Ch.11 Pure Competition in the Long Run

In a perfectly competitive industry in which firms are achieving short-run economic profit

A. firms will enter the industry

Assume that a perfectly competitive firm finds that its property tax (a lump-sum cost) increases. In the short run, the firm will

A. not change its output

If the market price for a perfectly competitive industry yields economic losses in the short run, existing firms in the industry will exit. The result will be that

A. the industry supply curve will shift leftward, the quantity demanded will decrease and the market price in the long run will increase

Given the graph above, a contraction in the industry would I. help the industry and the firms II. decrease costs per unit for the industry and the firms III. increase costs per unit for the industry and the firms

B. III only

Allocative efficiency is identified as the output where

B. Price= MC

In the graph above, the long-run supply curve reflects an industry in which

B. expansion will increase resource prices

In long-run equilibrium for a competitive firm and market in which all costs and benefits have been included, which of the following is true?

C. Consumer surplus and producer surplus are maximum and efficiency is optimal

The firm finds that its marginal revenue is less than its marginal cost. To maximize profit, this firm will

E. decrease output knowing price will remain constant

If a perfectly competitive firm's variable cost increases, all of the following occur in the short run EXCEPT

C. the firm's average fixed cost will increase

Each firm will have

C. marginal revenue that equals marginal cost at average total cost minimum

In a competitive, constant-cost industry, the industry long-run supply curve is

C. perfectly elastic

If firms in a competitive, constant-costs industry are earning positive economic profits in the short run, then in the long run

A. Enter, Demand, Supply, Price

The firm finds that its average revenue is greater than its marginal cost. To maximize profit, this firm will

C. Increase output knowing the price remains constant

Assuming a competitive, increasing-cost industry, an increase in market demand in the long run will result in

C. Increase, Increase, Increase

If consumer demand for the product in a perfectly competitive industry increases, which effects will occur for the individual firm in the short run? I. the product price will increase II. the firm will incur a loss at its current output III. the firm will increase output

D. I and III

Entrepreneurs in a perfectly competitive industry attempt to increase their short-run profits by I. Reducing production costs II. Improving technology III. Raising prices IV. Developing new products

D. I, II, and IV

For these firms and industries, which of the following will be true? I. These industries will be productively efficient II. These industries will generate optimal allocative efficiency III. Because marginal cost equals marginal revenue at the minimum of average total cost, some economic inefficiency occurs IV. These firms will compete in markets that maximize producer and consumer surpluses

D. I, II, and IV

In pure competition, which of the following are true in the long run? I. Individual firms have the freedom to enter or exit the industry. II. Individual firms have control over the market price of their product. III. Individual firms' output decisions are based on their costs and the market price. IV. Individual firms's profits attract entry, while losses prompt exit.

D. I, III, and IV only

In the long run, which of the following are true in a competitive industry? I. Firms can expand or contract productive capacity II. Firms can face substantial fixed costs III. Firms can freely enter and exit IV. Firms are driven by incentives based on profits and losses

D. I, III, and IV only

In pure competition, the freedom to enter or exit an industry ensure that, in the long run, firms earn I. Positive economic profits II. Only normal returns III. Sufficient revenues to cover only explicit costs IV. Sufficient revenues to cover explicit and implicit costs

D. II and IV only

In the long run, a purely competitive firm will only operate at a point where

D. average total cost is at a maximum

The long-run supply curve for a constant-cost industry is

D. horizontal because industry expansion and contraction will not affect resource costs

Purely competitive industries have which of the following characteristics? I. Resources will be transferred from firms generating economic losses II. Firms will earn 0 economic profit in the long run III. Firms will be able to operate in the short run as long as revenues cover variable costs. IV. Firms will shut down in the long run if market price is less than average total cost.

E. I, II, III, and IV

If competitive firms in the short run have positive economic profit where marginal cost equals marginal revenue I. Optimal allocative efficiency has been achieved II. optimal productive efficiency has been achieved III. the sum of consumer and producer surplus is maximized IV. long-run adjustments will create optimal efficiency with the sum of consumer and producer surplus maximized

E. IV only