Question 1

Firm demand in a competitive industry, like market demand, is downward-sloping.

Accepted Answer

A) True 
 B)False  False

Question 2

In long-run competitive equilibrium, market price equals a firm's average total cost.

Accepted Answer

A) True 
 B)False  True

Question 3

Explain why diseconomies of scale occur. Do you think diseconomies or economies of scale are more prevalent? Why?

Accepted Answer

Diseconomies of scale occur because when an industry expands, demand for the inputs it uses also expands. In most markets, when demand increases, price increases as the market moves along the supply curve. So when an industry expands, its input prices usually rise and the cost curves of firms in the industry shift up, bringing about long-run equilibrium at a higher price level. External diseconomies of scale are probably most common because of the consistency shown in most markets-all have upward-sloping supply curves. External economies of scale are more rare because they usually require some sort of technological change, which does not always occur.

Question 4

Which of the following is true in a long-run competitive equilibrium?

Accepted Answer

A)  Price is greater than average total cost. 
B)  Profits are greater than zero. 
C)  Marginal cost is greater than average total cost. 
D)  Market supply is greater than market demand. 
E)  There is no incentive to enter or exit the industry. 
A)  Price is greater than average total cost. 
B)  Profits are greater than zero. 
C)  Marginal cost is greater than average total cost. 
D)  Market supply is greater than market demand. 
E)  There is no incentive to enter or exit the industry.

Question 5

Industry expansion cannot occur without firms entering an industry.

Accepted Answer

A) True 
 B)False

Question 6

Free entry and exit refers to industries with very low start-up costs.

Accepted Answer

A) True 
 B)False

Question 7

If the government subsidizes the production of wind energy, then the industry produces

Accepted Answer

A)  more energy in the short run and firm entry occurs in the long run. 
B)  more energy in the short run and firm exit occurs in the long run. 
C)  less energy in the short run and firm entry occurs in the long run. 
D)  less energy in the short run and firm exit occurs in the long run. 
E)  the same amount of energy in both the short run and long run. 
A)  more energy in the short run and firm entry occurs in the long run. 
B)  more energy in the short run and firm exit occurs in the long run. 
C)  less energy in the short run and firm entry occurs in the long run. 
D)  less energy in the short run and firm exit occurs in the long run. 
E)  the same amount of energy in both the short run and long run.

Question 8

In a competitive industry, which of the following cannot be true for a firm in the long run?

Accepted Answer

A)  Price equals marginal cost. 
B)  Profits are maximized. 
C)  The firm takes market price as given. 
D)  Economic profits equal zero. 
E)  Price equals average variable cost. 
A)  Price equals marginal cost. 
B)  Profits are maximized. 
C)  The firm takes market price as given. 
D)  Economic profits equal zero. 
E)  Price equals average variable cost.

Question 9

Cost saving technologies result in an increase in economic profits in both the short run and the long run.

Accepted Answer

A) True 
 B)False

Question 10

When firms leave an industry,

Accepted Answer

A)  it is due to long-term losses. 
B)  other firms immediately enter to take their place. 
C)  it is because they anticipate an increase in demand. 
D)  other firms enter. 
E)  it is always due to a decrease in demand. 
A)  it is due to long-term losses. 
B)  other firms immediately enter to take their place. 
C)  it is because they anticipate an increase in demand. 
D)  other firms enter. 
E)  it is always due to a decrease in demand.

Question 11

If, at the equilibrium level of output, a typical competitive firm's price is greater than its ATC, the firm

Accepted Answer

A)  should raise the price. 
B)  should lower the price. 
C)  should decrease output. 
D)  finds that new firms are attracted to this industry. 
E)  should increase output. 
A)  should raise the price. 
B)  should lower the price. 
C)  should decrease output. 
D)  finds that new firms are attracted to this industry. 
E)  should increase output.

Question 12

Explain what is wrong with the following statement: "It's not fair that firms profit so highly in an industry that benefits from new, cost saving technology; they should have to immediately pass cost savings directly on to the consumer."

Accepted Answer

This statement assumes that consumers do

Question 13

External economies of scale occur when

Accepted Answer

A)  a firm's supply curve is downward-sloping. 
B)  an increase in firm output results in lower long-run average total costs. 
C)  an increase in the number of firms in an industry causes production costs to decline. 
D)  marginal product increases when input increases. 
E)  all firms in an industry experience decreasing marginal costs. 
A)  a firm's supply curve is downward-sloping. 
B)  an increase in firm output results in lower long-run average total costs. 
C)  an increase in the number of firms in an industry causes production costs to decline. 
D)  marginal product increases when input increases. 
E)  all firms in an industry experience decreasing marginal costs.

Question 14

Explain why a long-run equilibrium can occur only when firms in the industry are at the minimum of their average total cost curves.

Accepted Answer

All firms that survive in a competitive

Question 15

External diseconomies of scale occur when

Accepted Answer

A)  industry expansion leads to a decrease in marginal product. 
B)  long-run marginal cost increases with output. 
C)  problems with managing a large firm cause long-run average total costs to rise with output. 
D)  industry expansion causes demand to increase. 
E)  industry expansion causes input prices to rise. 
A)  industry expansion leads to a decrease in marginal product. 
B)  long-run marginal cost increases with output. 
C)  problems with managing a large firm cause long-run average total costs to rise with output. 
D)  industry expansion causes demand to increase. 
E)  industry expansion causes input prices to rise.

Question 16

In the long run, an industry can expand when existing firms expand by investing in new capital.

Accepted Answer

A) True 
 B)False

Question 17

Consider a competitive industry with a large number of toy-producing firms. Describe how that industry adjusts to a decline in the demand for toys. Explain your answer graphically, showing both the typical toy firm's marginal cost and average total cost curves, as well as the market supply and demand curves. Distinguish between the short run and the long run.

Accepted Answer

@#IMG-DLM& As demand decreases, in the short run,

Question 18

List some external economies of scale and some external diseconomies of scale that might be realized by an airline in an airport. How do these economies or diseconomies of scale affect the shape of the long-run industry supply curve?

Accepted Answer

Examples of external economies of scale

Question 19

The long-run equilibrium for a competitive firm occurs when its average total cost continues to decline.

Accepted Answer

A) True 
 B)False

Question 20

If a change in market demand results in no change in price in the long run, then it is true that the long-run industry supply curve does not exist.

Accepted Answer

A) True 
 B)False

Firm demand in a competitive industry, like market demand, is downward-sloping.

In long-run competitive equilibrium, market price equals a firm's average total cost.

Explain why diseconomies of scale occur. Do you think diseconomies or economies of scale are more prevalent? Why?

Which of the following is true in a long-run competitive equilibrium?

Industry expansion cannot occur without firms entering an industry.

Free entry and exit refers to industries with very low start-up costs.

If the government subsidizes the production of wind energy, then the industry produces

In a competitive industry, which of the following cannot be true for a firm in the long run?

Cost saving technologies result in an increase in economic profits in both the short run and the long run.

When firms leave an industry,

If, at the equilibrium level of output, a typical competitive firm's price is greater than its ATC, the firm

Explain what is wrong with the following statement: "It's not fair that firms profit so highly in an industry that benefits from new, cost saving technology; they should have to immediately pass cost savings directly on to the consumer."

External economies of scale occur when

Explain why a long-run equilibrium can occur only when firms in the industry are at the minimum of their average total cost curves.

External diseconomies of scale occur when

In the long run, an industry can expand when existing firms expand by investing in new capital.

List some external economies of scale and some external diseconomies of scale that might be realized by an airline in an airport. How do these economies or diseconomies of scale affect the shape of the long-run industry supply curve?

The long-run equilibrium for a competitive firm occurs when its average total cost continues to decline.

If a change in market demand results in no change in price in the long run, then it is true that the long-run industry supply curve does not exist.

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model: Price Floors, Price Ceilings, and Elasticity

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Interaction of People in Markets

Costs and the Changes at Firms Over Time

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Capital and Financial Markets

Reading, Understanding, and Creating Graphs

Consumer Theory With Indifference Curves

Producer Theory With Isoquants

Filters

Exam 9: The Rise and Fall of Industries

Firm demand in a competitive industry, like market demand, is downward-sloping.

In long-run competitive equilibrium, market price equals a firm's average total cost.

Explain why diseconomies of scale occur. Do you think diseconomies or economies of scale are more prevalent? Why?

Which of the following is true in a long-run competitive equilibrium?

Industry expansion cannot occur without firms entering an industry.

Free entry and exit refers to industries with very low start-up costs.

If the government subsidizes the production of wind energy, then the industry produces

In a competitive industry, which of the following cannot be true for a firm in the long run?

Cost saving technologies result in an increase in economic profits in both the short run and the long run.

When firms leave an industry,

If, at the equilibrium level of output, a typical competitive firm's price is greater than its ATC, the firm

Explain what is wrong with the following statement: "It's not fair that firms profit so highly in an industry that benefits from new, cost saving technology; they should have to immediately pass cost savings directly on to the consumer."

External economies of scale occur when

Explain why a long-run equilibrium can occur only when firms in the industry are at the minimum of their average total cost curves.

External diseconomies of scale occur when

In the long run, an industry can expand when existing firms expand by investing in new capital.

List some external economies of scale and some external diseconomies of scale that might be realized by an airline in an airport. How do these economies or diseconomies of scale affect the shape of the long-run industry supply curve?

The long-run equilibrium for a competitive firm occurs when its average total cost continues to decline.

If a change in market demand results in no change in price in the long run, then it is true that the long-run industry supply curve does not exist.

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model: Price Floors, Price Ceilings, and Elasticity

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Interaction of People in Markets

Costs and the Changes at Firms Over Time

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Capital and Financial Markets

Reading, Understanding, and Creating Graphs

Consumer Theory With Indifference Curves

Producer Theory With Isoquants

Filters