Question 1

Entrepreneurs in purely competitive industries

Accepted Answer

A)  have no incentive to innovate because in the long run they will earn no economic profits.
B)  innovate to lower operating costs and generate short-run economic profits.
C)  utilize pricing strategies to generate short-run economic profits.
D)  rarely try to innovate because of a lack of financial resources.

Question 2

When a competitive firm sees the price fall below the minimum possible average total cost in the long run, then it will decide that it could do better by moving to a different industry.

Accepted Answer

A) True 
 B)False

Question 3

The long-run market supply curve would be downward sloping if the representative firms'

Accepted Answer

A)  demand curves shift up as the industry expands.
B)  ATC curves shift down as the industry expands.
C)  supply curves shift left as the industry expands.
D)  demand curves shift down as the industry expands.

Question 4

Describe the graph for a long-run supply curve in an increasing-cost industry. Why does it have this slope?

Accepted Answer

The long-run industry supply curve slope...

Question 5

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.

Question 6

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 7

The operation of the invisible hand means the pursuit of private interests promotes social interests in pure competition.

Accepted Answer

A) True 
 B)False

Question 8

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'.

Question 9

Pure competition produces a socially optimal allocation of resources in the long run because

Accepted Answer

A)  marginal cost equals marginal revenue.
B)  marginal cost equals average total cost.
C)  marginal revenue equals price.
D)  marginal cost equals price.

Question 10

The industry indicated by the accompanying graphs would be a(n)

Accepted Answer

A)  increasing-cost industry.
B)  decreasing-cost industry.
C)  constant-cost industry.
D)  monopoly industry.

Question 11

What is the relationship between the long-run supply curve in a constant-cost industry and elasticity?

Accepted Answer

The entry and exit of firms change the i...

Question 12

Which of the following is an example of creative destruction?

Accepted Answer

A)  An economic recession forces firms out of business.
B)  Automobile production causes the wagon industry to shut down.
C)  Apple earns more economic profits than other manufacturers of MP3 players.
D)  Starbucks shuts down stores to create greater demand for its remaining outlets.

Question 13

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 14

Which of the following is not an assumption that we make in analyzing pure competition in the long run?

Accepted Answer

A)  Firms are free to enter into or exit from a purely competitive market.
B)  We may talk about a "representative" firm by assuming that competitive firms all have identical cost curves.
C)  Firms may increase output by expanding their plant sizes.
D)  Profits are not relevant to firm behavior anymore, because competitive firms earn zero profits in the long run.

Question 15

Suppose that Betty's Beads is a typical firm operating in a perfectly competitive market. Currently Betty's MR = $15, MC = $12, ATC = $10, and AVC = $8. Based on this information, we can conclude that

Accepted Answer

A)  Betty's is in long-run equilibrium.
B)  Betty's experience will encourage new firms to enter the market.
C)  Betty's experience will encourage some existing firms in this market to leave.
D)  Betty's experience will discourage firms from entering the market.

Question 16

The difference between the actual price that a producer receives and the minimum acceptable price a producer is willing to accept is

Accepted Answer

A)  the consumer surplus.
B)  the producer surplus.
C)  allocative efficiency.
D)  productive efficiency.

Question 17

The fact that the life expectancy of a U.S. 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 18

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 19

In pure competition, if the market price of the product is higher than the minimum average total 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

Why does pure competition provide consumers with the largest consumer and producer surpluses?

Accepted Answer

At the equilibrium, the combined amount ...

Exam 11: Pure Competition in the Long Run

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

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

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Describe the graph for a long-run supply curve in an increasing-cost industry. Why does it have this slope?

Correct AnswerverifiedThe long-run industry supply curve slope...View AnswerShow Answer

The long-run market supply curve would be downward sloping if the representative firms'

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The industry indicated by the accompanying graphs would be a(n)

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When a competitive firm sees the price fall below the minimum possible average total cost in the long run, then it will decide that it could do better by moving to a different industry.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The difference between the actual price that a producer receives and the minimum acceptable price a producer is willing to accept is

Correct AnswerverifiedShow Answer

Which of the following is an example of creative destruction?

Correct AnswerverifiedShow Answer

Pure competition produces a socially optimal allocation of resources in the long run because

Correct AnswerverifiedShow Answer

The operation of the invisible hand means the pursuit of private interests promotes social interests in pure competition.

Correct AnswerverifiedShow Answer

Which of the following is not an assumption that we make in analyzing pure competition in the long run?

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What is the relationship between the long-run supply curve in a constant-cost industry and elasticity?

Correct AnswerverifiedThe entry and exit of firms change the i...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Why does pure competition provide consumers with the largest consumer and producer surpluses?

Correct AnswerverifiedAt the equilibrium, the combined amount ...View AnswerShow Answer

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

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Entrepreneurs in purely competitive industries

Correct AnswerverifiedShow Answer

Suppose that Betty's Beads is a typical firm operating in a perfectly competitive market. Currently Betty's MR = $15, MC = $12, ATC = $10, and AVC = $8. Based on this information, we can conclude that

Correct AnswerverifiedShow Answer

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The long-run industry supply curve slope...
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The entry and exit of firms change the i...
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At the equilibrium, the combined amount ...
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