Question 1

Which of the following statements is correct?

Accepted Answer

A) The long-run supply curve for a purely competitive increasing-cost industry will be upsloping. 
B) The long-run supply curve for a purely competitive increasing-cost industry will be perfectly elastic. 
C) The long-run supply curve for a purely competitive industry will be less elastic than the industry's short-run supply curve. 
D) The long-run supply curve for a purely competitive decreasing-cost industry will be upsloping. 
A) The long-run supply curve for a purely competitive increasing-cost industry will be upsloping. 
B) The long-run supply curve for a purely competitive increasing-cost industry will be perfectly elastic. 
C) The long-run supply curve for a purely competitive industry will be less elastic than the industry's short-run supply curve. 
D) The long-run supply curve for a purely competitive decreasing-cost industry will be upsloping.

Question 2

In the long run for a purely competitive market, firms will earn only normal profits.

Accepted Answer

A) True 
 B)False

Question 3

If the price of bottled water is $2 and the marginal cost of producing it is $2.50,

Accepted Answer

A) bottled water is being produced in an increasing-cost industry. 
B) society will realize a net gain if more bottled water is produced. 
C) resources are being overallocated to bottled water. 
D) resources are being underallocated to all other goods. 
A) bottled water is being produced in an increasing-cost industry. 
B) society will realize a net gain if more bottled water is produced. 
C) resources are being overallocated to bottled water. 
D) resources are being underallocated to all other goods.

Question 4

The long-run supply curve would be perfectly elastic when

Accepted Answer

A) an increase in demand does not cause a change in product price. 
B) an increase in demand causes an increase in product price. 
C) a decrease in demand causes an increase in short-run supply. 
D) a decrease in demand causes an increase in product price. 
A) an increase in demand does not cause a change in product price. 
B) an increase in demand causes an increase in product price. 
C) a decrease in demand causes an increase in short-run supply. 
D) a decrease in demand causes an increase in product price.

Question 5

Assume that the market for soybeans is purely competitive.Currently, firms growing soybeans are earning positive economic profits.In the long run, we can expect

Accepted Answer

A) new firms to enter, causing the market price of soybeans to fall. 
B) new firms to enter, causing the market price of soybeans to rise. 
C) some firms to exit, causing the market price of soybeans to fall. 
D) some firms to exit, causing the market price of soybeans to rise. 
A) new firms to enter, causing the market price of soybeans to fall. 
B) new firms to enter, causing the market price of soybeans to rise. 
C) some firms to exit, causing the market price of soybeans to fall. 
D) some firms to exit, causing the market price of soybeans to rise.

Question 6

What happens in a decreasing-cost industry when some firms leave and the industry's output contracts?

Accepted Answer

A) The average cost will increase. 
B) The average cost will decrease. 
C) The total cost will decrease. 
D) The product price will decrease. 
A) The average cost will increase. 
B) The average cost will decrease. 
C) The total cost will decrease. 
D) The product price will decrease.

Question 7

(Last Word) Patents are most likely to infringe on innovation

Accepted Answer

A) for products that incorporate many different technologies into a single product. 
B) of simple, easy-to-copy products. 
C) in the pharmaceutical industry. 
D) when they cause creative destruction. 
A) for products that incorporate many different technologies into a single product. 
B) of simple, easy-to-copy products. 
C) in the pharmaceutical industry. 
D) when they cause creative destruction.

Question 8

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. 
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 9

Assume a purely competitive firm is maximizing profit at some output at which long-run average total cost is at a minimum.Then

Accepted Answer

A) the firm is earning an economic profit. 
B) there is no tendency for the firm's industry to expand or contract. 
C) allocative but not productive efficiency is being achieved. 
D) other firms will enter this industry. 
A) the firm is earning an economic profit. 
B) there is no tendency for the firm's industry to expand or contract. 
C) allocative but not productive efficiency is being achieved. 
D) other firms will enter this industry.

Question 10

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. 
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 11

(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 
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

Question 12

After long-run adjustments, a purely competitive market achieves

Accepted Answer

A) productive efficiency but not necessarily allocative efficiency. 
B) allocative efficiency but not necessarily productive efficiency. 
C) either productive efficiency or allocative efficiency, but not both. 
D) both productive and allocative efficiency. 
A) productive efficiency but not necessarily allocative efficiency. 
B) allocative efficiency but not necessarily productive efficiency. 
C) either productive efficiency or allocative efficiency, but not both. 
D) both productive and allocative efficiency.

Question 13

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. 
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 14

With the creation and growth of the Internet, vacationers can now book their own flights, hotels, rental cars, and other travel logistics online.If this capability resulted in creative destruction, which of the following industries would we have expected to decline the most as a result?

Accepted Answer

A) airlines 
B) travel agencies 
C) tourist information 
D) hotels 
A) airlines 
B) travel agencies 
C) tourist information 
D) hotels

Question 15

A constant-cost industry is one in which

Accepted Answer

A) resource prices fall as output is increased. 
B) resource prices rise as output is increased. 
C) resource prices remain unchanged as output is increased. 
D) small and large levels of output entail the same total costs. 
A) resource prices fall as output is increased. 
B) resource prices rise as output is increased. 
C) resource prices remain unchanged as output is increased. 
D) small and large levels of output entail the same total costs.

Question 16

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 17

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. 
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 18

All of the following are long-run changes, except

Accepted Answer

A) an industry expanding as more firms enter it. 
B) a firm moving into larger production facilities to expand production. 
C) some firms deciding to leave an industry and the industry contracts. 
D) a firm producing more output by acquiring more raw materials for its existing factory. 
A) an industry expanding as more firms enter it. 
B) a firm moving into larger production facilities to expand production. 
C) some firms deciding to leave an industry and the industry contracts. 
D) a firm producing more output by acquiring more raw materials for its existing factory.

Question 19

An industry that has increasing returns to scale and fixed factor prices will have a long-run supply curve that is

Accepted Answer

A) vertical. 
B) horizontal. 
C) upward-sloping. 
D) downward-sloping. 
A) vertical. 
B) horizontal. 
C) upward-sloping. 
D) downward-sloping.

Question 20

If the representative firm in a purely competitive industry is in short-run equilibrium and, at its current output level, its marginal cost exceeds its average total cost, then we can conclude that

Accepted Answer

A) the firm is suffering economic losses. 
B) the firm is not maximizing profits in the short run. 
C) some firms will exit the industry in the long run. 
D) other firms will enter the industry in the long run. 
A) the firm is suffering economic losses. 
B) the firm is not maximizing profits in the short run. 
C) some firms will exit the industry in the long run. 
D) other firms will enter the industry in the long run.

Exam 11: Pure Competition in the Long Run

Which of the following statements is correct?

In the long run for a purely competitive market, firms will earn only normal profits.

If the price of bottled water is $2 and the marginal cost of producing it is $2.50,

The long-run supply curve would be perfectly elastic when

Assume that the market for soybeans is purely competitive.Currently, firms growing soybeans are earning positive economic profits.In the long run, we can expect

What happens in a decreasing-cost industry when some firms leave and the industry's output contracts?

(Last Word) Patents are most likely to infringe on innovation

Which of the following is an example of creative destruction?

Assume a purely competitive firm is maximizing profit at some output at which long-run average total cost is at a minimum.Then

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

(Last Word) Eliminating patents would tend to

After long-run adjustments, a purely competitive market achieves

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

With the creation and growth of the Internet, vacationers can now book their own flights, hotels, rental cars, and other travel logistics online.If this capability resulted in creative destruction, which of the following industries would we have expected to decline the most as a result?

A constant-cost industry is one in which

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.

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

All of the following are long-run changes, except

An industry that has increasing returns to scale and fixed factor prices will have a long-run supply curve that is

If the representative firm in a purely competitive industry is in short-run equilibrium and, at its current output level, its marginal cost exceeds its average total cost, then we can conclude that

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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