Question 1

Creative destruction is

Accepted Answer

A)  the process by which large firms buy up small firms.
B)  the process by which new firms and new products replace existing dominant firms and products.
C)  a term coined many years ago by Adam Smith.
D)  applicable to planned economies but not to market economies.E) None of the above
F) All of the above

Question 2

The accompanying graph shows the long-run supply and demand curves in a purely competitive market. The curves suggest that in this industry, the dollars' worth of other products that have to be sacrificed in order to produce each unit of the output of this industry is

Accepted Answer

A)  constant.
B)  increasing.
C)  decreasing.
D)  not indicated in the graph.E) B) and D)
F) B) and C)

Question 3

In the long run, assuming that market demand stays the same, if firms in a competitive industry expand, then the product price will tend to fall as a result.

Accepted Answer

A) True 
 B)False

Question 4

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.E) All of the above
F) A) and C)

Question 5

The accompanying graph shows the long-run supply and demand curves in a purely competitive market. The curves suggest that in this industry, the marginal benefit to consumers of each extra unit of the product is

Accepted Answer

A)  constant.
B)  increasing.
C)  decreasing.
D)  not indicated in the graph.E) None of the above
F) A) and D)

Question 6

Which of the following statements is true for a long-run supply curve that slopes upward?

Accepted Answer

A)  If total market output is increased, unit costs of production increase.
B)  If total market output is unchanged, unit costs of production increase.
C)  The total cost of producing 15 units is no larger than the cost of producing 10 units.
D)  If total market output is decreased, total costs of production will remain unchanged.E) A) and B)
F) A) and C)

Question 7

Assume a purely competitive increasing-cost industry is in long-run equilibrium. If a decline in demand occurs, firms will

Accepted Answer

A)  leave the industry, price will fall, and quantity produced will rise.
B)  enter the industry and price and quantity will both rise.
C)  leave the industry and price and quantity will both rise.
D)  leave the industry, price will fall, and quantity produced will fall.E) A) and B)
F) All of the above

Question 8

In a purely competitive industry, an optimal allocation of scarce resources occurs when

Accepted Answer

A)  P = AC.
B)  P = MC.
C)  MR = AC.
D)  TR = TC.E) None of the above
F) A) and C)

Question 9

Long-run supply curves for a purely competitive industry can never be downsloping.

Accepted Answer

A) True 
 B)False

Question 10

Karlee's Kreations sells handbags in a purely competitive market. Karlee's is currently breaking even. Based on this information, we can conclude that Karlee's Kreations

Accepted Answer

A)  must be operating in long-run equilibrium.
B)  will leave this market in the long run because no economic profits are being earned.
C)  will continue operating in this market only if the market price rises.
D)  may be operating in either short-run or long-run equilibrium.E) None of the above
F) B) and C)

Question 11

If this diagram represents a typical firm in the industry and the firm is producing at the profit-maximizing level of output in the short run, then in the long run we would expect economic profits in this market to rise.

Accepted Answer

A) True 
 B)False

Question 12

With the creation and growth of the Internet, vacationers can now book their own flights, hotels, rental cars, and other travel logistics online. If this capability resulted in creative destruction, which of the following industries would we have expected to decline the most as a result?

Accepted Answer

A)  airlines
B)  travel agencies
C)  tourist information
D)  hotelsE) B) and C)
F) A) and D)

Question 13

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

Question 14

When LCD televisions first came on the market, they sold for at least $1,000, and some for much more. Now many units can be purchased for under $400. These facts imply that

Accepted Answer

A)  the LCD television industry was once competitive but is now monopolistic.
B)  fewer firms produce LCD televisions than was the case five or ten years ago.
C)  the demand curve for LCD televisions has shifted leftward.
D)  the LCD television industry is a decreasing-cost industry.E) B) and D)
F) C) and D)

Question 15

Refer to the diagrams, which pertain to a purely competitive firm producing output q and the industry in which it operates. The predicted long-run adjustments in this industry might be offset by

Accepted Answer

A)  a decline in product demand.
B)  an increase in resource prices.
C)  a technological improvement in production methods.
D)  entry of new firms into the industry.E) B) and C)
F) C) and D)

Question 16

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

Accepted Answer

A)  some firms will enter the industry and the industry supply will increase.
B)  other firms will exit the industry and the industry supply will decrease.
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.E) None of the above
F) A) and C)

Question 17

When a competitive firm sees losses because the product price falls below the minimum average cost of production at its current plant, it may decide to expand if there are economies of scale.

Accepted Answer

A) True 
 B)False

Question 18

What are two strategies that entrepreneurs use to earn more than the normal profit?

Accepted Answer

Entrepreneurs have two different strateg...

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

An industry is producing at the least-cost rate of production when

Accepted Answer

A)  marginal cost is greater than average total cost.
B)  marginal revenue is greater than price.
C)  price and the minimum average total cost are equal.
D)  price and marginal revenue are equal.E) A) and D)
F) A) and B)

Exam 11: Pure Competition in the Long Run

The term productive efficiency refers to

Correct AnswerverifiedShow Answer

With the creation and growth of the Internet, vacationers can now book their own flights, hotels, rental cars, and other travel logistics online. If this capability resulted in creative destruction, which of the following industries would we have expected to decline the most as a result?

Correct AnswerverifiedShow Answer

The accompanying graph shows the long-run supply and demand curves in a purely competitive market. The curves suggest that in this industry, the dollars' worth of other products that have to be sacrificed in order to produce each unit of the output of this industry is

Correct AnswerverifiedShow Answer

Karlee's Kreations sells handbags in a purely competitive market. Karlee's is currently breaking even. Based on this information, we can conclude that Karlee's Kreations

Correct AnswerverifiedShow Answer

In the long run, assuming that market demand stays the same, if firms in a competitive industry expand, then the product price will tend to fall as a result.

Correct AnswerverifiedShow Answer

What are two strategies that entrepreneurs use to earn more than the normal profit?

Correct AnswerverifiedEntrepreneurs have two different strateg...View AnswerShow Answer

If this diagram represents a typical firm in the industry and the firm is producing at the profit-maximizing level of output in the short run, then in the long run we would expect economic profits in this market to rise.

Correct AnswerverifiedShow Answer

Which of the following statements is true for a long-run supply curve that slopes upward?

Correct AnswerverifiedShow Answer

An industry is producing at the least-cost rate of production when

Correct AnswerverifiedShow Answer

When LCD televisions first came on the market, they sold for at least $1,000, and some for much more. Now many units can be purchased for under $400. These facts imply that

Correct AnswerverifiedShow Answer

Refer to the diagrams, which pertain to a purely competitive firm producing output q and the industry in which it operates. The predicted long-run adjustments in this industry might be offset by

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The accompanying graph shows the long-run supply and demand curves in a purely competitive market. The curves suggest that in this industry, the marginal benefit to consumers of each extra unit of the product is

Correct AnswerverifiedShow Answer

After long-run adjustments, a purely competitive market achieves

Correct AnswerverifiedShow Answer

Assume a purely competitive increasing-cost industry is in long-run equilibrium. If a decline in demand occurs, firms will

Correct AnswerverifiedShow Answer

In a purely competitive industry, an optimal allocation of scarce resources occurs when

Correct AnswerverifiedShow Answer

Creative destruction is

Correct AnswerverifiedShow Answer

Long-run supply curves for a purely competitive industry can never be downsloping.

Correct AnswerverifiedShow Answer

When a competitive firm sees losses because the product price falls below the minimum average cost of production at its current plant, it may decide to expand if there are economies of scale.

Correct AnswerverifiedShow Answer

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Entrepreneurs have two different strateg...
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