Question 1

The accompanying graphs are for a purely competitive market in the short run. The graphs suggest that in the long run, assuming no changes in the given information, the market

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 2

Which of the following is true concerning purely competitive industries?

Accepted Answer

A)  There will be economic losses in the long run because of cut-throat competition.
B)  Economic profits will persist in the long run if consumer demand is strong and stable.
C)  In the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits.
D)  There are economic profits in the long run but not in the short run.

Question 3

When a competitive firm is in long-run equilibrium, its accounting profits are greater than zero.

Accepted Answer

A) True 
 B)False

Question 4

The provided graph depicts long-run supply for

Accepted Answer

A)  a constant-cost industry.
B)  a decreasing-cost industry.
C)  an increasing-cost industry.
D)  None of these is correct.

Question 5

In the long run, pure competition forces firms to produce at the minimum possible average total cost and the firms will charge a product price equal to that cost.

Accepted Answer

A) True 
 B)False

Question 6

Creative destruction is something that our society should try to avoid, through government regulation of business.

Accepted Answer

A) True 
 B)False

Question 7

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 8

Which of the following statements is true about U.S. firms?

Accepted Answer

A)  Over half are bankrupt within the first two years after starting up.
B)  Over half are bankrupt within the first five years after starting up.
C)  Nearly 65 percent last 10 years or more.
D)  The life expectancy of a U.S. firm is approximately 22 years.

Question 9

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 10

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 11

How does the "invisible hand" work in a competitive market system?

Accepted Answer

The invisible hand is at work as busines...

Question 12

Allocative efficiency occurs when the

Accepted Answer

A)  minimum of average total cost equals average revenue.
B)  minimum of average total cost equals marginal revenue.
C)  marginal cost equals the marginal benefit to society.
D)  marginal revenue equals marginal benefit to society.

Question 13

In long-run equilibrium, a purely competitive firm will operate where price is

Accepted Answer

A)  greater than MR but equal to MC and minimum ATC.
B)  greater than MR and MC, but equal to minimum ATC.
C)  greater than MC and minimum ATC, but equal to MR.
D)  equal to MR, MC, and minimum ATC.

Question 14

A firm is producing an output such that the benefit from one more unit is more than the cost of producing that additional unit. This means the firm is

Accepted Answer

A)  producing more output than allocative efficiency requires.
B)  producing less output than allocative efficiency requires.
C)  achieving productive efficiency.
D)  producing an inefficient output, but we cannot say whether output should be increased or decreased.

Question 15

Explain why the long-run product price for a perfectly competitive firm will equal its minimum average total cost.

Accepted Answer

If the market price initially exceeds mi...

Question 16

1, in this diagram, A) resources are overallocated to this product and productive efficiency is not realized. B) resources are underallocated to this product and productive efficiency is not realized. C) productive efficiency is achieved, but resources are underallocated to this product. D) productive efficiency is achieved, but resources are overallocated to this product." class="answers-bank-image d-inline" rel="preload" > At output level Q1, in this diagram,

Accepted Answer

A)  resources are overallocated to this product and productive efficiency is not realized.
B)  resources are underallocated to this product and productive efficiency is not realized.
C)  productive efficiency is achieved, but resources are underallocated to this product.
D)  productive efficiency is achieved, but resources are overallocated to this product.

Question 17

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 18

Assume a purely competitive decreasing-cost industry is in long-run equilibrium. If an increase in demand occurs, firms will

Accepted Answer

A)  enter the industry, price will rise, and quantity produced will fall.
B)  leave the industry and price and quantity will both fall.
C)  enter the industry and price and quantity will both rise.
D)  enter the industry, price will fall, and quantity produced will rise.

Question 19

Line (1) in the diagram reflects a situation where resource prices

Accepted Answer

A)  decline as industry output expands.
B)  increase as industry output expands.
C)  remain constant as industry output expands.
D)  are unaffected by the level of output in the industry.

Question 20

The process by which new firms and new products replace existing dominant firms and products is called

Accepted Answer

A)  monopolistic competition.
B)  mergers and acquisitions.
C)  process innovation.
D)  creative destruction.

Exam 11: Pure Competition in the Long Run

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

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A firm is producing an output such that the benefit from one more unit is more than the cost of producing that additional unit. This means the firm is

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How does the "invisible hand" work in a competitive market system?

Correct AnswerverifiedThe invisible hand is at work as busines...View AnswerShow Answer

The provided graph depicts long-run supply for

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In long-run equilibrium, a purely competitive firm will operate where price is

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Explain why the long-run product price for a perfectly competitive firm will equal its minimum average total cost.

Correct AnswerverifiedIf the market price initially exceeds mi...View AnswerShow Answer

Which of the following is true concerning purely competitive industries?

Correct AnswerverifiedShow Answer

In the long run, pure competition forces firms to produce at the minimum possible average total cost and the firms will charge a product price equal to that cost.

Correct AnswerverifiedShow Answer

Allocative efficiency occurs when the

Correct AnswerverifiedShow Answer

Line (1) in the diagram reflects a situation where resource prices

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In a purely competitive industry,

Correct AnswerverifiedShow Answer

Assume a purely competitive decreasing-cost industry is in long-run equilibrium. If an increase in demand occurs, firms will

Correct AnswerverifiedShow Answer

The process by which new firms and new products replace existing dominant firms and products is called

Correct AnswerverifiedShow Answer

The representative firm in a purely competitive industry

Correct AnswerverifiedShow Answer

The accompanying graphs are for a purely competitive market in the short run. The graphs suggest that in the long run, assuming no changes in the given information, the market

Correct AnswerverifiedShow Answer

When a competitive firm is in long-run equilibrium, its accounting profits are greater than zero.

Correct AnswerverifiedShow Answer

Which of the following statements is true about U.S. firms?

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Creative destruction is something that our society should try to avoid, through government regulation of business.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

At output level Q1, in this diagram,

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The invisible hand is at work as busines...
View Answer

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If the market price initially exceeds mi...
View Answer

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At output level Q₁, in this diagram,

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