Question 1

The transformative effects of competition that foster the development of new products or new production methods benefit everyone in society.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

In pure competition, resources are optimally or efficiently allocated when production occurs at the output level where P = MC.

Accepted Answer

A) True 
 B)False

Question 4

Suppose losses cause industry X to contract and, as a result, the prices of relevant inputs decline. Industry X is

Accepted Answer

A)   a constant-cost industry.
B)   a decreasing-cost industry.
C)   an increasing-cost industry.
D)   encountering X-inefficiency.

Question 5

From the viewpoint of a firm, competition can come even from other firms that are not in the same industry.

Accepted Answer

A) True 
 B)False

Question 6

If the price of product Y is $25 and its marginal cost is $18,

Accepted Answer

A)   Y is being produced with the least-cost combination of resources.
B)   society will realize a net gain if less of Y is produced.
C)   resources are being underallocated to Y.
D)   resources are being overallocated to Y.

Question 7

Which of the following is true of normal profits?

Accepted Answer

A)   They are necessary to keep a firm in the industry in the long run.
B)   They are zero under pure competition in the long run.
C)   They are excluded from a firm's costs of production.
D)   They are what attract other firms to enter an industry.

Question 8

The difference between the maximum price a consumer is willing to pay for a product and the actual price the consumer pays is

Accepted Answer

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

Question 9

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 10

(Last Word)  Eliminating patents would tend to

Accepted Answer

A)   stimulate innovation in all industries.
B)   discourage innovation in all industries.
C)   encourage innovation in products made up of many different technologies but discourage innovation of easy-to-copy products requiring large R&D costs to create.
D)   discourage innovation in products made up of many different technologies but encourage innovation of easy-to-copy products requiring large R&D costs to create.

Question 11

A purely competitive firm is precluded from making economic profits in the long run because

Accepted Answer

A)   it is a "price taker."
B)   its demand curve is perfectly elastic.
C)   of unimpeded entry to the industry.
D)   it produces a differentiated product.

Question 12

Productive efficiency refers to

Accepted Answer

A)   cost minimization, where P = minimum ATC.
B)   production at a level where P = MC.
C)   maximizing profits by producing where MR = MC.
D)   setting TR = TC.

Question 13

Competitive markets produce equilibrium prices and quantities that minimize the sum of consumer and producer surpluses.

Accepted Answer

A) True 
 B)False

Question 14

If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then

Accepted Answer

A)   the selling price for this firm is above the market equilibrium price.
B)   new firms will enter this market.
C)   some existing firms in this market will leave.
D)   there must be price fixing by the industry's firms.

Question 15

If firms are losing money in a purely competitive industry, then the long-run adjustments in this situation will cause the market supply to

Accepted Answer

A)   increase, and consequently the representative firm's profits will increase.
B)   decrease, and consequently the representative firm's profits will increase.
C)   increase, and consequently the representative firm's profits will decrease.
D)   decrease, and consequently the representative firm's profits will decrease.

Question 16

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 17

Suppose a firm in a purely competitive market discovers that the price of its product is above its minimum AVC point but everywhere below ATC. Given this, the firm

Accepted Answer

A)   minimizes losses by producing at the minimum point of its AVC curve.
B)   maximizes profits by producing where MR = ATC.
C)   should close down immediately.
D)   should continue producing in the short run but leave the industry in the long run if the situation persists.

Question 18

A constant-cost industry is one in which

Accepted Answer

A)   a higher price per unit will not result in an increased output.
B)   if 100 units can be produced for $100, then 150 can be produced for $150, 200 for $200, and so forth.
C)   the demand curve and therefore the unit price and quantity sold seldom change.
D)   the total cost of producing 200 or 300 units is no greater than the cost of producing 100 units.

Question 19

The process by which new firms and new products destroy existing dominant firms and their products is called creative destruction.

Accepted Answer

A) True 
 B)False

Question 20

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.

Exam 11: Pure Competition in the Long Run

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.

Correct AnswerverifiedShow Answer

A purely competitive firm is precluded from making economic profits in the long run because

Correct AnswerverifiedShow Answer

Which of the following is true of normal profits?

Correct AnswerverifiedShow Answer

The process by which new firms and new products destroy existing dominant firms and their products is called creative destruction.

Correct AnswerverifiedShow Answer

Suppose losses cause industry X to contract and, as a result, the prices of relevant inputs decline. Industry X is

Correct AnswerverifiedShow Answer

The transformative effects of competition that foster the development of new products or new production methods benefit everyone in society.

Correct AnswerverifiedShow Answer

Suppose a firm in a purely competitive market discovers that the price of its product is above its minimum AVC point but everywhere below ATC. Given this, the firm

Correct AnswerverifiedShow Answer

In pure competition, resources are optimally or efficiently allocated when production occurs at the output level where P = MC.

Correct AnswerverifiedShow Answer

If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then

Correct AnswerverifiedShow Answer

If the price of product Y is $25 and its marginal cost is $18,

Correct AnswerverifiedShow Answer

From the viewpoint of a firm, competition can come even from other firms that are not in the same industry.

Correct AnswerverifiedShow Answer

A constant-cost industry is one in which

Correct AnswerverifiedShow Answer

Competitive markets produce equilibrium prices and quantities that minimize the sum of consumer and producer surpluses.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

(Last Word) Eliminating patents would tend to

Correct AnswerverifiedShow Answer

If firms are losing money in a purely competitive industry, then the long-run adjustments in this situation will cause the market supply to

Correct AnswerverifiedShow Answer

Productive efficiency refers to

Correct AnswerverifiedShow Answer

The difference between the maximum price a consumer is willing to pay for a product and the actual price the consumer pays is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified