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.