Question 1

Assume a purely competitive increasing-cost industry is initially in long-run equilibrium and that an increase in consumer demand occurs. After all economic adjustments have been completed, product price will be

Accepted Answer

A) lower, but total output will be larger than originally. 
B) higher, and total output will be larger than originally. 
C) lower, and total output will be smaller than originally. 
D) higher, but total output will be smaller than originally.

Question 2

The economic profits generated by Elon Musk's series of innovations are most threatened by

Accepted Answer

A) rival firms entering the market or copying Musk's innovations. 
B) government regulation. 
C) lack of demand for the goods and services they produce. 
D) the lack of cost efficiency in producing these goods and services.

Question 3

Suppose that the corn market is purely competitive. If the corn farmers are currently earning negative economic profits, then we would expect that in the long run the market

Accepted Answer

A) supply will decrease. 
B) supply will increase. 
C) demand will decrease. 
D) demand will increase.

Question 4

Allocative efficiency occurs whenever

Accepted Answer

A) consumer surplus is maximized. 
B) it is impossible to produce a net benefit for society by changing the combination of goods and services produced. 
C) firms have maximized their profits. 
D) it is impossible to make someone in society better off without making someone else worse off.

Question 5

When a purely competitive industry is in long-run equilibrium, which statement is true?

Accepted Answer

A) Average total cost is less than marginal cost. 
B) Price and average total cost are equal. 
C) Marginal cost is at its maximum level. 
D) Marginal revenue is greater than price.

Question 6

The long-run supply curve under pure competition is derived by observing what happens to market price and quantity when market

Accepted Answer

A) demand changes and all consequent long-run adjustments have occurred. 
B) supply changes and all consequent long-run adjustments have occurred. 
C) technology changes and all consequent long-run adjustments have occurred. 
D) regulation changes and all consequent long-run adjustments have occurred.

Question 7

The process by which new firms and new products destroy existing dominant firms and their products is called creative destruction.

Accepted Answer

A) True 
 B)False

Question 8

If firms enter a purely competitive industry, then in the long run this change will shift the industry

Accepted Answer

A) demand curve to the left, and the individual firm's demand curve will shift down. 
B) demand curve to the right, and the individual firm's demand curve will shift up. 
C) supply curve to the right, and the individual firm's demand curve will shift down. 
D) supply curve to the left, and the individual firm's demand curve will shift up.

Question 9

Assume a purely competitive constant-cost industry is initially at long-run equilibrium. Now suppose that a decrease in demand occurs. After all the long-run 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 the same as the initial price, and the output will be less. 
C) will be greater than the initial, but the new output will be less. 
D) will be less than the initial price, but the new output will be greater.

Question 10

The long-run supply curve for a purely competitive industry would be horizontal when

Accepted Answer

A) an increase in product demand causes an increase in resource prices. 
B) an increase in product demand causes a decrease in resource prices. 
C) a decrease in product demand causes a decrease in the number of firms. 
D) a decrease in product demand has no effect on resource prices.

Question 11

List at least three of the companies created by the well-known entrepreneur, Elon Musk.

Accepted Answer

The answer of List at least three of the companies...

Question 12

An increasing-cost industry is associated with

Accepted Answer

A) a perfectly elastic long-run supply curve. 
B) an upsloping long-run supply curve. 
C) a perfectly inelastic long-run supply curve. 
D) an upsloping long-run demand curve.

Question 13

Refer to the accompanying graphs for a competitive market in the short run. Which of the following statements is true?

Accepted Answer

A) The representative firm will increase production. 
B) The representative firm is experiencing economic losses. 
C) The representative firm is breaking even. 
D) The representative firm is making economic profits.

Question 14

Which of the following statements about a competitive firm is correct?

Accepted Answer

A) To maximize profits, a competitive firm should produce the output level at which total revenue is greatest. 
B) In long-run equilibrium, a competitive firm will produce at the point of minimum average total costs. 
C) A competitive firm will produce in the short run so long as total receipts are sufficient to cover total fixed costs. 
D) A competitive firm will close down in the short run whenever price is less than the minimum attainable average total cost.

Question 15

A purely competitive firm is precluded from making economic profits in the long run because

Accepted Answer

A) it is a "price taker." 
B) its demand curve is perfectly elastic. 
C) of unimpeded entry to the industry. 
D) it produces a differentiated product.

Question 16

In the long run for a purely competitive market, firms may enter or exit the industry, but the firms that stay in the industry will maintain their initial plant sizes.

Accepted Answer

A) True 
 B)False

Question 17

What happens in a decreasing-cost industry when some firms leave and the industry's output contracts?

Accepted Answer

A) The average cost will increase. 
B) The average cost will decrease. 
C) The total cost will decrease. 
D) The product price will decrease.

Question 18

Refer to the accompanying graphs for a competitive market in the short run. What will happen in the long run to industry supply and the equilibrium price, P, of the product?

Accepted Answer

A) S will decrease; P will decrease. 
B) S will increase; P will decrease. 
C) S will decrease; P will increase. 
D) S will increase; P will increase.

Question 19

Creative destruction entails both costs as well as benefits to society.

Accepted Answer

A) True 
 B)False

Question 20

Refer to the diagrams, which pertain to a purely competitive firm producing output q and the industry in which it operates. In the long run we should expect

Accepted Answer

A) firms to enter the industry, market supply to rise, and product price to fall. 
B) firms to leave the industry, market supply to rise, and product price to fall. 
C) firms to leave the industry, market supply to fall, and product price to rise. 
D) no change in the number of firms in this industry.

Exam 11: Pure Competition in the Long Run

Assume a purely competitive increasing-cost industry is initially in long-run equilibrium and that an increase in consumer demand occurs. After all economic adjustments have been completed, product price will be

The economic profits generated by Elon Musk's series of innovations are most threatened by

Suppose that the corn market is purely competitive. If the corn farmers are currently earning negative economic profits, then we would expect that in the long run the market

Allocative efficiency occurs whenever

When a purely competitive industry is in long-run equilibrium, which statement is true?

The long-run supply curve under pure competition is derived by observing what happens to market price and quantity when market

The process by which new firms and new products destroy existing dominant firms and their products is called creative destruction.

If firms enter a purely competitive industry, then in the long run this change will shift the industry

Assume a purely competitive constant-cost industry is initially at long-run equilibrium. Now suppose that a decrease in demand occurs. After all the long-run adjustments have been completed, the new equilibrium price

The long-run supply curve for a purely competitive industry would be horizontal when

List at least three of the companies created by the well-known entrepreneur, Elon Musk.

An increasing-cost industry is associated with

Refer to the accompanying graphs for a competitive market in the short run. Which of the following statements is true?

Which of the following statements about a competitive firm is correct?

A purely competitive firm is precluded from making economic profits in the long run because

In the long run for a purely competitive market, firms may enter or exit the industry, but the firms that stay in the industry will maintain their initial plant sizes.

What happens in a decreasing-cost industry when some firms leave and the industry's output contracts?

Refer to the accompanying graphs for a competitive market in the short run. What will happen in the long run to industry supply and the equilibrium price, P, of the product?

Creative destruction entails both costs as well as benefits to society.

Refer to the diagrams, which pertain to a purely competitive firm producing output q and the industry in which it operates. In the long run we should expect