Chapter 11, Pure Competition in the long run

question

If a purely competitive firm is currently facing a situation where the price of its product is lower than the average variable cost, but it believes that the market demand for its product will increase soon, then:

answer

The firm will shut down in the short run, but stay in the industry in the long run if it expects the product price to rise high enough soon

question

If a purely competitive firm is facing a situation where the price of its product is lower than the average cost, then all of the following applies, except:

answer

Other firms will want to enter the industry because of the positive economic profits

question

Assume that the market for soybeans is purely competitive. Currently, firms growing soybeans are experiencing economic profits. In the long run, we can expect:

answer

New firms to enter causing the market price of soybeans to fall

question

Which of the following is true of normal profits?

answer

They are necessary to keep a firm in the industry in the long run

question

Assume the market for ball bearings is purely competitive. Currently, each of the firms in this market is earning negative economic profits. In the long run, we can expect the market:

answer

Supply to increase and firms profits to decrease

question

Refer to the above graphs for a competitive market in the short run. Which of the following statements is true?

answer

The firm is experiencing economic losses

question

The long-run supply curve under pure competition will be:

answer

Downward-sloping in a decreasing-cost industry and upward-sloping in an increasing-cost industry.

question

The long-run market supply curve would be downward-sloping if the representative firms':

answer

ATC curves shift down as the industry expands

question

When a purely competitive industry is in long-run equilibrium, which statement is true?

answer

Price and average total cost are equal

question

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

answer

Production in the industry decreases in the long run

question

What happens in a decreasing-cost industry when some firms leave and the industry's output contracts?

answer

The average cost will increase

question

Assume a purely competitive decreasing-cost industry is initially in long-run equilibrium but then there is a decrease in consumer demand. After all economic adjustments to this new situation

answer

Higher, and total output will be higher

question

One explanation for the existence of an increasing-cost industry is:

answer

As the industry expands, prices are bid up for some factors of production

question

The industry represented by the graph above must be one where:

answer

Resource prices fall when the industry contracts

question

Productive efficiency refers to:

answer

Cost minimization, where P= minimum ATC

question

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

answer

Price and the minimum average cost are equal

question

Allocative efficiency occurs when the:

answer

Marginal cost equals the marginal benefit to society

question

Pure competition produces a socially optimal allocation of resources in the long run because:

answer

Marginal price equals cost

question

When a purely competitive firm is in long-run equilibrium, it is said to achieve allocative efficiency because:

answer

Marginal cost equals marginal revenue

question

The difference between the maximum price a consumer is willing to pay for a product and the actual price the consumer pays is:

answer

Consumer surplus

question

Refer to the graph above representing the purely competitive market for a product. When the market is at equilibrium, the consumer surplus would be represented by the area:

answer

question

The difference between the actual price that a producer receives and the minimum acceptable price a producer is willing to accept is:

answer

Producer surplus

question

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

answer

Raising the prices of their existing products

question

Creative destruction is most often associated with:

answer

Technological advance

question

A patent is the legal right granted to a firm that allows it to:

answer

sell its new product exclusively for a set number of years

question

A patent gives a firm the power to charge a price that:

answer

is higher than marginal cost

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question

answer

The firm will shut down in the short run, but stay in the industry in the long run if it expects the product price to rise high enough soon

question

If a purely competitive firm is facing a situation where the price of its product is lower than the average cost, then all of the following applies, except:

answer

Other firms will want to enter the industry because of the positive economic profits

question

Assume that the market for soybeans is purely competitive. Currently, firms growing soybeans are experiencing economic profits. In the long run, we can expect:

answer

New firms to enter causing the market price of soybeans to fall

question

Which of the following is true of normal profits?

answer

They are necessary to keep a firm in the industry in the long run

question

Assume the market for ball bearings is purely competitive. Currently, each of the firms in this market is earning negative economic profits. In the long run, we can expect the market:

answer

Supply to increase and firms profits to decrease

question

Refer to the above graphs for a competitive market in the short run. Which of the following statements is true?

answer

The firm is experiencing economic losses

question

The long-run supply curve under pure competition will be:

answer

Downward-sloping in a decreasing-cost industry and upward-sloping in an increasing-cost industry.

question

The long-run market supply curve would be downward-sloping if the representative firms':

answer

ATC curves shift down as the industry expands

question

When a purely competitive industry is in long-run equilibrium, which statement is true?

answer

Price and average total cost are equal

question

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

answer

Production in the industry decreases in the long run

question

What happens in a decreasing-cost industry when some firms leave and the industry's output contracts?

answer

The average cost will increase

question

Assume a purely competitive decreasing-cost industry is initially in long-run equilibrium but then there is a decrease in consumer demand. After all economic adjustments to this new situation

answer

Higher, and total output will be higher

question

One explanation for the existence of an increasing-cost industry is:

answer

As the industry expands, prices are bid up for some factors of production

question

The industry represented by the graph above must be one where:

answer

Resource prices fall when the industry contracts

question

Productive efficiency refers to:

answer

Cost minimization, where P= minimum ATC

question

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

answer

Price and the minimum average cost are equal

question

Allocative efficiency occurs when the:

answer

Marginal cost equals the marginal benefit to society

question

Pure competition produces a socially optimal allocation of resources in the long run because:

answer

Marginal price equals cost

question

When a purely competitive firm is in long-run equilibrium, it is said to achieve allocative efficiency because:

answer

Marginal cost equals marginal revenue

question

The difference between the maximum price a consumer is willing to pay for a product and the actual price the consumer pays is:

answer

Consumer surplus

question

Refer to the graph above representing the purely competitive market for a product. When the market is at equilibrium, the consumer surplus would be represented by the area:

answer

question

The difference between the actual price that a producer receives and the minimum acceptable price a producer is willing to accept is:

answer

Producer surplus

question

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

answer

Raising the prices of their existing products

question

Creative destruction is most often associated with:

answer

Technological advance

question

A patent is the legal right granted to a firm that allows it to:

answer

sell its new product exclusively for a set number of years

question

A patent gives a firm the power to charge a price that:

answer

is higher than marginal cost

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