Question 1

Assume that the market for corn is purely competitive. Currently, firms growing corn are suffering economic losses. In the long run, we can expect

Accepted Answer

A)  new firms to enter, causing the market price of corn to fall.
B)  new firms to enter, causing the market price of corn to rise.
C)  some firms to exit, causing the market price of corn to fall.
D)  some firms to exit, causing the market price of corn to rise.E) B) and C)
F) A) and D)

Question 2

The accompanying graph shows the long-run supply and demand curves in a purely competitive market. We know that in this market, the marginal

Accepted Answer

A)  cost equals marginal benefit at P₁ Q₁.
B)  benefit exceeds marginal cost at the output level of Q₂.
C)  cost exceeds marginal benefit at the output level of Q₂.
D)  benefit equals marginal cost at all points on the supply curve.E) B) and D)
F) B) and C)

Question 3

Which of the following conditions is true for a purely competitive firm in long-run equilibrium?

Accepted Answer

A) P> MC = minimum ATC. B) P> MC > minimum ATC. C) P = MC = minimum ATC. D) P< MC < minimum ATC.E) A) and C) F) B) and C)

Question 4

Assume the market for ball bearings is purely competitive. Currently, each of the firms in this market is earning positive economic profits. In the long run, as adjustments occur in the industry, we can expect the market price of ball bearings to

Accepted Answer

A)  increase and individual firms' profits to decrease.
B)  increase and individual firms' profits to increase.
C)  decrease and individual firms' profits to increase.
D)  decrease and individual firms' profits to decrease.E) A) and C)
F) A) and B)

Question 5

When entrepreneurs in competitive industries successfully innovate to lower production costs, it usually results in long-run economic profits for the firm.

Accepted Answer

A) True 
 B)False

Question 6

Suppose that Betty's Beads is a typical firm operating in a perfectly competitive market. Currently Betty's MR = $25, MC = $23, ATC = $20, and AVC = $16. Based on this information, we can conclude that

Accepted Answer

A)  Betty's is in long-run equilibrium.
B)  Betty's experience will encourage new firms to enter the market.
C)  Betty's experience will encourage some existing firms in this market to leave.
D)  Betty's experience will discourage firms from entering the market.E) A) and D)
F) B) and C)

Question 7

Which firms will be the most likely to leave the industry when it is incurring losses?

Accepted Answer

In the real world, managerial talents di...

Question 8

"The long-run industry supply curve in a constant-cost industry graphs as a horizontal line. " Explain.

Accepted Answer

In a constant-cost industry, the entry a...

Question 9

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)  53E) A) and D)
F) B) and D)

Question 10

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.E) A) and B)
F) A) and C)

Question 11

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.E) A) and B)
F) A) and C)

Question 12

The accompanying graph represents the purely competitive market for a product. When the market is at equilibrium, the consumer surplus would be represented by the area

Accepted Answer

A)  a + b + c + d.
B)  a + b + c.
C)  a.
D)  b + c.E) B) and C)
F) A) and D)

Question 13

The costs of competition's creative destruction are often widespread, while the benefits often accrue to only a few.

Accepted Answer

A) True 
 B)False

Question 14

The accompanying graphs are for a purely competitive market in the short run. The graphs suggest that as long run adjustments consequently occur, the firms in the industry will find that

Accepted Answer

A)  profits will increase.
B)  profits will decrease.
C)  profits will be unchanged.
D)  No predictions can be made based on the information given.E) A) and B)
F) None of the above

Question 15

When a profit-maximizing competitive firm decides to produce at a loss because its price is below average cost but above average variable cost, that is a long-run decision.

Accepted Answer

A) True 
 B)False

Question 16

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.E) None of the above
F) B) and D)

Question 17

Which of the following distinguishes the short run from the long run in pure competition?

Accepted Answer

A)  Firms can enter and exit the market in the long run but not in the short run.
B)  Firms attempt to maximize profits in the long run but not in the short run.
C)  Firms use the MR = MC rule to maximize profits in the short run but not in the long run.
D)  The quantity of labor hired can vary in the long run but not in the short run.E) B) and D)
F) C) and D)

Question 18

The accompanying graph represents the purely competitive market for a product. When the market is at equilibrium, the producer surplus would be represented by the area

Accepted Answer

A)  b + c.
B)  b.
C)  c.
D)  b + c + d.E) C) and D)
F) A) and B)

Question 19

We would expect an industry to expand if firms in that industry are

Accepted Answer

A)  earning normal profits.
B)  earning economic profits.
C)  breaking even.
D)  earning accounting profits.E) A) and B)
F) A) and C)

Question 20

If for a firm P = minimum ATC = MC, then

Accepted Answer

A)  neither allocative efficiency nor productive efficiency is being achieved.
B)  productive efficiency is being achieved, but allocative efficiency is not.
C)  both allocative efficiency and productive efficiency are being achieved.
D)  allocative efficiency is being achieved, but productive efficiency is not.E) All of the above
F) A) and B)

Exam 11: Pure Competition in the Long Run

Which firms will be the most likely to leave the industry when it is incurring losses?

Correct AnswerverifiedIn the real world, managerial talents di...View AnswerShow Answer

"The long-run industry supply curve in a constant-cost industry graphs as a horizontal line. " Explain.

Correct AnswerverifiedIn a constant-cost industry, the entry a...View AnswerShow Answer

Allocative efficiency means that

Correct AnswerverifiedShow Answer

If for a firm P = minimum ATC = MC, then

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The accompanying graph shows the long-run supply and demand curves in a purely competitive market. We know that in this market, the marginal

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The costs of competition's creative destruction are often widespread, while the benefits often accrue to only a few.

Correct AnswerverifiedShow Answer

The accompanying graph represents the purely competitive market for a product. When the market is at equilibrium, the consumer surplus would be represented by the area

Correct AnswerverifiedShow Answer

When a profit-maximizing competitive firm decides to produce at a loss because its price is below average cost but above average variable cost, that is a long-run decision.

Correct AnswerverifiedShow Answer

The accompanying graph represents the purely competitive market for a product. When the market is at equilibrium, the producer surplus would be represented by the area

Correct AnswerverifiedShow Answer

When entrepreneurs in competitive industries successfully innovate to lower production costs, it usually results in long-run economic profits for the firm.

Correct AnswerverifiedShow Answer

The accompanying graphs are for a purely competitive market in the short run. The graphs suggest that as long run adjustments consequently occur, the firms in the industry will find that

Correct AnswerverifiedShow Answer

Assume the market for ball bearings is purely competitive. Currently, each of the firms in this market is earning positive economic profits. In the long run, as adjustments occur in the industry, we can expect the market price of ball bearings to

Correct AnswerverifiedShow Answer

Assume that the market for corn is purely competitive. Currently, firms growing corn are suffering economic losses. In the long run, we can expect

Correct AnswerverifiedShow Answer

Which of the following distinguishes the short run from the long run in pure competition?

Correct AnswerverifiedShow Answer

Suppose that Betty's Beads is a typical firm operating in a perfectly competitive market. Currently Betty's MR = $25, MC = $23, ATC = $20, and AVC = $16. Based on this information, we can conclude that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following conditions is true for a purely competitive firm in long-run equilibrium?

Correct AnswerverifiedShow Answer

We would expect an industry to expand if firms in that industry are

Correct AnswerverifiedShow Answer

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In the real world, managerial talents di...
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In a constant-cost industry, the entry a...
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