Question 1

Which of the following outcomes is consistent with a purely competitive market in long-run equilibrium?

Accepted Answer

A)  Combined consumer and producer surplus will be maximized. 
B)  P = MC = lowest AVC. 
C)  The minimum willingness to pay equals the maximum acceptable price. 
D)  We would expect all of these to occur in the long run in a purely competitive market. 
A)  Combined consumer and producer surplus will be maximized. 
B)  P = MC = lowest AVC. 
C)  The minimum willingness to pay equals the maximum acceptable price. 
D)  We would expect all of these to occur in the long run in a purely competitive market.

Question 2

A purely competitive firm is precluded from making economic profits in the long run because

Accepted Answer

A)  it is a "price taker." 
B)  its demand curve is perfectly elastic. 
C)  of unimpeded entry to the industry. 
D)  it produces a differentiated product. 
A)  it is a "price taker." 
B)  its demand curve is perfectly elastic. 
C)  of unimpeded entry to the industry. 
D)  it produces a differentiated product.

Question 3

The difference between the maximum price a consumer is willing to pay for a product and the actual price the consumer pays is

Accepted Answer

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

Question 4

(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 requiring large R&D costs to create. 
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 requiring large R&D costs to create.

Question 5

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 6

Suppose losses cause industry X to contract and, as a result, the prices of relevant inputs decline. Industry X is

Accepted Answer

A)  a constant-cost industry. 
B)  a decreasing-cost industry. 
C)  an increasing-cost industry. 
D)  encountering X-inefficiency. 
A)  a constant-cost industry. 
B)  a decreasing-cost industry. 
C)  an increasing-cost industry. 
D)  encountering X-inefficiency.

Question 7

From the viewpoint of a firm, competition can come even from other firms that are not in the same industry.

Accepted Answer

A) True 
 B)False

Question 8

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 9

The process by which new firms and new products destroy existing dominant firms and their products is called creative destruction.

Accepted Answer

A) True 
 B)False

Question 10

One explanation for the existence of an increasing-cost industry is that

Accepted Answer

A)  increasing marginal returns to labor occur. 
B)  firms produce beyond the point of minimum long-run average total costs. 
C)  perfectly elastic long-run supply schedules are observed in the industry. 
D)  as the industry expands, prices are bid up for some factors of production. 
A)  increasing marginal returns to labor occur. 
B)  firms produce beyond the point of minimum long-run average total costs. 
C)  perfectly elastic long-run supply schedules are observed in the industry. 
D)  as the industry expands, prices are bid up for some factors of production.

Question 11

Efficiency or deadweight losses occur in purely competitive markets when P = MC = lowest ATC.

Accepted Answer

A) True 
 B)False

Question 12

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 13

If the price of product Y is $25 and its marginal cost is $18,

Accepted Answer

A)  Y is being produced with the least-cost combination of resources. 
B)  society will realize a net gain if less of Y is produced. 
C)  resources are being underallocated to Y. 
D)  resources are being overallocated to Y. 
A)  Y is being produced with the least-cost combination of resources. 
B)  society will realize a net gain if less of Y is produced. 
C)  resources are being underallocated to Y. 
D)  resources are being overallocated to Y.

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

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 16

After all long-run adjustments have been completed, a firm in a competitive industry will produce that level of output where average total cost is at a minimum.

Accepted Answer

A) True 
 B)False

Question 17

A constant-cost industry is one in which

Accepted Answer

A)  a higher price per unit will not result in an increased output. 
B)  if 100 units can be produced for $100, then 150 can be produced for $150, 200 for $200, and so forth. 
C)  the demand curve and therefore the unit price and quantity sold seldom change. 
D)  the total cost of producing 200 or 300 units is no greater than the cost of producing 100 units. 
A)  a higher price per unit will not result in an increased output. 
B)  if 100 units can be produced for $100, then 150 can be produced for $150, 200 for $200, and so forth. 
C)  the demand curve and therefore the unit price and quantity sold seldom change. 
D)  the total cost of producing 200 or 300 units is no greater than the cost of producing 100 units.

Question 18

Productive efficiency refers to

Accepted Answer

A)  cost minimization, where P = minimum ATC. 
B)  production at a level where P = MC. 
C)  maximizing profits by producing where MR = MC. 
D)  setting TR = TC. 
A)  cost minimization, where P = minimum ATC. 
B)  production at a level where P = MC. 
C)  maximizing profits by producing where MR = MC. 
D)  setting TR = TC.

Question 19

Competitive markets produce equilibrium prices and quantities that minimize the sum of consumer and producer surpluses.

Accepted Answer

A) True 
 B)False

Question 20

If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then

Accepted Answer

A)  the selling price for this firm is above the market equilibrium price. 
B)  new firms will enter this market. 
C)  some existing firms in this market will leave. 
D)  there must be price fixing by the industry's firms. 
A)  the selling price for this firm is above the market equilibrium price. 
B)  new firms will enter this market. 
C)  some existing firms in this market will leave. 
D)  there must be price fixing by the industry's firms.

Exam 11: Pure Competition in the Long Run

Which of the following outcomes is consistent with a purely competitive market in long-run equilibrium?

A purely competitive firm is precluded from making economic profits in the long run because

The difference between the maximum price a consumer is willing to pay for a product and the actual price the consumer pays is

(Last Word) Eliminating patents would tend to

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

Suppose losses cause industry X to contract and, as a result, the prices of relevant inputs decline. Industry X is

From the viewpoint of a firm, competition can come even from other firms that are not in the same industry.

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

The process by which new firms and new products destroy existing dominant firms and their products is called creative destruction.

One explanation for the existence of an increasing-cost industry is that

Efficiency or deadweight losses occur in purely competitive markets when P = MC = lowest ATC.

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

If the price of product Y is $25 and its marginal cost is $18,

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

Which of the following is true of normal profits?

After all long-run adjustments have been completed, a firm in a competitive industry will produce that level of output where average total cost is at a minimum.

A constant-cost industry is one in which

Productive efficiency refers to

Competitive markets produce equilibrium prices and quantities that minimize the sum of consumer and producer surpluses.

If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then

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

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The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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