Question 1

If the price of product Y is $25 and its marginal cost is $18,

Accepted Answer

A) Y is being produced with the least-cost combination of resources. 
B) society will realize a net gain if less of Y is produced. 
C) resources are being underallocated to Y. 
D) resources are being overallocated to Y. 
A) Y is being produced with the least-cost combination of resources. 
B) society will realize a net gain if less of Y is produced. 
C) resources are being underallocated to Y. 
D) resources are being overallocated to Y.

Question 2

The long-run supply curve under pure competition will be

Accepted Answer

A) downward-sloping in a decreasing-cost industry and upward-sloping in an increasing-cost industry. 
B) horizontal in a constant-cost industry and downward-sloping in an increasing-cost industry. 
C) vertical in a constant-cost industry and upward-sloping in a decreasing-cost industry. 
D) upward-sloping in an increasing-cost industry and vertical in a constant-cost industry. 
A) downward-sloping in a decreasing-cost industry and upward-sloping in an increasing-cost industry. 
B) horizontal in a constant-cost industry and downward-sloping in an increasing-cost industry. 
C) vertical in a constant-cost industry and upward-sloping in a decreasing-cost industry. 
D) upward-sloping in an increasing-cost industry and vertical in a constant-cost industry.

Question 3

Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good and the market price of the product.

Accepted Answer

A) True 
 B)False

Question 4

The long-run supply curve would be perfectly elastic when

Accepted Answer

A) an increase in demand does not cause a change in product price. 
B) an increase in demand causes an increase in product price. 
C) a decrease in demand causes an increase in short-run supply. 
D) a decrease in demand causes an increase in product price. 
A) an increase in demand does not cause a change in product price. 
B) an increase in demand causes an increase in product price. 
C) a decrease in demand causes an increase in short-run supply. 
D) a decrease in demand causes an increase in product price.

Question 5

The primary force encouraging the entry of new firms into a purely competitive industry is

Accepted Answer

A) normal profits earned by firms already in the industry. 
B) economic profits earned by firms already in the industry. 
C) government subsidies for start-up firms. 
D) a desire to provide goods for the betterment of society. 
A) normal profits earned by firms already in the industry. 
B) economic profits earned by firms already in the industry. 
C) government subsidies for start-up firms. 
D) a desire to provide goods for the betterment of society.

Question 6

In purely competitive market, the entry and exit of firms will push price toward equality with marginal revenue.

Accepted Answer

A) True 
 B)False

Question 7

Allocative efficiency is achieved when the production of a good occurs where

Accepted Answer

A) P = minimum ATC. 
B) P = MC. 
C) P = minimum AVC. 
D) total revenue is equal to TFC. 
A) P = minimum ATC. 
B) P = MC. 
C) P = minimum AVC. 
D) total revenue is equal to TFC.

Question 8

If a purely competitive constant-cost industry is realizing economic profits, we can expect industry supply to

Accepted Answer

A) increase, output to rise, price to fall, and profits to fall. 
B) increase, output to rise, price to rise, and profits to fall. 
C) decrease, output to fall, price to rise, and profits to fall. 
D) increase, output to fall, price to fall, and profits to fall. 
A) increase, output to rise, price to fall, and profits to fall. 
B) increase, output to rise, price to rise, and profits to fall. 
C) decrease, output to fall, price to rise, and profits to fall. 
D) increase, output to fall, price to fall, and profits to fall.

Question 9

Describe the transition of the music listening industry in terms of creative destruction.

Accepted Answer

Cassettes replaced records before being

Question 10

An industry where a change in the number of firms does not affect the prices of the resources used in the industry will have a long-run supply curve that is

Accepted Answer

A) vertical. 
B) horizontal. 
C) upsloping. 
D) downsloping. 
A) vertical. 
B) horizontal. 
C) upsloping. 
D) downsloping.

Question 11

Refer to the diagram. At output level Q2,

Accepted Answer

A) resources are overallocated to this product and productive efficiency is not realized. 
B) resources are underallocated to this product and productive efficiency is not realized. 
C) productive efficiency is achieved, but resources are underallocated to this product. 
D) productive efficiency is achieved, but resources are overallocated to this product. 
A) resources are overallocated to this product and productive efficiency is not realized. 
B) resources are underallocated to this product and productive efficiency is not realized. 
C) productive efficiency is achieved, but resources are underallocated to this product. 
D) productive efficiency is achieved, but resources are overallocated to this product.

Question 12

Under what conditions would an increase in demand lead to a lower long-run equilibrium price?

Accepted Answer

A) The firms in the market are part of a decreasing-cost industry. 
B) The firms in the market produce an inferior good. 
C) Potential new firms in the market are not attracted by economic profits. 
D) Increases in demand cannot lead to lower long-run equilibrium prices. 
A) The firms in the market are part of a decreasing-cost industry. 
B) The firms in the market produce an inferior good. 
C) Potential new firms in the market are not attracted by economic profits. 
D) Increases in demand cannot lead to lower long-run equilibrium prices.

Question 13

What is the basic conclusion that is to be drawn from the chapter? On what two facts is this conclusion based?

Accepted Answer

The basic conclusion is that after all l

Question 14

If a purely competitive increasing-cost industry is realizing economic losses, we can expect industry supply to

Accepted Answer

A) decrease, output to fall, price to rise, and profits to rise. 
B) decrease, output to fall, price to fall, and profits to rise. 
C) increase, output to rise, price to fall, and profits to rise. 
D) decrease, output to rise, price to rise, and profits to rise. 
A) decrease, output to fall, price to rise, and profits to rise. 
B) decrease, output to fall, price to fall, and profits to rise. 
C) increase, output to rise, price to fall, and profits to rise. 
D) decrease, output to rise, price to rise, and profits to rise.

Question 15

A constant-cost industry is one in which

Accepted Answer

A) a higher price per unit will not result in an increased output. 
B) 100 units can be produced for $100, then 150 can be produced for $150, 200 for $200, and so forth. 
C) the demand curve and therefore the unit price and quantity sold seldom change. 
D) the total cost of producing 200 or 300 units is no greater than the cost of producing 100 units. 
A) a higher price per unit will not result in an increased output. 
B) 100 units can be produced for $100, then 150 can be produced for $150, 200 for $200, and so forth. 
C) the demand curve and therefore the unit price and quantity sold seldom change. 
D) the total cost of producing 200 or 300 units is no greater than the cost of producing 100 units.

Question 16

Assume that the market for soybeans is purely competitive. Currently, firms growing soybeans are earning positive economic profits. In the long run, we can expect

Accepted Answer

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

Question 17

Which of the following statements is correct?

Accepted Answer

A) Economic profits induce firms to enter an industry; losses encourage firms to leave. 
B) Economic profits induce firms to leave an industry; profits encourage firms to leave. 
C) Economic profits and losses have no significant impact on the growth or decline of an industry. 
D) Normal profits will cause an industry to expand. 
A) Economic profits induce firms to enter an industry; losses encourage firms to leave. 
B) Economic profits induce firms to leave an industry; profits encourage firms to leave. 
C) Economic profits and losses have no significant impact on the growth or decline of an industry. 
D) Normal profits will cause an industry to expand.

Question 18

If the price of bottled water is $2 and the marginal cost of producing it is $2.5,

Accepted Answer

A) bottled water is being produced in an increasing-cost industry. 
B) society will realize a net gain if more bottled water is produced. 
C) resources are being overallocated to bottled water. 
D) resources are being underallocated to all other goods. 
A) bottled water is being produced in an increasing-cost industry. 
B) society will realize a net gain if more bottled water is produced. 
C) resources are being overallocated to bottled water. 
D) resources are being underallocated to all other goods.

Question 19

When a purely competitive firm is in long-run equilibrium, it is said to achieve allocative efficiency because

Accepted Answer

A) total revenue is at a maximum. 
B) marginal cost equals marginal revenue. 
C) average cost equals marginal cost. 
D) average cost is at a minimum. 
A) total revenue is at a maximum. 
B) marginal cost equals marginal revenue. 
C) average cost equals marginal cost. 
D) average cost is at a minimum.

Question 20

Suppose the table above represents the long-run cost structure for a firm in a perfectly competitive industry. Based on this information we can conclude that this firm operates in

Accepted Answer

A) an industry incapable of reaching long-run equilibrium. 
B) a constant-cost industry. 
C) an increasing-cost industry. 
D) a decreasing- cost industry. 
A) an industry incapable of reaching long-run equilibrium. 
B) a constant-cost industry. 
C) an increasing-cost industry. 
D) a decreasing- cost industry.

Exam 11: Pure Competition in the Long Run

If the price of product Y is $25 and its marginal cost is $18,

The long-run supply curve under pure competition will be

Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good and the market price of the product.

The long-run supply curve would be perfectly elastic when

The primary force encouraging the entry of new firms into a purely competitive industry is

In purely competitive market, the entry and exit of firms will push price toward equality with marginal revenue.

Allocative efficiency is achieved when the production of a good occurs where

If a purely competitive constant-cost industry is realizing economic profits, we can expect industry supply to

Describe the transition of the music listening industry in terms of creative destruction.

An industry where a change in the number of firms does not affect the prices of the resources used in the industry will have a long-run supply curve that is

Refer to the diagram. At output level Q2,

Under what conditions would an increase in demand lead to a lower long-run equilibrium price?

What is the basic conclusion that is to be drawn from the chapter? On what two facts is this conclusion based?

If a purely competitive increasing-cost industry is realizing economic losses, we can expect industry supply to

A constant-cost industry is one in which

Assume that the market for soybeans is purely competitive. Currently, firms growing soybeans are earning positive economic profits. In the long run, we can expect

Which of the following statements is correct?

If the price of bottled water is $2 and the marginal cost of producing it is $2.5,

When a purely competitive firm is in long-run equilibrium, it is said to achieve allocative efficiency because

Suppose the table above represents the long-run cost structure for a firm in a perfectly competitive industry. Based on this information we can conclude that this firm operates in

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

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters

Refer to the diagram. At output level Q₂,