Question 1

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. 
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 2

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. 
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 3

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 4

Assume a purely competitive increasing-cost industry is initially in long-run equilibrium, producing 10 million units at a market price of $5.00. Suppose that an increase in consumer demand occurs. After all economic adjustments have been completed, which output and price combination is most likely to occur?

Accepted Answer

A) 11 units at a price of $4.75. 
B) 12 units at a price of $5.50. 
C) 9.5 units at a price of $4.50. 
D) 9 units at a price of $5.25. 
A) 11 units at a price of $4.75. 
B) 12 units at a price of $5.50. 
C) 9.5 units at a price of $4.50. 
D) 9 units at a price of $5.25.

Question 5

Which statement is correct? The long-run supply curve for a purely competitive

Accepted Answer

A) decreasing-cost industry will be upward sloping. 
B) increasing-cost industry will be perfectly elastic. 
C) increasing-cost industry will be upward sloping. 
D) increasing-cost industry will be less elastic than the short-run supply curve. 
A) decreasing-cost industry will be upward sloping. 
B) increasing-cost industry will be perfectly elastic. 
C) increasing-cost industry will be upward sloping. 
D) increasing-cost industry will be less elastic than the short-run supply curve.

Question 6

How would a purely competitive industry adjust and restore allocative efficiency when there is an increase in the demand for a product?

Accepted Answer

As demand for a product increases in a m

Question 7

When new firms enter a purely competitive industry, the market supply curve will shift to the left.

Accepted Answer

A) True 
 B)False

Question 8

Productive efficiency refers to a condition where marginal cost is equal to marginal revenue in the long run.

Accepted Answer

A) True 
 B)False

Question 9

Augi's Art Shack sells art supplies in a perfectly competitive market. The firm is currently realizing economic profits of $85,000 in the short run. In the long run we would expect Augi's to

Accepted Answer

A) realize economic profits greater than $0 but less than $85,000. 
B) realize economic profits of $0. 
C) realize economic losses greater than $0 but smaller than $85,000 
D) shut down. 
A) realize economic profits greater than $0 but less than $85,000. 
B) realize economic profits of $0. 
C) realize economic losses greater than $0 but smaller than $85,000 
D) shut down.

Question 10

When some firms leave a purely competitive industry, the market supply curve will shift in such a way that the remaining firms' profits will increase.

Accepted Answer

A) True 
 B)False

Question 11

Marginal cost is a measure of the alternative goods that society forgoes in using resources to produce an additional unit of some specific product.

Accepted Answer

A) True 
 B)False

Question 12

Purely competitive industry X has constant costs and its product is an inferior good. The industry is currently in long-run equilibrium. The economy now goes into a recession and average incomes decline. The result will be

Accepted Answer

A) an increase in output and in the price of the product. 
B) an increase in output, but not in the price of the product. 
C) a decrease in the output, but not in the price of the product. 
D) a decrease in output and in the price of the product. 
A) an increase in output and in the price of the product. 
B) an increase in output, but not in the price of the product. 
C) a decrease in the output, but not in the price of the product. 
D) a decrease in output and in the price of the product.

Question 13

The accompanying graph represents the purely competitive market for a product. When the market is at equilibrium, the value of the total benefits derived by consumers from this product would be represented by the area

Accepted Answer

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

Question 14

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 15

What economic conditions are necessary to achieve productive efficiency under pure competition?

Accepted Answer

Productive efficiency requires that good

Question 16

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. 
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 17

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 18

Suppose the market for corn is a purely competitive, constant-cost industry that is in long-run equilibrium. Now assume that an increase in consumer demand occurs. After all resulting adjustments have been completed, the new equilibrium price will be

Accepted Answer

A) the same as the initial equilibrium price, but the new industry output will be greater than the original output. 
B) greater than the initial price, and the new industry output will be greater than the original output. 
C) less than the initial price, but the new industry output will be greater than the original output. 
D) the same as the initial equilibrium price, and the industry output will remain unchanged. 
A) the same as the initial equilibrium price, but the new industry output will be greater than the original output. 
B) greater than the initial price, and the new industry output will be greater than the original output. 
C) less than the initial price, but the new industry output will be greater than the original output. 
D) the same as the initial equilibrium price, and the industry output will remain unchanged.

Question 19

If this diagram represents a typical firm in the industry and the firm is producing at the profit-maximizing level of output in the short run, then in the long run we would expect more firms to enter the market.

Accepted Answer

A) True 
 B)False

Question 20

Creative destruction is most often associated with

Accepted Answer

A) international trade. 
B) technological advance. 
C) government spending. 
D) private consumption. 
A) international trade. 
B) technological advance. 
C) government spending. 
D) private consumption.

Exam 11: Pure Competition in the Long Run

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

Which of the following is true of normal profits?

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

Which statement is correct? The long-run supply curve for a purely competitive

How would a purely competitive industry adjust and restore allocative efficiency when there is an increase in the demand for a product?

When new firms enter a purely competitive industry, the market supply curve will shift to the left.

Productive efficiency refers to a condition where marginal cost is equal to marginal revenue in the long run.

Augi's Art Shack sells art supplies in a perfectly competitive market. The firm is currently realizing economic profits of $85,000 in the short run. In the long run we would expect Augi's to

When some firms leave a purely competitive industry, the market supply curve will shift in such a way that the remaining firms' profits will increase.

Marginal cost is a measure of the alternative goods that society forgoes in using resources to produce an additional unit of some specific product.

Purely competitive industry X has constant costs and its product is an inferior good. The industry is currently in long-run equilibrium. The economy now goes into a recession and average incomes decline. The result will be

The accompanying graph represents the purely competitive market for a product. When the market is at equilibrium, the value of the total benefits derived by consumers from this product would be represented by the area

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

What economic conditions are necessary to achieve productive efficiency under pure competition?

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

All of the following are long-run changes, except

Suppose the market for corn is a purely competitive, constant-cost industry that is in long-run equilibrium. Now assume that an increase in consumer demand occurs. After all resulting adjustments have been completed, the new equilibrium price will be

If this diagram represents a typical firm in the industry and the firm is producing at the profit-maximizing level of output in the short run, then in the long run we would expect more firms to enter the market.

Creative destruction is most often associated with

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, 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

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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