Question 1

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 2

When LCD televisions first came on the market, they sold for at least $1,000, and some for much more.Now many units can be purchased for under $400.These facts imply that

Accepted Answer

A)  the LCD television industry was once competitive but is now monopolistic.
B)  fewer firms produce LCD televisions than was the case five or ten years ago.
C)  the demand curve for LCD televisions has shifted leftward.
D)  the LCD television industry is a decreasing-cost industry.Difficulty: 02 Medium

Question 3

The representative firm in a purely competitive industry

Accepted Answer

A)  will always earn a profit in the short run.
B)  may earn either an economic profit or a loss in the long run.
C)  will always earn an economic profit in the long run.
D)  will earn zero economic profit in the long run.

Question 4

Which would indicate that a firm is operating under conditions of pure competition and is being productively efficient?

Accepted Answer

A)  It is making economic profits in the long run.
B)  Marginal cost equals average variable cost.
C)  It produces at the minimum average total cost.
D)  Its marginal revenue is less than average revenue.

Question 5

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.

Question 6

Suppose an increase in product demand occurs in a decreasing-cost industry.As a result,

Accepted Answer

A)  the new long-run equilibrium price will be lower than the original long-run equilibrium price.
B)  equilibrium quantity will decline.
C)  firms will eventually leave the industry.
D)  the new long-run equilibrium price will be higher than the original price.

Question 7

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.

Question 8

A purely competitive firm

Accepted Answer

A)  must earn a normal profit in the short run.
B)  cannot earn economic profit in the long run.
C)  may realize either economic profit or losses in the long run.
D)  cannot earn economic profit in the short run.

Question 9

A patent gives a firm the power to charge a price that

Accepted Answer

A)  is below equilibrium.
B)  is higher than marginal cost.
C)  increases the consumer surplus.
D)  results in overproduction of a product.

Question 10

Which of the following outcomes is consistent with a purely competitive market in long-run equilibrium?

Accepted Answer

A)  Combined consumer and producer surplus will be maximized.
B)  P = MC = lowest AVC.
C)  The minimum willingness to pay equals the maximum acceptable price.
D)  We would expect all of these to occur in the long run in a purely competitive market.

Question 11

Resources are efficiently allocated when production occurs where

Accepted Answer

A)  marginal cost equals average variable cost.
B)  price is equal to average revenue.
C)  price is equal to marginal cost.
D)  price is equal to average variable cost.

Question 12

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 13

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 14

Under what conditions would an increase in demand lead to a lower long-run equilibrium price?

Accepted Answer

A)  The firms in the market are part of a decreasing-cost industry.
B)  The firms in the market produce an inferior good.
C)  Potential new firms in the market are not attracted by economic profits.
D)  Increases in demand cannot lead to lower long-run equilibrium prices.

Question 15

If a purely competitive constant-cost industry is realizing economic profits, we can expect industry supply to

Accepted Answer

A)  increase, output to increase, price to decrease, and profits to decrease.
B)  increase, output to increase, price to increase, and profits to decrease.
C)  decrease, output to decrease, price to increase, and profits to increase.
D)  increase, output to decrease, price to decrease, and profits to decrease.

Question 16

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 17

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 18

When entrepreneurs in competitive industries successfully innovate to lower production costs, it usually results in long-run economic profits for the firm.

Accepted Answer

A) True 
 B)False

Question 19

In pure competition, if the market price of the product is higher than the minimum average cost of the firms, then

Accepted Answer

A)  some firms will exit the industry and the industry supply will decrease.
B)  other firms will enter the industry and the industry supply will increase.
C)  some firms will exit the industry and the industry supply will increase.
D)  other firms will enter the industry and the industry supply will decrease.

Question 20

One explanation for the existence of an increasing-cost industry is that

Accepted Answer

A)  increasing marginal returns to labor occur.
B)  firms produce beyond the point of minimum long-run average total costs.
C)  perfectly elastic long-run supply schedules are observed in the industry.
D)  as the industry expands, prices are bid up for some factors of production.

Exam 11: Pure Competition in the Long Run

A patent gives a firm the power to charge a price that

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Innovations that lower production costs or create new products

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

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Which of the following outcomes is consistent with a purely competitive market in long-run equilibrium?

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When LCD televisions first came on the market, they sold for at least $1,000, and some for much more.Now many units can be purchased for under $400.These facts imply that

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

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In long-run equilibrium, purely competitive markets

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Resources are efficiently allocated when production occurs where

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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

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A purely competitive firm

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Under what conditions would an increase in demand lead to a lower long-run equilibrium price?

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When entrepreneurs in competitive industries successfully innovate to lower production costs, it usually results in long-run economic profits for the firm.

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The representative firm in a purely competitive industry

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If a purely competitive constant-cost industry is realizing economic profits, we can expect industry supply to

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

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One explanation for the existence of an increasing-cost industry is that

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

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Suppose an increase in product demand occurs in a decreasing-cost industry.As a result,

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In pure competition, if the market price of the product is higher than the minimum average cost of the firms, then

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Which would indicate that a firm is operating under conditions of pure competition and is being productively efficient?

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