Ch 11 SB: Pure Competition in the Long Run

The transformative effects of competition are often referred to as:

creative destruction

Creative _______ captures the idea that the creation of new products and new production methods erodes the market positions of firms committed to existing products and old ways of doing business.

destruction

Select all that apply Which of the following does an increasing-cost industry experience?

An upward shifting average total cost (ATC) curve as the industry expands. A downward shifting average total cost (ATC) curve as the industry contracts.

True or false: Efficiency within pure competition can be temporarily disrupted by a change in consumer tastes.

True

(MC, ATC, MR graph) In this graph, the equilibrium price is $50 and is equal to a firm's average total cost. Therefore, the firm is earning ______ economic profits, or a(n) ______ profit.

zero; normal

A constant-cost industry is one where ______ will not affect resource prices and production costs.

expansion or contraction

Select all that apply There is no incentive for firms to enter or exit the industry in the long run when ______.

firms earn a normal profit MR = MC price equals minimum average total cost

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

Externalities

An industry where expansion or contraction will not affect resource prices and production costs is known as a(n) ______.

constant-cost industry

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

Select all that apply A decreasing-cost industry is one in which firms experience ______ costs as their industry ______. (Check all that apply.)

higher; contracts lower; expands

An industry whose average total cost curve shifts upward as the industry expands and shifts downward as the industry contracts is known as a(n) ______ industry.

increasing-cost

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

long

_____(one word) 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

Select all that apply 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, a multiple equality occurs where 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.

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.

What will happen to a firm that finds a way to lower production costs through better technology or improved organization?

Its profits will increase.

Which of the following does a decreasing-cost industry experience?

Lower costs as industry output expands.

________ (Allocative/Productive) efficiency means that goods are produced in the least costly way.

Productive

Select all that apply What are the effects of the "invisible hand" in a purely competitive economy?

Resource allocation that maximizes consumer satisfaction Maximum profits for individual producers

Select all that apply Which of the following occur only in the long-run?

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

Select all that apply Which of the following statements are true about allocative efficiency?

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

Productive efficiency requires that goods be produced ___.

in the least costly way

Select all that apply Strategies attempted by firms for increasing their profits include:

lowering production costs through improved business organization. lowering production costs through better technology. developing a new product that is popular with consumers.

The long run, every purely competitive firm tends to operate at its ______.

minimum ATC

All firms in a(n) ______ industry share the same basic efficiency characteristics.

purely competitive

Select all that apply In purely competitive markets, efficiency can be temporarily disrupted and then restored by changes in:

technological changes. resource supplies. consumer tastes.

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