Question 1

The elimination principle:

Accepted Answer

A)  holds in all places and in all times. 
B)  says that below-normal profits may be eliminated by the entry of new firms. 
C)  depends on government protection. 
D)  says that above-normal profits are eliminated by entry and below-normal profits are eliminated by exit. 
A)  holds in all places and in all times. 
B)  says that below-normal profits may be eliminated by the entry of new firms. 
C)  depends on government protection. 
D)  says that above-normal profits are eliminated by entry and below-normal profits are eliminated by exit.

Question 2

In the long run, competitive firms want to exit industries in which:

Accepted Answer

A) P = MC. B) P > MC. C) P > AC. D) P < AC. A) P = MC. B) P > MC. C) P > AC. D) P < AC.

Question 3

A competitive firm maximizes profit when marginal cost:

Accepted Answer

A)  equals the price. 
B)  is less than the price. 
C)  is greater than the price. 
D)  is minimized. 
A)  equals the price. 
B)  is less than the price. 
C)  is greater than the price. 
D)  is minimized.

Question 4

If there are above-normal short run profits in an industry, there will be:

Accepted Answer

A)  entry. 
B)  exit. 
C)  no entry or exit. 
D)  below-normal profits in the next period. 
A)  entry. 
B)  exit. 
C)  no entry or exit. 
D)  below-normal profits in the next period.

Question 5

Which of the following best illustrates a market in which the invisible hand works well?

Accepted Answer

A)  designer jeans 
B)  automobiles 
C)  computers 
D)  eggs 
A)  designer jeans 
B)  automobiles 
C)  computers 
D)  eggs

Question 6

If there are below-normal short run profits in an industry, there will be:

Accepted Answer

A)  entry. 
B)  exit. 
C)  no entry or exit. 
D)  below-normal profits in the next period. 
A)  entry. 
B)  exit. 
C)  no entry or exit. 
D)  below-normal profits in the next period.

Question 7

Which of the following statements is TRUE?

Accepted Answer

A)  Even entrepreneurs cannot earn above-normal profits in a competitive marketplace. 
B)  In a competitive market, above-normal profits will be eliminated by entry of new firms. 
C)  In a competitive market, below-normal profits are common. 
D)  The most profitable firms will always have the lowest opportunity costs. 
A)  Even entrepreneurs cannot earn above-normal profits in a competitive marketplace. 
B)  In a competitive market, above-normal profits will be eliminated by entry of new firms. 
C)  In a competitive market, below-normal profits are common. 
D)  The most profitable firms will always have the lowest opportunity costs.

Question 8

The economic problem with monopolistic industries is that:

Accepted Answer

A)  they charge too high of prices. 
B)  not enough resources move into the industry, leaving output too low. 
C)  profits are too low. 
D)  profits are too high. 
A)  they charge too high of prices. 
B)  not enough resources move into the industry, leaving output too low. 
C)  profits are too low. 
D)  profits are too high.

Question 9

Monopolists earn ______ profits in the long run.

Accepted Answer

A)  normal 
B)  above-normal 
C)  below-normal 
D)  abnormal 
A)  normal 
B)  above-normal 
C)  below-normal 
D)  abnormal

Question 10

Competitive firms want to enter industries in which:

Accepted Answer

A)  P = MC. 
B)  P  AC. 
D)  P < MC. 
A)  P = MC. 
B)  P  AC. 
D)  P < MC.

Question 11

According to economist Joseph Schumpeter, competition is about pushing price:

Accepted Answer

A)  above marginal cost. 
B)  below marginal cost. 
C)  to marginal cost. 
D)  to zero. 
A)  above marginal cost. 
B)  below marginal cost. 
C)  to marginal cost. 
D)  to zero.

Question 12

As entrepreneurs move resources into and out of industries seeking higher profit rates, the total value of production gets maximized.

Accepted Answer

A) True 
 B)False

Question 13

If a firm has revenues of $125, explicit costs of $25, and implicit costs of $50, then its accounting profit is:

Accepted Answer

A)  $0. 
B)  $50. 
C)  $100. 
D)  $500. 
A)  $0. 
B)  $50. 
C)  $100. 
D)  $500.

Question 14

It is good when entrepreneurs move capital and labor resources from low-profit industries to high-profit industries.

Accepted Answer

A) True 
 B)False

Question 15

In a perfectly competitive market, each firm produces its last unit at:

Accepted Answer

A)  the same marginal cost. 
B)  a unique marginal cost. 
C)  one of two marginal costs. 
D)  one of several marginal costs. 
A)  the same marginal cost. 
B)  a unique marginal cost. 
C)  one of two marginal costs. 
D)  one of several marginal costs.

Question 16

Explain two ways in which the competitive industry displays the actions of the invisible hand.

Accepted Answer

(1) Since each firm faces the same price

Question 17

In the long run, firms will enter industries where price is:

Accepted Answer

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

Question 18

Friedrich Hayek described the Invisible Hand Properties as:

Accepted Answer

A)  "products of human design but not of human action." 
B)  "products of human action and human design." 
C)  "products of human action but not of human design." 
D)  "products of neither human action nor human design." 
A)  "products of human design but not of human action." 
B)  "products of human action and human design." 
C)  "products of human action but not of human design." 
D)  "products of neither human action nor human design."

Question 19

Which of the following best illustrates how resources move from low-value industries to high-value industries in competitive markets?

Accepted Answer

A)  Entrepreneurs will always find the market in which price is the highest and increase production in it. 
B)  The invisible hand will always equate prices in the long run. 
C)  Entrepreneurs will move production from low-profit industries to high-profit industries. 
D)  Firms will always be able to recognize high- and low- value industries simply by looking at their costs of production. 
A)  Entrepreneurs will always find the market in which price is the highest and increase production in it. 
B)  The invisible hand will always equate prices in the long run. 
C)  Entrepreneurs will move production from low-profit industries to high-profit industries. 
D)  Firms will always be able to recognize high- and low- value industries simply by looking at their costs of production.

Question 20

According to Joseph Schumpeter, firms face more competition from innovations that have not been discovered yet than from other firms.

Accepted Answer

A) True 
 B)False

Exam 12: Competition and the Invisible Hand

The elimination principle:

In the long run, competitive firms want to exit industries in which:

A competitive firm maximizes profit when marginal cost:

If there are above-normal short run profits in an industry, there will be:

Which of the following best illustrates a market in which the invisible hand works well?

If there are below-normal short run profits in an industry, there will be:

Which of the following statements is TRUE?

The economic problem with monopolistic industries is that:

Monopolists earn ______ profits in the long run.

Competitive firms want to enter industries in which:

According to economist Joseph Schumpeter, competition is about pushing price:

As entrepreneurs move resources into and out of industries seeking higher profit rates, the total value of production gets maximized.

If a firm has revenues of $125, explicit costs of $25, and implicit costs of $50, then its accounting profit is:

It is good when entrepreneurs move capital and labor resources from low-profit industries to high-profit industries.

In a perfectly competitive market, each firm produces its last unit at:

Explain two ways in which the competitive industry displays the actions of the invisible hand.

In the long run, firms will enter industries where price is:

Friedrich Hayek described the Invisible Hand Properties as:

Which of the following best illustrates how resources move from low-value industries to high-value industries in competitive markets?

According to Joseph Schumpeter, firms face more competition from innovations that have not been discovered yet than from other firms.

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Elasticity and Its Applications

Taxes and Subsidies

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Monopoly

Price Discrimination

Oligopoly and Game Theory

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Price Discrimination

Consumer Choice

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