question
One explanation for the existence of an increasing-cost industry is that
perfectly elastic long-run supply schedules are observed in the industry.
firms produce beyond the point of minimum long-run average total costs.
as the industry expands, prices are bid up for some factors of production.
increasing marginal returns to labor occur.
perfectly elastic long-run supply schedules are observed in the industry.
firms produce beyond the point of minimum long-run average total costs.
as the industry expands, prices are bid up for some factors of production.
increasing marginal returns to labor occur.
answer
as the industry expands, prices are bid up for some factors of production.
question
(Consider This) Which of the following statements is true about U.S. firms?
Over half are bankrupt within the first five years after starting up.
Over half are bankrupt within the first two years after starting up.
Nearly 65 percent last 10 years or more.
The life expectancy of a U.S. firm is approximately 22 years.
Over half are bankrupt within the first five years after starting up.
Over half are bankrupt within the first two years after starting up.
Nearly 65 percent last 10 years or more.
The life expectancy of a U.S. firm is approximately 22 years.
answer
Over half are bankrupt within the first five years after starting up.
question
The term productive efficiency refers to
any short-run equilibrium position of a competitive firm.
the production of a good at the lowest average total cost.
fulfilling the condition P = MC.
the production of the product mix most desired by consumers
any short-run equilibrium position of a competitive firm.
the production of a good at the lowest average total cost.
fulfilling the condition P = MC.
the production of the product mix most desired by consumers
answer
the production of a good at the lowest average total cost.
question
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
b.
b + c + d.
c.
b + c.
b.
b + c + d.
c.
b + c.
answer
b.
question
A patent is the legal right granted to a firm that allows it to
be the exclusive distributor of a particular imported product.
sell its new product exclusively for a set number of years.
make copies of other firm's products.
be the sole buyer of a particular product or resource.
be the exclusive distributor of a particular imported product.
sell its new product exclusively for a set number of years.
make copies of other firm's products.
be the sole buyer of a particular product or resource.
answer
sell its new product exclusively for a set number of years.
question
Which of the following is an example of creative destruction?
Automobile production causes the wagon industry to shut down.
Starbucks shuts down stores to create greater demand for its remaining outlets.
An economic recession forces firms out of business.
Apple earns more economic profits than other manufacturers of MP3 players.
Automobile production causes the wagon industry to shut down.
Starbucks shuts down stores to create greater demand for its remaining outlets.
An economic recession forces firms out of business.
Apple earns more economic profits than other manufacturers of MP3 players.
answer
Automobile production causes the wagon industry to shut down.
question
Long-run competitive equilibrium
is realized only in constant-cost industries.
will never change once it is realized.
results in zero economic profits.
is not economically efficient.
is realized only in constant-cost industries.
will never change once it is realized.
results in zero economic profits.
is not economically efficient.
answer
results in zero economic profits.
question
In long-run equilibrium, purely competitive markets
minimize total cost.
inevitably degenerate into monopoly in increasing-cost industries.
maximize the sum of consumer surplus and producer surplus.
yield economic profits to most sellers.
minimize total cost.
inevitably degenerate into monopoly in increasing-cost industries.
maximize the sum of consumer surplus and producer surplus.
yield economic profits to most sellers.
answer
maximize the sum of consumer surplus and producer surplus.
question
Allocative efficiency is achieved when the production of a good occurs where
total revenue is equal to TFC.
P = minimum ATC.
P = MC.
P = minimum AVC.
total revenue is equal to TFC.
P = minimum ATC.
P = MC.
P = minimum AVC.
answer
P=MC
question
If the competitive firm depicted in this diagram produces output Q, it will
earn an economic profit.
earn a normal profit.
suffer an economic loss.
achieve productive efficiency but not allocative efficiency.
earn an economic profit.
earn a normal profit.
suffer an economic loss.
achieve productive efficiency but not allocative efficiency.
answer
earn a normal profit.
question
Refer to the accompanying graphs for a competitive market in the short run. Which of the following statements is true?
The representative firm is breaking even.
The representative firm is experiencing economic losses.
The representative firm is making economic profits.
The representative firm will increase production.
The representative firm is breaking even.
The representative firm is experiencing economic losses.
The representative firm is making economic profits.
The representative firm will increase production.
answer
The representative firm is experiencing economic losses.
question
Balin's Burger Barn operates in a perfectly competitive market. Balin's is currently earning economic profits of $20,000 per year. Based on this information, we can conclude that
Balin's is operating in the short run, but not the long run.
Balin's will increase its market price over the coming months.
Balin's profits will discourage new firms from entering.
Balin's is operating in the long run.
Balin's is operating in the short run, but not the long run.
Balin's will increase its market price over the coming months.
Balin's profits will discourage new firms from entering.
Balin's is operating in the long run.
answer
Balin's is operating in the short run, but not the long run.
question
Which of the following conditions is true for a purely competitive firm in long-run equilibrium?
P = MC = minimum ATC.
P > MC > minimum ATC.
P < MC < minimum ATC.
P > MC = minimum ATC.
P = MC = minimum ATC.
P > MC > minimum ATC.
P < MC < minimum ATC.
P > MC = minimum ATC.
answer
P = MC = minimum ATC.
question
(Last Word) Patents are most likely to infringe on innovation
for products that incorporate many different technologies into a single product.
when they cause creative destruction.
in the pharmaceutical industry.
of simple, easy-to-copy products.
for products that incorporate many different technologies into a single product.
when they cause creative destruction.
in the pharmaceutical industry.
of simple, easy-to-copy products.
answer
for products that incorporate many different technologies into a single product.
question
A decreasing-cost industry is one in which
the long-run supply curve is upsloping.
the long-run supply curve is perfectly elastic.
contraction of the industry will decrease unit costs.
input prices fall or technology improves as the industry expands.
the long-run supply curve is upsloping.
the long-run supply curve is perfectly elastic.
contraction of the industry will decrease unit costs.
input prices fall or technology improves as the industry expands.
answer
input prices fall or technology improves as the industry expands.
question
Suppose a firm in a purely competitive market discovers that the price of its product is above its minimum AVC point but everywhere below ATC. Given this, the firm
should close down immediately.
should continue producing in the short run but leave the industry in the long run if the situation persists.
minimizes losses by producing at the minimum point of its AVC curve.
maximizes profits by producing where MR = ATC.
should close down immediately.
should continue producing in the short run but leave the industry in the long run if the situation persists.
minimizes losses by producing at the minimum point of its AVC curve.
maximizes profits by producing where MR = ATC.
answer
should continue producing in the short run but leave the industry in the long run if the situation persists.
question
The MR = MC rule applies
only to a purely competitive firm.
in both the short run and the long run.
in the short run but not in the long run.
in the long run but not in the short run.
only to a purely competitive firm.
in both the short run and the long run.
in the short run but not in the long run.
in the long run but not in the short run.
answer
in both the short run and the long run.
question
Innovations that lower production costs or create new products
often generate short-run economic profits that do not last into the long run.
discourage new firms from entering the industry.
usually generate long-run economic profits for the innovator.
are rare in competitive industries.
often generate short-run economic profits that do not last into the long run.
discourage new firms from entering the industry.
usually generate long-run economic profits for the innovator.
are rare in competitive industries.
answer
often generate short-run economic profits that do not last into the long run.
question
If for a firm P = minimum ATC = MC, then
neither allocative efficiency nor productive efficiency is being achieved.
both allocative efficiency and productive efficiency are being achieved.
productive efficiency is being achieved, but allocative efficiency is not.
allocative efficiency is being achieved, but productive efficiency is not.
neither allocative efficiency nor productive efficiency is being achieved.
both allocative efficiency and productive efficiency are being achieved.
productive efficiency is being achieved, but allocative efficiency is not.
allocative efficiency is being achieved, but productive efficiency is not.
answer
both allocative efficiency and productive efficiency are being achieved.
question
We would expect an industry to expand if firms in that industry are
breaking even.
earning economic profits.
earning accounting profits.
earning normal profits.
breaking even.
earning economic profits.
earning accounting profits.
earning normal profits.
answer
earning economic profits.
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