficiency is achieved by equalizing consumer surplus and producer surplus.

If the entry or exit of firms does not affect the resource prices in an industry, we refer to it as a

Assume a purely competitive decreasing-cost industry is initially in long-run equilibrium but then there is a decrease in market demand for the product. After all economic adjustments to this new situation have taken place, product price will be

If a purely competitive firm is producing where price exceeds marginal cost, then

In long-run equilibrium, a competitive firm produces where P = MR = MC = minimum ATC and the firm earns normal economic profits.

The industry represented by the accompanying graph must be one where

A purely competitive firm

Augi's Art Shack sells art supplies in a perfectly competitive market. The firm is currently realizing economic profits of $25,000 in the short run. In the long run we would expect Augi's to

Which of the following will not hold true for a competitive firm in long-run equilibrium?

If the long-run supply curve of a purely competitive industry slopes upward, this implies that the prices of relevant resources

Suppose a purely competitive, increasing-cost industry is in long-run equilibrium. Now assume that a decrease in consumer demand occurs. After all resulting adjustments have been completed, the new equilibrium price

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

Creative destruction is least beneficial to

Resources are efficiently allocated when production occurs at that output at which

The theory of creative destruction was advanced many years ago by

Efficiency or deadweight losses occur in purely competitive markets when P = MC = lowest ATC.

Refer to the diagram. By producing at output level Q,

The diagram shows the average total cost curve for a purely competitive firm. At the long-run equilibrium level of output, this firm's total revenue

In the long run for a purely competitive market, firms will earn only normal profits.

If there is a decrease in demand for a product in a purely competitive industry, it results in an industry contraction that will end when the product price is

Limits, Alternatives, and Choices

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