Question 1

In long-run equilibrium, a competitive firm produces where P = MR = MC = minimum ATC and the firm earns normal economic profits.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements is correct?

Accepted Answer

A)  The long-run supply curve for a purely competitive increasing-cost industry will be upsloping. 
B)  The long-run supply curve for a purely competitive increasing-cost industry will be perfectly elastic. 
C)  The long-run supply curve for a purely competitive industry will be less elastic than the industry's short-run supply curve. 
D)  The long-run supply curve for a purely competitive decreasing-cost industry will be upsloping. 
A)  The long-run supply curve for a purely competitive increasing-cost industry will be upsloping. 
B)  The long-run supply curve for a purely competitive increasing-cost industry will be perfectly elastic. 
C)  The long-run supply curve for a purely competitive industry will be less elastic than the industry's short-run supply curve. 
D)  The long-run supply curve for a purely competitive decreasing-cost industry will be upsloping.

Question 3

Which is true of a purely competitive firm in long-run equilibrium?

Accepted Answer

A)  Average fixed cost equals price. 
B)  Marginal cost equals marginal product. 
C)  Price equals marginal cost. 
D)  Average variable cost equals marginal cost. 
A)  Average fixed cost equals price. 
B)  Marginal cost equals marginal product. 
C)  Price equals marginal cost. 
D)  Average variable cost equals marginal cost.

Question 4

Allocative efficiency is achieved by equalizing consumer surplus and producer surplus.

Accepted Answer

A) True 
 B)False

Question 5

Allocative efficiency means that

Accepted Answer

A)  the product is produced at the lowest unit-cost possible. 
B)  society's scarce resources are used to produce products that align with consumer preferences. 
C)  the product is sold at a price equal to the average cost of producing it. 
D)  the marginal benefit of the product exceeds its marginal cost. 
A)  the product is produced at the lowest unit-cost possible. 
B)  society's scarce resources are used to produce products that align with consumer preferences. 
C)  the product is sold at a price equal to the average cost of producing it. 
D)  the marginal benefit of the product exceeds its marginal cost.

Question 6

An increasing-cost industry is associated with

Accepted Answer

A)  a perfectly elastic long-run supply curve. 
B)  an upsloping long-run supply curve. 
C)  a perfectly inelastic long-run supply curve. 
D)  an upsloping long-run demand curve. 
A)  a perfectly elastic long-run supply curve. 
B)  an upsloping long-run supply curve. 
C)  a perfectly inelastic long-run supply curve. 
D)  an upsloping long-run demand curve.

Question 7

An upward-sloping long-run supply curve indicates a constant-cost industry.

Accepted Answer

A) True 
 B)False

Question 8

The term productive efficiency refers to

Accepted Answer

A)  any short-run equilibrium position of a competitive firm. 
B)  the production of the product mix most desired by consumers. 
C)  the production of a good at the lowest average total cost. 
D)  fulfilling the condition P = MC. 
A)  any short-run equilibrium position of a competitive firm. 
B)  the production of the product mix most desired by consumers. 
C)  the production of a good at the lowest average total cost. 
D)  fulfilling the condition P = MC.

Question 9

Which of the following statements about a competitive firm is correct?

Accepted Answer

A)  To maximize profits, a competitive firm should produce the output level at which total revenue is greatest. 
B)  In long-run equilibrium, a competitive firm will produce at the point of minimum average costs. 
C)  A competitive firm will produce in the short run so long as total receipts are sufficient to cover total fixed costs. 
D)  A competitive firm will close down in the short run whenever price is less than the minimum attainable average total cost. 
A)  To maximize profits, a competitive firm should produce the output level at which total revenue is greatest. 
B)  In long-run equilibrium, a competitive firm will produce at the point of minimum average costs. 
C)  A competitive firm will produce in the short run so long as total receipts are sufficient to cover total fixed costs. 
D)  A competitive firm will close down in the short run whenever price is less than the minimum attainable average total cost.

Question 10

It is possible for a competitive firm that is maximizing profits in the short run to make its profits even bigger in the long run by expanding its plant, assuming that the product price stays the same.

Accepted Answer

A) True 
 B)False

Question 11

In the long run for a purely competitive market, firms will earn only normal profits.

Accepted Answer

A) True 
 B)False

Question 12

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 13

The long-run market supply curve would be downward-sloping if the representative firms'

Accepted Answer

A)  demand curves shift up as the industry expands. 
B)  ATC curves shift down as the industry expands. 
C)  supply curves shift left as the industry expands. 
D)  demand curves shift down as the industry expands. 
A)  demand curves shift up as the industry expands. 
B)  ATC curves shift down as the industry expands. 
C)  supply curves shift left as the industry expands. 
D)  demand curves shift down as the industry expands.

Question 14

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.

Question 15

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 16

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

Accepted Answer

A) True 
 B)False

Question 17

If a competitive firm successfully adopts a better production technology ahead of the others, then

Accepted Answer

A)  its product price will become lower than the others'. 
B)  its average cost will become higher than the others'. 
C)  its profits will become higher than the others'. 
D)  its marginal revenue will become higher than the others'. 
A)  its product price will become lower than the others'. 
B)  its average cost will become higher than the others'. 
C)  its profits will become higher than the others'. 
D)  its marginal revenue will become higher than the others'.

Question 18

(Last Word) "Patent trolls"

Accepted Answer

A)  block firms from acquiring patents on intellectual property. 
B)  buy up patents in order to collect royalties and sue other companies. 
C)  legally challenge new patent applications in an effort to extract rents. 
D)  promote innovation by keeping firms from having a stranglehold on intellectual property. 
A)  block firms from acquiring patents on intellectual property. 
B)  buy up patents in order to collect royalties and sue other companies. 
C)  legally challenge new patent applications in an effort to extract rents. 
D)  promote innovation by keeping firms from having a stranglehold on intellectual property.

Question 19

In purely competitive market, the entry and exit of firms will push price toward equality with marginal revenue.

Accepted Answer

A) True 
 B)False

Question 20

In the context of analyzing economic efficiency, we can interpret the market demand curve to be showing

Accepted Answer

A)  the average cost of producing the product at each output level. 
B)  the marginal revenue from each extra unit of the product. 
C)  the marginal benefit that consumers place on each unit of the product. 
D)  the average variable cost of producing the product. 
A)  the average cost of producing the product at each output level. 
B)  the marginal revenue from each extra unit of the product. 
C)  the marginal benefit that consumers place on each unit of the product. 
D)  the average variable cost of producing the product.

Exam 11: Pure Competition in the Long Run

In long-run equilibrium, a competitive firm produces where P = MR = MC = minimum ATC and the firm earns normal economic profits.

Which of the following statements is correct?

Which is true of a purely competitive firm in long-run equilibrium?

Allocative efficiency is achieved by equalizing consumer surplus and producer surplus.

Allocative efficiency means that

An increasing-cost industry is associated with

An upward-sloping long-run supply curve indicates a constant-cost industry.

The term productive efficiency refers to

Which of the following statements about a competitive firm is correct?

It is possible for a competitive firm that is maximizing profits in the short run to make its profits even bigger in the long run by expanding its plant, assuming that the product price stays the same.

In the long run for a purely competitive market, firms will earn only normal profits.

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

The long-run market supply curve would be downward-sloping if the representative firms'

Creative destruction is most often associated with

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

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

If a competitive firm successfully adopts a better production technology ahead of the others, then

(Last Word) "Patent trolls"

In purely competitive market, the entry and exit of firms will push price toward equality with marginal revenue.

In the context of analyzing economic efficiency, we can interpret the market demand curve to be showing

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

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The Demand for Resources

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