Microeconomics Exam #2 Ch9: PURE COMPETITION IN THE LONG RUN

question

Three characteristics of Profit Maximization in the long run

answer

1. entry and exit of firms only
2. identical costs
3. constant cost industry

question

2 Characteristics of long run equilibrium

answer

1. economic profit = 0
2. no entry or exit of firms

question

Entry of firms eliminates Economic Losses or Profits?

answer

Profits

question

Exit of firms eliminates economic losses or profits?

answer

losses

question

Long Run supply curve

answer

the effect that changes in the number of firms in the industry will have on costs of individual firms

question

constant cost industry

answer

industry expansion or contraction will not effect resource prices or production costs

question

characteristics for long run supply for INCREASING cost industry

answer

-ATC curves shift upward as industry expands and downward as it contracts
-entry of new firms will increase resource prices and lead to an increase in total cost

question

characteristics for long run supply for DECREASING cost industry

answer

-firms experience lower costs as output expands and higher costs as output contracts

question

P=MC=min ATC

answer

in pure competition

question

Productive efficiency

answer

goods produced in least costly way

question

allocative efficiency

answer

P=MC
producing goods and services people most want to consume

question

Consumer surplus

answer

difference between the maximum prices that consumers are willing to pay for a product and the market price of that product

question

Producer surplus

answer

difference between the minimum prices that producers are willing to accept for a product and the market price of the product

question

equilibrium quantity

answer

combined amount of consumer and producer surplus is maximized

question

dynamic adjustments

answer

ability to restore efficiency described when disrupted by changes in economy due to change in consumer tastes

question

invisible hand

answer

creates pattern of resource allocation that maximizes consumer satisfaction

question

Why is technological advancement likely?

answer

Firms are constantly competing to make new products or improve upon products
-leads to more efficient use of scarce resources

question

Creative Destruction

answer

-the transformative effects of competition
-creation of new products and production methods destroys the market positions of firms committed to existing products and old ways of doing business

1 of 18

question

Three characteristics of Profit Maximization in the long run

answer

1. entry and exit of firms only
2. identical costs
3. constant cost industry

question

2 Characteristics of long run equilibrium

answer

1. economic profit = 0
2. no entry or exit of firms

question

Entry of firms eliminates Economic Losses or Profits?

answer

Profits

question

Exit of firms eliminates economic losses or profits?

answer

losses

question

Long Run supply curve

answer

the effect that changes in the number of firms in the industry will have on costs of individual firms

question

constant cost industry

answer

industry expansion or contraction will not effect resource prices or production costs

question

characteristics for long run supply for INCREASING cost industry

answer

-ATC curves shift upward as industry expands and downward as it contracts
-entry of new firms will increase resource prices and lead to an increase in total cost

question

characteristics for long run supply for DECREASING cost industry

answer

-firms experience lower costs as output expands and higher costs as output contracts

question

P=MC=min ATC

answer

in pure competition

question

Productive efficiency

answer

goods produced in least costly way

question

allocative efficiency

answer

P=MC
producing goods and services people most want to consume

question

Consumer surplus

answer

difference between the maximum prices that consumers are willing to pay for a product and the market price of that product

question

Producer surplus

answer

difference between the minimum prices that producers are willing to accept for a product and the market price of the product

question

equilibrium quantity

answer

combined amount of consumer and producer surplus is maximized

question

dynamic adjustments

answer

ability to restore efficiency described when disrupted by changes in economy due to change in consumer tastes

question

invisible hand

answer

creates pattern of resource allocation that maximizes consumer satisfaction

question

Why is technological advancement likely?

answer

Firms are constantly competing to make new products or improve upon products
-leads to more efficient use of scarce resources

question

Creative Destruction

answer

-the transformative effects of competition
-creation of new products and production methods destroys the market positions of firms committed to existing products and old ways of doing business

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