Question 1

(Consider This) Approximately what percentage of start-up firms in the United States go bankrupt within the first two years?

Accepted Answer

A)  9.5 
B)  10.2 
C)  22 
D)  53 
A)  9.5 
B)  10.2 
C)  22 
D)  53

Question 2

Innovations that lower production costs or create new products

Accepted Answer

A)  are rare in competitive industries. 
B)  discourage new firms from entering the industry. 
C)  often generate short-run economic profits that do not last into the long run. 
D)  usually generate long-run economic profits for the innovator. 
A)  are rare in competitive industries. 
B)  discourage new firms from entering the industry. 
C)  often generate short-run economic profits that do not last into the long run. 
D)  usually generate long-run economic profits for the innovator.

Question 3

The difference between the actual price that a producer receives and the minimum acceptable price a producer is willing to accept is

Accepted Answer

A)  the consumer surplus. 
B)  the producer surplus. 
C)  allocative efficiency. 
D)  productive efficiency. 
A)  the consumer surplus. 
B)  the producer surplus. 
C)  allocative efficiency. 
D)  productive efficiency.

Question 4

When a competitive firm is in long-run equilibrium, its accounting profits are greater than zero.

Accepted Answer

A) True 
 B)False

Question 5

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 6

The process by which new firms and new products replace existing dominant firms and products is called

Accepted Answer

A)  monopolistic competition. 
B)  mergers and acquisitions. 
C)  process innovation. 
D)  creative destruction. 
A)  monopolistic competition. 
B)  mergers and acquisitions. 
C)  process innovation. 
D)  creative destruction.

Question 7

If the long-run supply curve is upward-sloping, it indicates that resource prices fall when

Accepted Answer

A)  production in the industry decreases in the long run. 
B)  production in the industry increases in the long run. 
C)  new firms enter the industry. 
D)  short-run profits in the industry are positive. 
A)  production in the industry decreases in the long run. 
B)  production in the industry increases in the long run. 
C)  new firms enter the industry. 
D)  short-run profits in the industry are positive.

Question 8

Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good and the market price of the product.

Accepted Answer

A) True 
 B)False

Question 9

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 10

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 11

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 12

When a purely competitive firm is in long-run equilibrium,

Accepted Answer

A)  marginal revenue exceeds marginal cost. 
B)  price equals marginal cost. 
C)  total revenue exceeds total cost. 
D)  minimum average total cost is less than the product price. 
A)  marginal revenue exceeds marginal cost. 
B)  price equals marginal cost. 
C)  total revenue exceeds total cost. 
D)  minimum average total cost is less than the product price.

Question 13

Balin's Burger Barn operates in a perfectly competitive market. Balin's is currently earning economic profits of $20,000 per year. Based on this information, we can conclude that

Accepted Answer

A)  Balin's profits will discourage new firms from entering. 
B)  Balin's will increase its market price over the coming months. 
C)  Balin's is operating in the short run, but not the long run. 
D)  Balin's is operating in the long run. 
A)  Balin's profits will discourage new firms from entering. 
B)  Balin's will increase its market price over the coming months. 
C)  Balin's is operating in the short run, but not the long run. 
D)  Balin's is operating in the long run.

Question 14

Assume a purely competitive increasing-cost industry is initially in long-run equilibrium and that an increase in consumer demand occurs. After all economic adjustments have been completed, product price will be

Accepted Answer

A)  lower, but total output will be larger than originally. 
B)  higher, and total output will be larger than originally. 
C)  lower, and total output will be smaller than originally. 
D)  higher, but total output will be smaller than originally. 
A)  lower, but total output will be larger than originally. 
B)  higher, and total output will be larger than originally. 
C)  lower, and total output will be smaller than originally. 
D)  higher, but total output will be smaller than originally.

Question 15

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 16

Long-run competitive equilibrium

Accepted Answer

A)  is realized only in constant-cost industries. 
B)  will never change once it is realized. 
C)  is not economically efficient. 
D)  results in zero economic profits. 
A)  is realized only in constant-cost industries. 
B)  will never change once it is realized. 
C)  is not economically efficient. 
D)  results in zero economic profits.

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

A decreasing-cost industry is one in which

Accepted Answer

A)  contraction of the industry will decrease unit costs. 
B)  input prices fall or technology improves as the industry expands. 
C)  the long-run supply curve is perfectly elastic. 
D)  the long-run supply curve is upsloping. 
A)  contraction of the industry will decrease unit costs. 
B)  input prices fall or technology improves as the industry expands. 
C)  the long-run supply curve is perfectly elastic. 
D)  the long-run supply curve is upsloping.

Question 19

In long-run equilibrium, a purely competitive firm will operate where price is

Accepted Answer

A)  greater than MR but equal to MC and minimum ATC. 
B)  greater than MR and MC, but equal to minimum ATC. 
C)  greater than MC and minimum ATC, but equal to MR. 
D)  equal to MR, MC, and minimum ATC. 
A)  greater than MR but equal to MC and minimum ATC. 
B)  greater than MR and MC, but equal to minimum ATC. 
C)  greater than MC and minimum ATC, but equal to MR. 
D)  equal to MR, MC, and minimum ATC.

Question 20

The operation of the invisible hand means the pursuit of private interests promotes social interests in pure competition.

Accepted Answer

A) True 
 B)False

Exam 11: Pure Competition in the Long Run

(Consider This) Approximately what percentage of start-up firms in the United States go bankrupt within the first two years?

Innovations that lower production costs or create new products

The difference between the actual price that a producer receives and the minimum acceptable price a producer is willing to accept is

When a competitive firm is in long-run equilibrium, its accounting profits are greater than zero.

The MR = MC rule applies

The process by which new firms and new products replace existing dominant firms and products is called

If the long-run supply curve is upward-sloping, it indicates that resource prices fall when

Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good and the market price of the product.

After long-run adjustments, a purely competitive market achieves

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

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.

When a purely competitive firm is in long-run equilibrium,

Balin's Burger Barn operates in a perfectly competitive market. Balin's is currently earning economic profits of $20,000 per year. Based on this information, we can conclude that

Assume a purely competitive increasing-cost industry is initially in long-run equilibrium and that an increase in consumer demand occurs. After all economic adjustments have been completed, product price will be

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

Long-run competitive equilibrium

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

A decreasing-cost industry is one in which

In long-run equilibrium, a purely competitive firm will operate where price is

The operation of the invisible hand means the pursuit of private interests promotes social interests in pure competition.

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

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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