Pure Competition in the Long Run

The difference between the maximum price a consumer is willing to pay for a product and the actual price that they do pay is known as

Consumer surplus

An unfavorable shift or __ in demand will upset the original industry equilibrium and produce __

Decrease; losses

If demand for the good decreases creating economic losses, firms will exit the industry in the long run. As firms exit in the long run, industry supply will __ and market price will __

Decrease; rise

Producer surplus

Difference between the actual price a producer receives and the minimum acceptable price. (Sum of the vertical distances between the equilibrium price and the supply curve.)

Consumer surplus

Difference between the maximum price a consumer is willing to pay for an additional unit of a product and its market price. (Sum of the vertical distances between the demand curve and equilibrium price.

__ profits in a competitive industry will attract new firms into the industry.

Economic

Economists maintain that new firms are attracted into an industry due to:

Economic profits

Why will firms choose not to enter an industry when marginal revenue, marginal cost, price, and average total cost are equal?

Existing firms are earning only normal profits.

What must be eliminated or avoided if the "invisible hand" is to produce socially optimal outcomes in purely competitive markets?

Externalities

If there are losses in the long run, what adjustments will take place?

Firms will exit the industry until losses are eliminated.

__ efficiency means that goods are produced in the least costly way

Productive

Competitive market economies generate

Productive efficiency Allocative efficiency

A competitive market generates __ efficiency and __ efficiency.

Productive; allocative

At firms in a __ industry share the same basic efficiency characteristics.

Purely competitive.

What are the effects of the "invisible hand" in a purely competitive economy?

Resource allocation that maximizes consumer satisfaction. Maximum profits for individual producers.

A competitive firm may realize an economic profit or loss in the __ run but will earn only a normal profit in the __ run.

Short; Long

In purely competitive markets, efficiency can be temporary disrupted and then restored by changes in

Technological changes Consumer tastes Resource supplies

Allocative efficiency

The apportionment of resources among firms and industries to obtain the production of the products most wanted by society.

Which of the following occur only in the long-run

The expansion or contraction of plant capacity. The entry and exit of firms.

Creative Destruction

The hypothesis that the creation of new products and production methods destroys the market power of existing monopolies.

Productive Efficiency

The production of a good in the least costly way; occurs when production takes place at the output level at which pre-unit production costs are minimized.

As firms exit the industry in the long run, market price rises and the losses for the remaining firms begin to subside. Firms will continue to exit until which of the following happens?

There are no economic losses.

After all long-run adjustments are completed in a perfectly competitive market, output will occur at each firm's minimum average

Total cost where product price is equal to marginal revenue.

T/F: Efficiency within pure competition can be temporarily disrupted by a change in consumer tastes.

True

In this graph, the equilibrium price is $50 and is equal to firm's average total cost. Therefore, the firm is earning __ economic profits, or a __ profit

Zero; normal

Long-run Supply

a schedule or curve showing the prices at which a purely competitive industry will make various quantities of the product available in the long run

__ efficiency means that resources are distributed among firms and industries to yield a mix of goods and services that is most wanted by society.

Allocative

________ efficiency means that resources are distributed among firms and industries to yield a mix of products and services that is most wanted by society.

Allocative

Increasing-cost industries

An industry in which expansion through the entry of new firms raises the prices firms in the industry must pay for resources and therefore increases their production costs.

Constant-cost Industry

An industry in which the entry and exit of firms have no effect on the prices firms in the industry must pay for resources and thus no effect on production costs.

Productive efficiency requires that goods be produced

In the least costly way

Whether a purely competitive industry is a constant-cost industry or an increasing-cost industry, the final long-run equilibrium position of all competitive firms share which of the following characteristics?

In the long run, multiple equality occurs where the price equals marginal cost which equals the minimum average total cost. Price or marginal revenue will settle where it is equal to minimum average total cost. In the long run, an equality occurs where price equals marginal revenue, which equals minimum average total cost.

Decreasing-cost industries

Industry in which expansion through the entry of firms lowers the prices tat firms in the industry must pay for resources and therefore decreases their production costs.

Which of the following statements are true about allocative efficiency?

It is impossible to produce net gains for society by altering the mix of goods and services produced. The goods and services produced are those that society most want to consume. The marginal cost and marginal benefit of producing each unit of output is equal.

Which of the following describes consumer surplus?

It is the difference between the maximum price that consumers are willing to pay for a product and the market price for that product.

The entry and exit of firms in an industry are considered to be __ -run adjustments

Long

There is no incentive for firms to enter or exit the industry in the long run when

MR=MC Price equals minimum average total cost. Firms earn a normal profit.

In the long run, every purely competitive firm tends to operate at its

Minimum ATC

Economic profit will fall to zero and firms will choose not to enter an industry when price is equal to which of the following factors?

Minimum average total cost. Marginal Cost.

In the long run, a purely competitive firm will only earn a __ profit.

Normal