Ch.11 Test Bank (30-49)
Allocative efficiency is achieved when the production of a good occurs where:
P = MC
Which of the following conditions is true for a purely competitive firm in long-run equilibrium?
P = MC = minimum ATC.
Under pure competition in the long run:
both allocative efficiency and productive efficiency are achieved.
If for a firm P = minimum ATC = MC, then:
both allocative efficiency and productive efficiency are being achieved.
Refer to the above diagram. By producing output level Q:
both productive and allocative efficiency are achieved.
(Last Word) "Patent trolls:"
buy up patents in order to collect royalties and sue other companies.
The process by which new firms and new products replace existing dominant firms and products is called:
creative destruction.
Refer to the above diagram. If this competitive firm produces output Q, it will: A. suffer an economic loss.
earn a normal profit
(Last Word) Patents are most likely to infringe on innovation:
for products that incorporate many different technologies into a single product.
Entrepreneurs in purely competitive industries:
innovate to lower operating costs and generate short-run economic profits.
In long-run equilibrium, purely competitive markets:
maximize the sum of consumer surplus and producer surplus.
Refer to the above diagram. At output level Q1:
neither productive nor allocative efficiency are achieved.
Innovations that lower production costs or create new products:
often generate short-run economic profits that do not last into the long run.
Resources are efficiently allocated when production occurs where:
price is equal to marginal cost
If the price of product Y is $25 and its marginal cost is $18:
resources are being underallocated to Y.
Refer to the above diagram. At output level Q2:
resources are overallocated to this product and productive efficiency is not realized.
Creative destruction is:
the process by which new firms and new products replace existing dominant firms and products.
The term productive efficiency refers to:
the production of a good at the lowest average total cost
The term allocative efficiency refers to:
the production of the product mix most desired by consumers.