Question 1

How would a purely competitive industry adjust and restore allocative efficiency when there is a change in the supply for a product?

Accepted Answer

A change in the supply of a product brou

Question 2

Resources are efficiently allocated when production occurs at that output level where price

Accepted Answer

A) equals marginal cost. 
B) equals marginal revenue. 
C) is greatest over average cost. 
D) is equal to average total cost. 
A) equals marginal cost. 
B) equals marginal revenue. 
C) is greatest over average cost. 
D) is equal to average total cost.

Question 3

If there is allocative efficiency in a purely competitive market for a product, the maximum price consumers are willing to pay is

Accepted Answer

A) less than marginal benefit. 
B) greater than marginal cost. 
C) equal to the amount of efficiency or deadweight losses. 
D) equal to the minimum price producers are willing to accept. 
A) less than marginal benefit. 
B) greater than marginal cost. 
C) equal to the amount of efficiency or deadweight losses. 
D) equal to the minimum price producers are willing to accept.

Question 4

Assume that a decline in consumer demand occurs in a purely competitive industry that is initially in long-run equilibrium. We can

Accepted Answer

A) predict that the new price will be greater than the original price. 
B) predict that the new price will be less than the original price. 
C) predict that the new price will be the same as the original price. 
D) not compare the original and the new prices without knowing what cost conditions exist in the industry. 
A) predict that the new price will be greater than the original price. 
B) predict that the new price will be less than the original price. 
C) predict that the new price will be the same as the original price. 
D) not compare the original and the new prices without knowing what cost conditions exist in the industry.

Question 5

The "invisible hand" in a competitive market pushes the firms in the market to

Accepted Answer

A) charge a price that is equal to their marginal revenue. 
B) produce an output level that allows them to earn some positive economic profits. 
C) use resources and produce output that maximize consumer and producer surplus. 
D) operate where their individual demand curve is above their long-run average cost curve. 
A) charge a price that is equal to their marginal revenue. 
B) produce an output level that allows them to earn some positive economic profits. 
C) use resources and produce output that maximize consumer and producer surplus. 
D) operate where their individual demand curve is above their long-run average cost curve.

Question 6

In long-run equilibrium, purely competitive markets

Accepted Answer

A) minimize total cost. 
B) maximize the sum of consumer surplus and producer surplus. 
C) yield economic profits to most sellers. 
D) inevitably degenerate into monopoly in increasing-cost industries. 
A) minimize total cost. 
B) maximize the sum of consumer surplus and producer surplus. 
C) yield economic profits to most sellers. 
D) inevitably degenerate into monopoly in increasing-cost industries.

Question 7

Which of the following statements is correct?

Accepted Answer

A) The long-run supply curve for a purely competitive increasing-cost industry will be upsloping. 
B) The long-run supply curve for a purely competitive increasing-cost industry will be perfectly elastic. 
C) The long-run supply curve for a purely competitive industry will be less elastic than the industry's short-run supply curve. 
D) The long-run supply curve for a purely competitive decreasing-cost industry will be upsloping. 
A) The long-run supply curve for a purely competitive increasing-cost industry will be upsloping. 
B) The long-run supply curve for a purely competitive increasing-cost industry will be perfectly elastic. 
C) The long-run supply curve for a purely competitive industry will be less elastic than the industry's short-run supply curve. 
D) The long-run supply curve for a purely competitive decreasing-cost industry will be upsloping.

Question 8

In long-run equilibrium under pure competition, all firms will produce at minimum

Accepted Answer

A) average total cost. 
B) marginal cost. 
C) total cost. 
D) average variable cost. 
A) average total cost. 
B) marginal cost. 
C) total cost. 
D) average variable cost.

Question 9

So-called creative destruction leads to all of the following except

Accepted Answer

A) new products and low-cost production techniques. 
B) more efficient use of society's scarce resources. 
C) benefits to everyone in society. 
D) hardship to some producers and workers. 
A) new products and low-cost production techniques. 
B) more efficient use of society's scarce resources. 
C) benefits to everyone in society. 
D) hardship to some producers and workers.

Question 10

Long-run competitive equilibrium

Accepted Answer

A) is realized only in constant-cost industries. 
B) will never change once it is realized. 
C) is not economically efficient. 
D) results in zero economic profits. 
A) is realized only in constant-cost industries. 
B) will never change once it is realized. 
C) is not economically efficient. 
D) results in zero economic profits.

Question 11

Innovations that lower production costs or create new products

Accepted Answer

A) are rare in competitive industries. 
B) discourage new firms from entering the industry. 
C) often generate short-run economic profits that do not last into the long run. 
D) usually generate long-run economic profits for the innovator. 
A) are rare in competitive industries. 
B) discourage new firms from entering the industry. 
C) often generate short-run economic profits that do not last into the long run. 
D) usually generate long-run economic profits for the innovator.

Question 12

An upward-sloping long-run supply curve indicates a constant-cost industry.

Accepted Answer

A) True 
 B)False

Question 13

Refer to the accompanying graphs for a competitive market in the short run. What will happen to the representative firm's economic profits as long-run market adjustments occur?

Accepted Answer

A) Profits will increase to some positive value. 
B) Profits will decrease to some negative value. 
C) Profits will increase to zero. 
D) Profits will stay the same as they are now. 
A) Profits will increase to some positive value. 
B) Profits will decrease to some negative value. 
C) Profits will increase to zero. 
D) Profits will stay the same as they are now.

Question 14

The long-run supply curve for a decreasing-cost industry is downsloping.

Accepted Answer

A) True 
 B)False

Question 15

A constant-cost industry is one in which

Accepted Answer

A) resource prices fall as output is increased. 
B) resource prices rise as output is increased. 
C) resource prices remain unchanged as output is increased. 
D) small and large levels of output entail the same total costs. 
A) resource prices fall as output is increased. 
B) resource prices rise as output is increased. 
C) resource prices remain unchanged as output is increased. 
D) small and large levels of output entail the same total costs.

Question 16

A decreasing-cost industry is one in which

Accepted Answer

A) contraction of the industry will decrease unit costs. 
B) input prices fall or technology improves as the industry expands. 
C) the long-run supply curve is perfectly elastic. 
D) the long-run supply curve is upsloping. 
A) contraction of the industry will decrease unit costs. 
B) input prices fall or technology improves as the industry expands. 
C) the long-run supply curve is perfectly elastic. 
D) the long-run supply curve is upsloping.

Question 17

If production is occurring where marginal cost exceeds price, the purely competitive firm will

Accepted Answer

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

Question 18

When a purely competitive firm is in long-run equilibrium,

Accepted Answer

A) marginal revenue exceeds marginal cost. 
B) price equals marginal cost. 
C) total revenue exceeds total cost. 
D) minimum average total cost is less than the product price. 
A) marginal revenue exceeds marginal cost. 
B) price equals marginal cost. 
C) total revenue exceeds total cost. 
D) minimum average total cost is less than the product price.

Question 19

The provided graph represents a(n)

Accepted Answer

A) decreasing-cost industry: Firms may be paying lower prices for their inputs when the industry expands. 
B) increasing-cost industry: Firms may be paying higher prices for their inputs when the industry expands. 
C) competitive industry with diseconomies of scale: The short-run supply curves are upward sloping. 
D) constant-cost industry: Prices of the inputs stay the same, and other production costs are constant as the industry expands. 
A) decreasing-cost industry: Firms may be paying lower prices for their inputs when the industry expands. 
B) increasing-cost industry: Firms may be paying higher prices for their inputs when the industry expands. 
C) competitive industry with diseconomies of scale: The short-run supply curves are upward sloping. 
D) constant-cost industry: Prices of the inputs stay the same, and other production costs are constant as the industry expands.

Question 20

The accompanying graph shows the long-run supply and demand curves in a purely competitive market. The curves suggest that this industry is

Accepted Answer

A) a constant-cost industry. 
B) an increasing-cost industry. 
C) a decreasing-cost industry. 
D) not possible, because the supply curve always slopes up. 
A) a constant-cost industry. 
B) an increasing-cost industry. 
C) a decreasing-cost industry. 
D) not possible, because the supply curve always slopes up.

Exam 11: Pure Competition in the Long Run

How would a purely competitive industry adjust and restore allocative efficiency when there is a change in the supply for a product?

Resources are efficiently allocated when production occurs at that output level where price

If there is allocative efficiency in a purely competitive market for a product, the maximum price consumers are willing to pay is

Assume that a decline in consumer demand occurs in a purely competitive industry that is initially in long-run equilibrium. We can

The "invisible hand" in a competitive market pushes the firms in the market to

In long-run equilibrium, purely competitive markets

Which of the following statements is correct?

In long-run equilibrium under pure competition, all firms will produce at minimum

So-called creative destruction leads to all of the following except

Long-run competitive equilibrium

Innovations that lower production costs or create new products

An upward-sloping long-run supply curve indicates a constant-cost industry.

Refer to the accompanying graphs for a competitive market in the short run. What will happen to the representative firm's economic profits as long-run market adjustments occur?

The long-run supply curve for a decreasing-cost industry is downsloping.

A constant-cost industry is one in which

A decreasing-cost industry is one in which

If production is occurring where marginal cost exceeds price, the purely competitive firm will

When a purely competitive firm is in long-run equilibrium,

The provided graph represents a(n)

The accompanying graph shows the long-run supply and demand curves in a purely competitive market. The curves suggest that this industry is

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