Question 1

Suppose that a competitive firm finds that in its short-run equilibrium situation, its marginal cost is higher than its average total cost.If things are not expected to change and there are constant returns to scale, then the firm will exit the industry in the long run.

Accepted Answer

A) True 
 B)False

Question 2

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 3

A purely competitive firm that is earning positive profits in its short-run equilibrium situation will continue to earn positive profits at the long-run equilibrium.

Accepted Answer

A) True 
 B)False

Question 4

In a decreasing-cost industry,

Accepted Answer

A)  there will be no firm entry because the increased supply will reduce the long-run equilibrium price.
B)  the law of demand does not apply.
C)  greater demand leads to higher long-run equilibrium prices.
D)  lower demand leads to higher long-run equilibrium prices.E) None of the above
F) A) and D)

Question 5

Efficiency or deadweight losses occur in purely competitive markets when P = MC = lowest ATC.

Accepted Answer

A) True 
 B)False

Question 6

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.E) A) and D)
F) A) and C)

Question 7

Balinâ€™s Burger Barn operates in a perfectly competitive market.Balinâ€™s is currently earning economic profits of $20,000 per year.Based on this information, we can conclude that

Accepted Answer

A)  Balinâ€™s profits will discourage new firms from entering.
B)  Balinâ€™s will increase its market price over the coming months.
C)  Balinâ€™s is operating in the short run, but not the long run.
D)  Balinâ€™s is operating in the long run.Learning Objective: 11-01 Explain how the long run differs from the short run in pure competition.E) A) and C)
F) All of the above

Question 8

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.E) B) and D)
F) All of the above

Question 9

(Last Word)  "Patent trolls"

Accepted Answer

A)  block firms from acquiring patents on intellectual property.
B)  buy up patents in order to collect royalties and sue other companies.
C)  legally challenge new patent applications in an effort to extract rents.
D)  promote innovation by keeping firms from having a stranglehold on intellectual property.E) B) and D)
F) B) and C)

Question 10

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.E) A) and D)
F) B) and C)

Question 11

Suppose a purely competitive, increasing-cost industry is in long-run equilibrium.Now assume that a decrease in consumer demand occurs.After all resulting 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 greater than the initial price, but the new industry output will be less than the original output.
C)  will be less than the initial price, but the new industry output will be greater than the original output.
D)  and industry output will be greater than the initial price and output.E) B) and C)
F) C) and D)

Question 12

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 societyâ€™s scarce resources.
C)  benefits to everyone in society.
D)  hardship to some producers and workers.E) A) and B)
F) All of the above

Question 13

Which of the following distinguishes the short run from the long run in pure competition?

Accepted Answer

A)  Firms can enter and exit the market in the long run but not in the short run.
B)  Firms attempt to maximize profits in the long run but not in the short run.
C)  Firms use the MR = MC rule to maximize profits in the short run but not in the long run.
D)  The quantity of labor hired can vary in the long run but not in the short run.E) B) and C)
F) B) and D)

Question 14

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.E) C) and D)
F) A) and B)

Question 15

Which of the following conditions is true for a purely competitive firm in long-run equilibrium?

Accepted Answer

A) P > MC = minimum ATC. B) P > MC > minimum ATC. C) P = MC = minimum ATC. D) P < MC < minimum ATC.E) None of the above F) B) and C)

Question 16

Assume the market for ball bearings is purely competitive.Currently, each of the firms in this market is earning positive economic profits.In the long run, as adjustments occur in the industry, we can expect the market price of ball bearings to

Accepted Answer

A)  increase and individual firms' profits to decrease.
B)  increase and individual firms' profits to increase.
C)  decrease and individual firms' profits to increase.
D)  decrease and individual firms' profits to decrease.E) All of the above
F) A) and B)

Question 17

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 18

Allocative efficiency means that

Accepted Answer

A)  the product is produced at the lowest unit-cost possible.
B)  societyâ€™s scarce resources are used to produce products that align with consumer preferences.
C)  the product is sold at a price equal to the average cost of producing it.
D)  the marginal benefit of the product exceeds its marginal cost.E) A) and D)
F) A) and C)

Question 19

After all long-run adjustments have been completed, a firm in a competitive industry will produce that level of output where average total cost is at a minimum.

Accepted Answer

A) True 
 B)False

Question 20

If a competitive firm successfully adopts a better production technology ahead of the others, then

Accepted Answer

A)  its product price will become lower than the others'.
B)  its average cost will become higher than the others'.
C)  its profits will become higher than the others'.
D)  its marginal revenue will become higher than the others'.E) A) and D)
F) C) and D)

Exam 11: Pure Competition in the Long Run

Suppose a purely competitive, increasing-cost industry is in long-run equilibrium.Now assume that a decrease in consumer demand occurs.After all resulting adjustments have been completed, the new equilibrium price

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

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In a decreasing-cost industry,

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Efficiency or deadweight losses occur in purely competitive markets when P = MC = lowest ATC.

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

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Balinâ€™s Burger Barn operates in a perfectly competitive market.Balinâ€™s is currently earning economic profits of $20,000 per year.Based on this information, we can conclude that

Correct AnswerverifiedShow Answer

The theory of creative destruction was advanced many years ago by

Correct AnswerverifiedShow Answer

After all long-run adjustments have been completed, a firm in a competitive industry will produce that level of output where average total cost is at a minimum.

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If a competitive firm successfully adopts a better production technology ahead of the others, then

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Which of the following distinguishes the short run from the long run in pure competition?

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Suppose that a competitive firm finds that in its short-run equilibrium situation, its marginal cost is higher than its average total cost.If things are not expected to change and there are constant returns to scale, then the firm will exit the industry in the long run.

Correct AnswerverifiedShow Answer

Assume the market for ball bearings is purely competitive.Currently, each of the firms in this market is earning positive economic profits.In the long run, as adjustments occur in the industry, we can expect the market price of ball bearings to

Correct AnswerverifiedShow Answer

Allocative efficiency means that

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

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Allocative efficiency occurs whenever

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A purely competitive firm that is earning positive profits in its short-run equilibrium situation will continue to earn positive profits at the long-run equilibrium.

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Which of the following conditions is true for a purely competitive firm in long-run equilibrium?

Correct AnswerverifiedShow Answer

(Last Word) "Patent trolls"

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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