Question 1

Marginal cost is a measure of the alternative goods that society forgoes in using resources to produce an additional unit of some specific product.

Accepted Answer

A) True 
 B)False

Question 2

Competitive firms will always try to earn more than a normal profit by doing the following except

Accepted Answer

A)  adopting better production technology. 
B)  improving their business organization and operation. 
C)  developing new products. 
D)  raising the prices of their existing products.

Question 3

Suppose that an industry's long-run supply curve is downsloping. This suggests that

Accepted Answer

A)  it is an increasing-cost industry. 
B)  relevant inputs have become more expensive as the industry has expanded. 
C)  technology has become less efficient as a result of the industry's expansion. 
D)  it is a decreasing-cost industry.

Question 4

In the context of analyzing economic efficiency, we can interpret the market supply curve to be showing

Accepted Answer

A)  the average cost of producing the product at each output level. 
B)  the marginal revenue from each extra unit of the product. 
C)  the average variable cost of producing the product. 
D)  the marginal opportunity cost to produce each unit of the product.

Question 5

The fact that the life expectancy of a US business is rather short-just 10.2 years-is a reflection of the consequences of

Accepted Answer

A)  competition and creative destruction. 
B)  producer and consumer surplus. 
C)  productive and allocative efficiency. 
D)  short-run and long-run equilibrium.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

In the long run, assuming that market demand stays the same, if firms in a competitive industry expand, then the product price will tend to fall as a result.

Accepted Answer

A) True 
 B)False

Question 8

Assume that the market for corn is purely competitive. Currently, firms growing corn are suffering economic losses. In the long run, we can expect

Accepted Answer

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

Question 9

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.

Question 10

In a purely competitive market at its long-run equilibrium, which of the following is not true?

Accepted Answer

A)  Price equals marginal cost, and they are equal to the lowest attainable average cost of production. 
B)  The marginal benefit of the last unit of the product equals the marginal cost of producing that unit. 
C)  The maximum willingness of buyers to pay for the last unit of the product equals the minimum acceptable price for the seller of that unit. 
D)  The combined amount of consumer and producer surpluses is at its minimum possible.

Question 11

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.

Question 12

Creative destruction is illustrated by which of the following pairs of products?

Accepted Answer

A)  bicycles and helmets 
B)  digital cameras and film 
C)  DVD players and DVDs 
D)  Netflix and iPads

Question 13

Which of the following statements about pure competition in the long run is not true?

Accepted Answer

A)  Entry and exit of firms will push economic profits of firms in the industry toward zero. 
B)  Entry and exit of firms will shift the demand curve facing the representative firm in the industry. 
C)  The long-run adjustment in pure competition happens through shifts in the industry supply curve. 
D)  The long-run adjustment in pure competition happens through shifts in the industry demand curve.

Question 14

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 15

In a purely competitive industry,

Accepted Answer

A)  there will be no economic profits in either the short run or the long run. 
B)  economic profits may persist in the long run if consumer demand is strong and stable. 
C)  there may be economic profits in the short run but not in the long run. 
D)  there may be economic profits in the long run but not in the short run.

Question 16

Under pure competition, in the long run

Accepted Answer

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

Question 17

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 18

When some firms leave a purely competitive industry, the market supply curve will shift in such a way that the remaining firms' profits will increase.

Accepted Answer

A) True 
 B)False

Question 19

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's

Accepted Answer

A)  supply curve will shift to the left. 
B)  supply curve will shift to the right. 
C)  demand curve will shift to the left. 
D)  demand curve will shift to the right.

Question 20

Long-run adjustments in purely competitive markets primarily take the form of

Accepted Answer

A)  variations in the cost curves of different firms in the market. 
B)  entry or exit of firms in the market. 
C)  evolution of the market from a constant-cost to an increasing-cost industry. 
D)  product differentiation.

Exam 11: Pure Competition in the Long Run

Marginal cost is a measure of the alternative goods that society forgoes in using resources to produce an additional unit of some specific product.

Competitive firms will always try to earn more than a normal profit by doing the following except

Suppose that an industry's long-run supply curve is downsloping. This suggests that

In the context of analyzing economic efficiency, we can interpret the market supply curve to be showing

The fact that the life expectancy of a US business is rather short-just 10.2 years-is a reflection of the consequences of

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

In the long run, assuming that market demand stays the same, if firms in a competitive industry expand, then the product price will tend to fall as a result.

Assume that the market for corn is purely competitive. Currently, firms growing corn are suffering economic losses. In the long run, we can expect

The theory of creative destruction was advanced many years ago by

In a purely competitive market at its long-run equilibrium, which of the following is not true?

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

Creative destruction is illustrated by which of the following pairs of products?

Which of the following statements about pure competition in the long run is not true?

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

In a purely competitive industry,

Under pure competition, in the long run

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

When some firms leave a purely competitive industry, the market supply curve will shift in such a way that the remaining firms' profits will increase.

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's

Long-run adjustments in purely competitive markets primarily take the form of