Question 1

Suppose that the corn market is purely competitive. If the corn farmers are currently earning negative economic profits, then we would expect that in the long run the firm's

Accepted Answer

A)  demand will increase.
B)  demand will decrease.
C)  supply will increase.
D)  supply will decrease.E) B) and D)
F) B) and C)

Question 2

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.E) B) and D)
F) C) and D)

Question 3

Suppose that a competitive firm finds that in its short-run equilibrium situation, its marginal cost is higher than its average total cost. If things are not expected to change and there are constant returns to scale, then the firm will exit the industry in the long run.

Accepted Answer

A) True 
 B)False

Question 4

The accompanying graph represents the purely competitive market for a product. When the market is at equilibrium, the deadweight loss would be

Accepted Answer

A)  area a.
B)  area b.
C)  area d.
D)  zero.E) None of the above
F) All of the above

Question 5

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

Question 6

Line (2) in the accompanying diagram reflects the long-run supply curve for

Accepted Answer

A)  a constant-cost industry.
B)  a decreasing-cost industry.
C)  an increasing-cost industry.
D)  a technologically progressive industry.E) None of the above
F) B) and C)

Question 7

If the price of product Y is $14 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 more of Y is produced.
C)  resources are being overallocated to Y.
D)  resources are being underallocated to Y.E) A) and D)
F) All of the above

Question 8

The diagram shows the average total cost curve for a purely competitive firm. At the long-run equilibrium level of output, this firm's economic profit

Accepted Answer

A)  is zero.
B)  is $400.
C)  is $200.
D)  cannot be determined from the information provided.E) None of the above
F) A) and B)

Question 9

The short-run supply curve of a purely competitive industry tends to be steeper than the long-run supply curve.

Accepted Answer

A) True 
 B)False

Question 10

Which would indicate that a firm is operating under conditions of pure competition and is being productively efficient?

Accepted Answer

A)  It is making economic profits in the long run.
B)  Marginal cost equals average variable cost.
C)  It produces at the minimum average total cost.
D)  Its marginal revenue is less than average revenue.E) B) and D)
F) B) and C)

Question 11

What is the concept of creative destruction?

Accepted Answer

Creative destruction is referring to the...

Question 12

The provided graph depicts a situation where, if the market demand for the product increases, the prices of the resources used by the firms in the industry would

Accepted Answer

A)  increase.
B)  decrease.
C)  stay constant.
D)  be set by the government.E) A) and B)
F) None of the above

Question 13

If the price in a competitive market falls and goes below the equilibrium price, then consumer surplus might increase, but producer surplus will definitely decrease.

Accepted Answer

A) True 
 B)False

Question 14

Producer surplus is the difference between the market price a producer receives for a product and the minimum price producers are willing to accept for a product.

Accepted Answer

A) True 
 B)False

Question 15

The accompanying graphs are for a purely competitive market in the short run. The graphs suggest that in the long run, as automatic market adjustments occur, the demand curve facing the individual firm will

Accepted Answer

A)  shift up.
B)  shift down.
C)  not shift.
D)  slope downward.E) B) and C)
F) A) and D)

Question 16

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 17

Competitive firms will always try to earn more than a normal profit by doing the following except

Accepted Answer

A)  adopting better production technology.
B)  improving their business organization and operation.
C)  developing new products.
D)  raising the prices of their existing products.E) A) and D)
F) None of the above

Question 18

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

Question 19

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.E) C) and D)
F) A) and D)

Question 20

The average life expectancy of a U.S. business is approximately

Accepted Answer

A)  2 years.
B)  9.5 years.
C)  10.2 years.
D)  22 years.E) A) and B)
F) A) and D)

Exam 11: Pure Competition in the Long Run

If the price of product Y is $14 and its marginal cost is $18,

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In a decreasing-cost industry,

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If the price in a competitive market falls and goes below the equilibrium price, then consumer surplus might increase, but producer surplus will definitely decrease.

Correct AnswerverifiedShow Answer

The accompanying graphs are for a purely competitive market in the short run. The graphs suggest that in the long run, as automatic market adjustments occur, the demand curve facing the individual firm will

Correct AnswerverifiedShow Answer

Suppose that the corn market is purely competitive. If the corn farmers are currently earning negative economic profits, then we would expect that in the long run the firm's

Correct AnswerverifiedShow Answer

The accompanying graph represents the purely competitive market for a product. When the market is at equilibrium, the deadweight loss would be

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Producer surplus is the difference between the market price a producer receives for a product and the minimum price producers are willing to accept for a product.

Correct AnswerverifiedShow Answer

Line (2) in the accompanying diagram reflects the long-run supply curve for

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The short-run supply curve of a purely competitive industry tends to be steeper than the long-run supply curve.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Competitive firms will always try to earn more than a normal profit by doing the following except

Correct AnswerverifiedShow Answer

Suppose that a competitive firm finds that in its short-run equilibrium situation, its marginal cost is higher than its average total cost. If things are not expected to change and there are constant returns to scale, then the firm will exit the industry in the long run.

Correct AnswerverifiedShow Answer

What is the concept of creative destruction?

Correct AnswerverifiedCreative destruction is referring to the...View AnswerShow Answer

Productive efficiency refers to

Correct AnswerverifiedShow Answer

The provided graph depicts a situation where, if the market demand for the product increases, the prices of the resources used by the firms in the industry would

Correct AnswerverifiedShow Answer

Which would indicate that a firm is operating under conditions of pure competition and is being productively efficient?

Correct AnswerverifiedShow Answer

The diagram shows the average total cost curve for a purely competitive firm. At the long-run equilibrium level of output, this firm's economic profit

Correct AnswerverifiedShow Answer

The average life expectancy of a U.S. business is approximately

Correct AnswerverifiedShow Answer

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Creative destruction is referring to the...
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