Chapter 11 Quiz

Which of the following is an example of creative destruction?

Automobile production causes the wagon industry to shut down.

Under what conditions would an increase in demand lead to a lower long-run equilibrium price?

The firms in the market are part of a decreasing-cost industry.

The primary force encouraging the entry of new firms into a purely competitive industry is:

economic profits earned by firms already in the industry.

If production is occurring where marginal cost exceeds price, the purely competitive firm will:

fail to maximize profit and resources will be overallocated to the product.

A constant-cost industry is one in which:

if 100 units can be produced for $100, then 150 can be produced for $150, 200 for $200, and so forth.

Entrepreneurs in purely competitive industries:

innovate to lower operating costs and generate short-run economic profits.

Assume a purely competitive, increasing-cost industry is in long-run equilibrium. If a decline in demand occurs, firms will:

leave the industry and price and output will both decline.

In long-run equilibrium, purely competitive markets:

maximize the sum of consumer surplus and producer surplus.

Assume that society places a higher value on the last unit of X produced than the value of the resources used to produce that unit. With no spillovers, this information means that:

price is greater than marginal cost.

A firm is producing an output such that the benefit from one more unit is more than the cost of producing that additional unit. This means the firm is:

producing less output than allocative efficiency requires.