Question 1

If there is a decrease in demand for a product in a purely competitive industry, it results in an industry contraction that will end when the product price is

Accepted Answer

A)  greater than its marginal cost. 
B)  equal to its marginal cost. 
C)  less than its marginal cost. 
D)  greater than its average cost. 
A)  greater than its marginal cost. 
B)  equal to its marginal cost. 
C)  less than its marginal cost. 
D)  greater than its average cost. B

Question 2

Allocative efficiency occurs whenever

Accepted Answer

A)  consumer surplus is maximized. 
B)  it is impossible to produce a net benefit for society by changing the combination of goods and services produced. 
C)  firms have maximized their profits. 
D)  it is impossible to make someone in society better off without making someone else worse off. 
A)  consumer surplus is maximized. 
B)  it is impossible to produce a net benefit for society by changing the combination of goods and services produced. 
C)  firms have maximized their profits. 
D)  it is impossible to make someone in society better off without making someone else worse off. B

Question 3

Which of the following would not be expected to occur in a purely competitive market in long-run equilibrium?

Accepted Answer

A)  Consumer and producer surplus will be minimized. 
B)  P = MC = lowest ATC. 
C)  The maximum willingness to pay for the last unit equals the minimum acceptable price for that unit. 
D)  We would expect all of these to occur in the long run in a purely competitive market. 
A)  Consumer and producer surplus will be minimized. 
B)  P = MC = lowest ATC. 
C)  The maximum willingness to pay for the last unit equals the minimum acceptable price for that unit. 
D)  We would expect all of these to occur in the long run in a purely competitive market. A

Question 4

In long-run equilibrium under pure competition, all firms will produce at minimum

Accepted Answer

A)  average total cost. 
B)  marginal cost. 
C)  total cost. 
D)  average variable cost. 
A)  average total cost. 
B)  marginal cost. 
C)  total cost. 
D)  average variable cost.

Question 5

A patent gives a firm the power to charge a price that

Accepted Answer

A)  is below equilibrium. 
B)  is higher than marginal cost. 
C)  increases the consumer surplus. 
D)  results in overproduction of a product. 
A)  is below equilibrium. 
B)  is higher than marginal cost. 
C)  increases the consumer surplus. 
D)  results in overproduction of a product.

Question 6

A purely competitive firm that is earning positive profits in its short-run equilibrium situation will continue to earn positive profits at the long-run equilibrium.

Accepted Answer

A) True 
 B)False

Question 7

Assume a purely competitive decreasing-cost industry is initially in long-run equilibrium but then there is a decrease in market demand for the product. After all economic adjustments to this new situation have taken place, product price will be

Accepted Answer

A)  higher, but total output will be lower. 
B)  lower, and total output will be lower. 
C)  higher, and total output will be higher. 
D)  lower, but total output will be higher. 
A)  higher, but total output will be lower. 
B)  lower, and total output will be lower. 
C)  higher, and total output will be higher. 
D)  lower, but total output will be higher.

Question 8

If a purely competitive firm is producing where price exceeds marginal cost, then

Accepted Answer

A)  the firm will fail to maximize profit, but resources will be efficiently allocated. 
B)  the firm will fail to maximize profit and resources will be overallocated to the product. 
C)  the firm will fail to maximize profit and resources will be underallocated to the product. 
D)  resources will be underallocated to the product, but the firm will maximize profit. 
A)  the firm will fail to maximize profit, but resources will be efficiently allocated. 
B)  the firm will fail to maximize profit and resources will be overallocated to the product. 
C)  the firm will fail to maximize profit and resources will be underallocated to the product. 
D)  resources will be underallocated to the product, but the firm will maximize profit.

Question 9

The long-run supply curve for a purely competitive industry would be horizontal when

Accepted Answer

A)  an increase in product demand causes an increase in resource prices. 
B)  an increase in product demand causes a decrease in resource prices. 
C)  a decrease in product demand causes a decrease in the number of firms. 
D)  a decrease in product demand causes no effect in resource prices. 
A)  an increase in product demand causes an increase in resource prices. 
B)  an increase in product demand causes a decrease in resource prices. 
C)  a decrease in product demand causes a decrease in the number of firms. 
D)  a decrease in product demand causes no effect in resource prices.

Question 10

So-called creative destruction leads to all of the following except

Accepted Answer

A)  new products and low-cost production techniques. 
B)  more efficient use of society's scarce resources. 
C)  benefits to everyone in society. 
D)  hardship to some producers and workers. 
A)  new products and low-cost production techniques. 
B)  more efficient use of society's scarce resources. 
C)  benefits to everyone in society. 
D)  hardship to some producers and workers.

Question 11

In pure competition, if the market price of the product is higher than the minimum average cost of the firms, then

Accepted Answer

A)  some firms will exit the industry and the industry supply will decrease. 
B)  other firms will enter the industry and the industry supply will increase. 
C)  some firms will exit the industry and the industry supply will increase. 
D)  other firms will enter the industry and the industry supply will decrease. 
A)  some firms will exit the industry and the industry supply will decrease. 
B)  other firms will enter the industry and the industry supply will increase. 
C)  some firms will exit the industry and the industry supply will increase. 
D)  other firms will enter the industry and the industry supply will decrease.

Question 12

(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 13

(Consider This) The average life expectancy of a U.S. business is approximately

Accepted Answer

A)  2 years. 
B)  9.5 years. 
C)  10.2 years. 
D)  22 years. 
A)  2 years. 
B)  9.5 years. 
C)  10.2 years. 
D)  22 years.

Question 14

The long-run supply curve would be upward-sloping if

Accepted Answer

A)  resource prices fall as industry production contracts. 
B)  resource prices rise as industry production contracts. 
C)  resource prices are not affected by changes in industry output-level. 
D)  resource prices are set by the government. 
A)  resource prices fall as industry production contracts. 
B)  resource prices rise as industry production contracts. 
C)  resource prices are not affected by changes in industry output-level. 
D)  resource prices are set by the government.

Question 15

Which would indicate that a firm is operating under conditions of pure competition and is being productively efficient?

Accepted Answer

A)  It is making economic profits in the long run. 
B)  Marginal cost equals average variable cost. 
C)  It produces at the minimum average total cost. 
D)  Its marginal revenue is less than average revenue. 
A)  It is making economic profits in the long run. 
B)  Marginal cost equals average variable cost. 
C)  It produces at the minimum average total cost. 
D)  Its marginal revenue is less than average revenue.

Question 16

When firms in a purely competitive industry are earning profits that are greater than normal, the supply of the product will tend to decrease in the long run.

Accepted Answer

A) True 
 B)False

Question 17

In the long run for a purely competitive market, firms may enter or exit the industry, but the firms that stay in the industry will maintain their initial plant sizes.

Accepted Answer

A) True 
 B)False

Question 18

The long-run supply curve under pure competition will be

Accepted Answer

A)  downward-sloping in a decreasing-cost industry and upward-sloping in an increasing-cost industry. 
B)  horizontal in a constant-cost industry and downward-sloping in an increasing-cost industry. 
C)  vertical in a constant-cost industry and upward-sloping in a decreasing-cost industry. 
D)  upward-sloping in an increasing-cost industry and vertical in a constant-cost industry. 
A)  downward-sloping in a decreasing-cost industry and upward-sloping in an increasing-cost industry. 
B)  horizontal in a constant-cost industry and downward-sloping in an increasing-cost industry. 
C)  vertical in a constant-cost industry and upward-sloping in a decreasing-cost industry. 
D)  upward-sloping in an increasing-cost industry and vertical in a constant-cost industry.

Question 19

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 20

Suppose that Betty's Beads is a typical firm operating in a perfectly competitive market. Currently Betty's MR = $15, MC = $12, ATC = $10, and AVC = $8. Based on this information, we can conclude that

Accepted Answer

A)  Betty's is in long-run equilibrium. 
B)  potential new firms will be encouraged by Betty's success to enter the market. 
C)  some existing firms in this market will leave. 
D)  potential new firms will be discouraged by Betty's struggles and not enter the market. 
A)  Betty's is in long-run equilibrium. 
B)  potential new firms will be encouraged by Betty's success to enter the market. 
C)  some existing firms in this market will leave. 
D)  potential new firms will be discouraged by Betty's struggles and not enter the market.

Exam 11: Pure Competition in the Long Run

If there is a decrease in demand for a product in a purely competitive industry, it results in an industry contraction that will end when the product price is

Allocative efficiency occurs whenever

Which of the following would not be expected to occur in a purely competitive market in long-run equilibrium?

In long-run equilibrium under pure competition, all firms will produce at minimum

A patent gives a firm the power to charge a price that

A purely competitive firm that is earning positive profits in its short-run equilibrium situation will continue to earn positive profits at the long-run equilibrium.

Assume a purely competitive decreasing-cost industry is initially in long-run equilibrium but then there is a decrease in market demand for the product. After all economic adjustments to this new situation have taken place, product price will be

If a purely competitive firm is producing where price exceeds marginal cost, then

The long-run supply curve for a purely competitive industry would be horizontal when

So-called creative destruction leads to all of the following except

In pure competition, if the market price of the product is higher than the minimum average cost of the firms, then

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

(Consider This) The average life expectancy of a U.S. business is approximately

The long-run supply curve would be upward-sloping if

Which would indicate that a firm is operating under conditions of pure competition and is being productively efficient?

When firms in a purely competitive industry are earning profits that are greater than normal, the supply of the product will tend to decrease in the long run.

In the long run for a purely competitive market, firms may enter or exit the industry, but the firms that stay in the industry will maintain their initial plant sizes.

The long-run supply curve under pure competition will be

All of the following are long-run changes, except

Suppose that Betty's Beads is a typical firm operating in a perfectly competitive market. Currently Betty's MR = $15, MC = $12, ATC = $10, and AVC = $8. Based on this information, we can conclude that

Limits, Alternatives, and Choices

The Market System and the Circular Flow

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Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

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Behavioral Economics

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Pure Competition in the Short Run

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The Demand for Resources

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