Question 1

A long-run supply curve that is downward sloping indicates that the firms' ATC curves

Accepted Answer

A) shift up when the industry expands. 
B) shift down when the industry contracts. 
C) shift down when the industry expands. 
D) do not shift when the industry contracts. 
A) shift up when the industry expands. 
B) shift down when the industry contracts. 
C) shift down when the industry expands. 
D) do not shift when the industry contracts. C

Question 2

Suppose the table above represents the long-run cost structure for a firm in a perfectly competitive industry. Based on this information we can conclude that this firm operates in

Accepted Answer

A) an industry incapable of reaching long-run equilibrium. 
B) a decreasing- cost industry. 
C) an increasing-cost industry. 
D) a constant-cost industry. 
A) an industry incapable of reaching long-run equilibrium. 
B) a decreasing- cost industry. 
C) an increasing-cost industry. 
D) a constant-cost industry. B

Question 3

What is the triple equality that we find in pure competition after all long-run adjustments have been made?

Accepted Answer

In a constant-cost or increasing-cost industry, in the long run, P = minimum ATC = MC. The final long-run equilibrium positions of all firms have these same basic efficiency characteristics. Price (and marginal revenue)will settle where it is equal to minimum average total cost. Because the MC curve intersects the ATC curve at its minimum point, marginal cost and average total cost are equal. In long-run equilibrium, each firm produces at the output level that is associated with this triple equality.

Question 4

The MR = MC rule applies

Accepted Answer

A) in the short run but not in the long run. 
B) in the long run but not in the short run. 
C) in both the short run and the long run. 
D) only to a purely competitive firm. 
A) in the short run but not in the long run. 
B) in the long run but not in the short run. 
C) in both the short run and the long run. 
D) only to a purely competitive firm.

Question 5

The reason why the long-run supply curve for a purely competitive industry may be upward-sloping is because of diminishing marginal returns.

Accepted Answer

A) True 
 B)False

Question 6

What three assumptions are used in the chapter to keep the analysis relatively simple?

Accepted Answer

The three assumptions are (1)e

Question 7

Resources are efficiently allocated when production occurs where

Accepted Answer

A) marginal cost equals average variable cost. 
B) price is equal to average revenue. 
C) price is equal to marginal cost. 
D) price is equal to average variable cost. 
A) marginal cost equals average variable cost. 
B) price is equal to average revenue. 
C) price is equal to marginal cost. 
D) price is equal to average variable cost.

Question 8

Is there a specific amount of time that distinguishes the long run from the short run? Is the amount of time important? Explain.

Accepted Answer

No, the length of time constituting the

Question 9

Under pure competition, in the long run

Accepted Answer

A) neither allocative efficiency nor productive efficiency is achieved. 
B) both allocative efficiency and productive efficiency are achieved. 
C) productive efficiency is achieved, but allocative efficiency is not. 
D) allocative efficiency is achieved, but productive efficiency is not. 
A) neither allocative efficiency nor productive efficiency is achieved. 
B) both allocative efficiency and productive efficiency are achieved. 
C) productive efficiency is achieved, but allocative efficiency is not. 
D) allocative efficiency is achieved, but productive efficiency is not.

Question 10

The accompanying graph represents the purely competitive market for a product. When the market is at equilibrium, the total revenues from selling the equilibrium output level would be represented by the area

Accepted Answer

A) a + b + c. 
B) b. 
C) b + c. 
D) b + c + d. 
A) a + b + c. 
B) b. 
C) b + c. 
D) b + c + d.

Question 11

An increasing-cost industry is the result of

Accepted Answer

A) higher resource prices that occur as the industry expands. 
B) a change in the industry's minimum efficient scale. 
C) X-inefficiency. 
D) the law of diminishing returns. 
A) higher resource prices that occur as the industry expands. 
B) a change in the industry's minimum efficient scale. 
C) X-inefficiency. 
D) the law of diminishing returns.

Question 12

The long-run supply curve for a competitive, decreasing-cost industry is downward-sloping.

Accepted Answer

A) True 
 B)False

Question 13

Long-run adjustments in purely competitive markets primarily take the form of

Accepted Answer

A) variations in the cost curves of different firms in the market. 
B) entry or exit of firms in the market. 
C) evolution of the market from a constant-cost to an increasing-cost industry. 
D) product differentiation. 
A) variations in the cost curves of different firms in the market. 
B) entry or exit of firms in the market. 
C) evolution of the market from a constant-cost to an increasing-cost industry. 
D) product differentiation.

Question 14

Because the equilibrium position of a purely competitive seller entails an equality of price and marginal costs, competition produces an efficient allocation of economic resources.

Accepted Answer

A) True 
 B)False

Question 15

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 16

When there is allocative efficiency in a purely competitive market for a product, the minimum price producers are willing to accept is

Accepted Answer

A) less than marginal benefit. 
B) greater than marginal cost. 
C) equal to the amount of efficiency or deadweight losses. 
D) equal to the maximum price consumers are willing to pay. 
A) less than marginal benefit. 
B) greater than marginal cost. 
C) equal to the amount of efficiency or deadweight losses. 
D) equal to the maximum price consumers are willing to pay.

Question 17

Compare the shape of a long-run supply curve for a constant-cost industry, a decreasing-cost industry, and an increasing-cost industry.

Accepted Answer

The long-run supply curve for

Question 18

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.

Question 19

If the price of bottled water is $1.00 and the marginal cost of producing it is $1.50,

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 20

If the competitive firm depicted in this diagram produces output Q, it will

Accepted Answer

A) suffer an economic loss. 
B) earn a normal profit. 
C) earn an economic profit. 
D) achieve productive efficiency but not allocative efficiency. 
A) suffer an economic loss. 
B) earn a normal profit. 
C) earn an economic profit. 
D) achieve productive efficiency but not allocative efficiency.

Exam 11: Pure Competition in the Long Run

A long-run supply curve that is downward sloping indicates that the firms' ATC curves

Suppose the table above represents the long-run cost structure for a firm in a perfectly competitive industry. Based on this information we can conclude that this firm operates in

What is the triple equality that we find in pure competition after all long-run adjustments have been made?

The MR = MC rule applies

The reason why the long-run supply curve for a purely competitive industry may be upward-sloping is because of diminishing marginal returns.

What three assumptions are used in the chapter to keep the analysis relatively simple?

Resources are efficiently allocated when production occurs where

Is there a specific amount of time that distinguishes the long run from the short run? Is the amount of time important? Explain.

Under pure competition, in the long run

The accompanying graph represents the purely competitive market for a product. When the market is at equilibrium, the total revenues from selling the equilibrium output level would be represented by the area

An increasing-cost industry is the result of

The long-run supply curve for a competitive, decreasing-cost industry is downward-sloping.

Long-run adjustments in purely competitive markets primarily take the form of

Because the equilibrium position of a purely competitive seller entails an equality of price and marginal costs, competition produces an efficient allocation of economic resources.

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

When there is allocative efficiency in a purely competitive market for a product, the minimum price producers are willing to accept is

Compare the shape of a long-run supply curve for a constant-cost industry, a decreasing-cost industry, and an increasing-cost industry.

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

If the price of bottled water is $1.00 and the marginal cost of producing it is $1.50,

If the competitive firm depicted in this diagram produces output Q, it will

Limits, Alternatives, and Choices

The Market System and the Circular Flow

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Market Failures Caused by Externalities Asymmetric Information

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Pure Competition in the Short Run

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