Question 1

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 B) F) A) and C)

Question 2

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

Question 3

Assume that a decline in consumer demand occurs in a purely competitive industry that is initially in long-run equilibrium.We can:

Accepted Answer

A)   predict that the new price will be greater than the original price.
B)   predict that the new price will be less than the original price.
C)   predict that the new price will be the same as the original price.
D)   not compare the original and the new prices without knowing what cost conditions exist in the industry.E) A) and C)
F) A) and B)

Question 4

In a decreasing-cost industry:

Accepted Answer

A)   there will be no firm entry because the increased supply will reduce the long-run equilibrium price.
B)   the law of demand does not apply.
C)   greater demand leads to higher long-run equilibrium prices.
D)   lower demand leads to higher long-run equilibrium prices.E) A) and B)
F) None of the above

Question 5

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.E) A) and D)
F) A) and B)

Question 6

(Last Word) Patents are most likely to infringe on innovation:

Accepted Answer

A)   for products that incorporate many different technologies into a single product.
B)   of simple,easy-to-copy products.
C)   in the pharmaceutical industry.
D)   when they cause creative destruction.E) A) and B)
F) A) and C)

Question 7

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) All of the above
F) C) and D) C

Question 8

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

Question 9

If production is occurring where marginal cost exceeds price,the purely competitive firm will:

Accepted Answer

A)   maximize profit,but resources will be underallocated to the product.
B)   maximize profit,but resources will be overallocated to the product.
C)   fail to maximize profit and resources will be overallocated to the product.
D)   fail to maximize profit and resources will be underallocated to the product.E) None of the above
F) B) and C)

Question 10

Which of the following is an example of creative destruction?

Accepted Answer

A)   An economic recession forces firms out of business.
B)   Automobile production causes the wagon industry to shut down.
C)   Apple earns more economic profits than other manufacturers of MP3 players.
D)   Starbucks shuts down stores to create greater demand for its remaining outlets.E) All of the above
F) A) and C)

Question 11

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

Accepted Answer

A)   3.5.
B)   10.2.
C)   22.
D)   53.E) A) and D)
F) A) and C)

Question 12

Under what conditions would an increase in demand lead to a lower long-run equilibrium price?

Accepted Answer

A)   The firms in the market are part of a decreasing-cost industry.
B)   The firms in the market produce an inferior good.
C)   Potential new firms in the market are not attracted by economic profits.
D)   Increases in demand cannot lead to lower long-run equilibrium prices.E) All of the above
F) A) and B)

Question 13

Which of the following is true concerning purely competitive industries?

Accepted Answer

A)   There will be economic losses in the long run because of cut-throat competition.
B)   Economic profits will persist in the long run if consumer demand is strong and stable.
C)   In the short run,firms may incur economic losses or earn economic profits,but in the long run they earn normal profits.
D)   There are economic profits in the long run but not in the short run.E) B) and D)
F) A) and C)

Question 14

An increasing-cost industry is the result of:

Accepted Answer

A)   higher resource prices that occur as the industry expands.
B)   a change in the industry's minimum efficient scale.
C)   X-inefficiency.
D)   the law of diminishing returns.E) C) and D)
F) A) and B)

Question 15

In long-run equilibrium,purely competitive markets:

Accepted Answer

A)   minimize total cost.
B)   maximize the sum of consumer surplus and producer surplus.
C)   yield economic profits to most sellers.
D)   inevitably degenerate into monopoly in increasing-cost industries.E) B) and D)
F) C) and D)

Question 16

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 17

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

Question 18

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

Question 19

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) A) and D)
F) A) and B)

Question 20

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

Exam 11: Pure Competition in the Long Run

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

Correct AnswerverifiedShow Answer

Long-run competitive equilibrium:

Correct AnswerverifiedD

Assume that a decline in consumer demand occurs in a purely competitive industry that is initially in long-run equilibrium.We can:

Correct AnswerverifiedShow Answer

In a decreasing-cost industry:

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

(Last Word) Patents are most likely to infringe on innovation:

Correct AnswerverifiedShow Answer

The term productive efficiency refers to:

Correct AnswerverifiedC

Creative destruction is:

Correct AnswerverifiedShow Answer

If production is occurring where marginal cost exceeds price,the purely competitive firm will:

Correct AnswerverifiedShow Answer

Which of the following is an example of creative destruction?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Under what conditions would an increase in demand lead to a lower long-run equilibrium price?

Correct AnswerverifiedShow Answer

Which of the following is true concerning purely competitive industries?

Correct AnswerverifiedShow Answer

An increasing-cost industry is the result of:

Correct AnswerverifiedShow Answer

In long-run equilibrium,purely competitive markets:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

(Last Word) Eliminating patents would tend to:

Correct AnswerverifiedC

A constant-cost industry is one in which:

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

The MR = MC rule applies:

Correct AnswerverifiedShow Answer

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D

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C

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C

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