ECON CH 10 SMARTBOOK

In the context of analyzing economic efficiency, we can interpret the market supply curve to be showing Multiple Choicethe marginal opportunity cost to produce each unit of the product.the average variable cost of producing the product.the marginal revenue from each extra unit of the product.the average cost of producing the product at each output level.

the marginal opportunity cost to produce each unit of the product.

The transformative effects of competition are often referred to as: Multiple choice question. innovation transformative innovation technological advance creative threat creative destruction

creative destruction

The MR = MC rule is known as the: Multiple choice question. profit-minimizing rule loss-maximizing rule profit-maximizing rule

profit-maximizing rule

All firms in a(n) Blank______ industry share the same basic efficiency characteristics. Multiple choice question. oligopolistic monopolistically competitive monopoly purely competitive

purely competitive

QUIZ

QUIZ

Which of the following does an increasing-cost industry experience? Multiple select question. An upward shifting average total cost (ATC) curve as the industry expands. A downward shifting average total cost (ATC) curve as the industry contracts. An upward shifting average total cost (ATC) curve as the industry contracts. A downward shifting average total cost (ATC) curve as the industry expands.

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

In a purely competitive market, price per unit to the purchaser is synonymous with BLANK1 per unit or BLANK2 revenue to a seller. (Enter one word per blank.)

BLANK1: revenue or cost BLANK2: average or marginal

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

BLANK: Allocative

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

BLANK: Productive

BLANK competition is considered to be rare in the real world.

BLANK: Pure or Perfect

Creative BLANK 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.

BLANK: destruction

Based on the information in this chart, at which price will a firm shut down? Multiple choice question. P3 P1 P4 P5

P1

In this graph, the equilibrium price is $50 and is equal to a firm's average total cost. Therefore, the firm is earning Blank______ economic profits, or a(n) Blank______ profit. Multiple choice question. positive; zero positive; normal zero; normal zero; economic

zero; normal

Which of the following does a decreasing-cost industry experience? Multiple choice question. Lower costs as industry output expands. Lower costs as industry output contracts. Higher costs as industry output expands. Higher costs as industry output remains constant.

Lower costs as industry output expands.

A purely competitive firm is a price BLANK (Enter one word).

BLANK: taker

Which of the following are considered to be the four basic market structures? Multiple select question. Representative democracy Monopolistic competition Pure monopoly Pure competition Oligopoly

Monopolistic competition Pure monopoly Pure competition Oligopoly

In a purely competitive industry, at the profit-maximizing or loss-minimizing level of output, marginal Blank______ is equal to Blank______. Multiple select question. revenue; price output; marginal cost cost; price revenue; marginal cost

revenue; price cost; price revenue; marginal cost

What must be eliminated or avoided if the "invisible hand" is to produce socially optimal outcomes in purely competitive markets? Multiple choice question. Allocative efficiency Externalities Economic surplus Normal profits

Externalities

Farmer Jones is producing wheat and must accept the market price of $6.00 per bushel. At this time, her average total costs and her marginal costs both equal $5.00 per bushel. Her minimum average variable costs are $3.50 per bushel. In order to maximize profits or minimize losses in the short run, farmer Jones should Multiple Choiceincrease selling price.increase output.continue producing, but reduce output.produce zero output and shut down.

continue producing, but reduce output.-WRONG

A decreasing-cost industry is one in which firms experience Blank______ costs as their industry Blank______. Multiple select question. lower; contracts higher; expands higher; contracts lower; expands

higher; contracts lower; expands

Quantity DemandedPriceQuantity Supplied310,000$10615,000412,5009565,000515,0008515,000617,5007465,000720,0006415,000 The accompanying table applies to a purely competitive industry composed of 100 identical firms. For each of the 100 firms in this industry, marginal revenue and total revenue will be Multiple Choice$9 and $45,752, respectively.$8 and $68,744, respectively.$9 and $343, respectively.$8 and $41,200, respectively.

$9 and $45,752, respectively.-WRONG

Economists group industries into BLANK distinct market structures.

BLANK: four or 4

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

BLANK: long

A firm should always stop producing if its average Blank______ cost is Blank______ price. Multiple choice question. total; less than variable; less than variable; greater than total; greater than

variable; greater than Reason: If the price is greater than the firm's average variable costs but less than its average total cost, the firm should continue producing because the loss it will incur is less than the fixed costs it will pay when shut down.

Multiplying product price by output reveals which of the following? Multiple choice question. Average total cost Total revenue Quantity demanded Marginal revenue

Total revenue

A purely competitive seller is Multiple Choicea "price-maker."neither a "price-maker" nor a "price-taker."both a "price-maker" and a "price-taker."a "price-taker."

a "price-taker."

The profit-maximizing rule of MR=MC states that in the short run, the firm will maximize profit or minimize loss by producing the output for which marginal revenue Blank______ marginal cost. Multiple choice question. eliminates is greater than is less than equals

equals

A constant-cost industry is one where Blank______ will not affect resource prices and production costs. Multiple choice question. expansion or contraction supply or demand inflation or interest rates investment or capital

expansion or contraction correct Reason: In a constant-cost industry, the demand for resources is small in relation to the total demand for resources. Therefore, the industry can expand or contract without significantly affecting resource prices and costs.

Which of the following is not a basic market model? Multiple Choicemonopolyfree enterpriseoligopolypure competition

free enterprise

From an economic standpoint, the break-even point is the level of output at which a firm makes a(n) Blank______ profit. Multiple choice question. accounting normal negative economic

normal

Mutual interdependence would tend to limit control over price in which market model? Multiple Choicemonopolistic competitionoligopolypure competitionpure monopoly

oligopoly

There is no incentive for firms to enter or exit the industry in the long run when Blank______. Multiple select question. price equals minimum average total cost MR = MC firms earn a normal profit firms earn a loss

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

This graph illustrates that a firm can minimize its losses by producing where Blank______. Multiple choice question. price exceeds minimum average variable cost but is less than average total cost price equals minimum average variable cost but is less than minimum average total cost price exceeds minimum average total cost but is less than average fixed cost price exceeds minimum average variable cost but is less than marginal cost

price exceeds minimum average variable cost but is less than average total cost

In this table, at a price of $71, the profit-maximizing or loss-minimizing level of output is Blank______. Multiple choice question. 5 units 0 units 7 units 6 units 2 units

0 units correct Reason: At a price of $71, at every level of output, even where MR=MC, the average variable cost is greater than the price, therefore it should produce nothing (shut down).

Total OutputTotal Fixed CostTotal Variable CostTotal Cost0$ 50$ 0$ 5015070120250120170350150200450220270550300350650390440 The accompanying table gives cost data for a firm that is selling in a purely competitive market. If product price is $75, the firm will produce Multiple Choice3 units of output.5 units of output.6 units of output.4 units of output.

4 units of output.

In this table, at a price of $81.00, the loss-minimizing level of output is Blank______. Multiple choice question. 5 units 2 units 7 units 6 units

6 Units Not others b/c: 5 units Reason: The firm can minimize its losses by producing at the point in which average variable cost is lowest. 2 units Reason: The firm can minimize its losses by producing at the point in which average variable cost is lowest. 7 units Reason: At seven units, marginal cost exceeds price and thus production should not occur.

Changes in BLANK (Enter one word) and changes in prices of variable inputs alter costs and shift the marginal cost or short run supply curve.

BLANK: technology

Which of the following explains why a purely competitive firm is a price taker? Multiple choice question. A purely competitive firm offers only a negligible fraction of total market supply and therefore must accept the price determined by the market A purely competitive firm offers only a negligible fraction of total market supply and therefore must set the price for the market A purely competitive firm offers a large fraction of total market supply and therefore determines market price A purely competitive firm produces all of total market supply and therefore must accept the price determined by the market

A purely competitive firm offers only a negligible fraction of total market supply and therefore must accept the price determined by the market

If price is below a firm's minimum average BLANK cost, the firm will not operate. (Insert only one word in the blank.)

BLANK: variable

In a perfectly competitive market, the demand curve for an individual firm is perfectly BLANK at the market price.

BLANK: elastic, horizontal, flat, constant, or fixed

In pure competition, to calculate economic profit, we first calculate the difference between BLANK and average total cost and then multiply it by output. (Type only one word in the blank.)

BLANK: price or prices

The difference between the maximum price that consumers are willing to pay for a product and the market price for that product is called consumer BLANK

BLANK: surplus

Assume that the market for wheat is purely competitive and in long-run equilibrium. A decrease in the demand for wheat would cause which of the following to occur? Multiple ChoiceNo change in economic profits in either the short-run or long-run, as firms lack the ability to change the market price.Economic losses would occur in the short-run, driving all firms out of the market and shutting down the industry in the long-run.Economic losses would occur in the short-run; firms would exit, reducing market supply; and the market would return to long-run equilibrium.Economic profits would increase in the short-run; new firms would enter, increasing market supply; and the market would return to long-run equilibrium.

Economic losses would occur in the short-run; firms would exit, reducing market supply; and the market would return to long-run equilibrium.-WRONG

True or false: Quantity supplied increases as price decreases, and economic profit is usually higher at lower product prices and output.

False Not True BC: Reason: According to the supply schedule of the competitive firm, quantity supplied and economic profit both increase as prices rise.

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? Multiple select question. 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 variable 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.

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? Multiple choice question. It is the average difference between the highest price that consumers are willing to pay for a product and the market price for that product. It is the difference between the maximum price that consumers are willing to pay for a product and the market price for that product. It is the difference between the maximum price that producers are willing to receive for a product and the market price for that product. It is the difference between the minimum price that consumers are willing to pay for a product and the market price for that product.

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? Multiple choice question. It will fail to compete and will be forced out of the industry. It will experience economic losses. Its profits will increase. Its demand curve will shift left.

Its profits will increase.

What will happen to a firm that finds a way to lower production costs through better technology or improved organization? Multiple choice question. Its demand curve will shift left. It will fail to compete and will be forced out of the industry. Its profits will increase. It will experience economic losses.

Its profits will increase.

Which of the following is a method of calculating economic profit in pure competition? Multiple choice question. Price minus average total cost multiplied by quantity Price minus average variable cost multiplied by quantity Total revenue minus marginal cost divided by quantity Price minus average total cost plus quantity

Price minus average total cost multiplied by quantity

______ is relatively rare in the real world, although this market model is highly Blank______ to several industries. Multiple choice question. Monopolistic competition; relevant Pure monopoly; irrelevant Oligopoly; relevant Pure competition; relevant

Pure competition; relevant

What are the effects of the "invisible hand" in a purely competitive economy? Multiple select question. Resource allocation that maximizes consumer satisfaction Inefficient depletion of scarce resources Maximum profits for individual producers A lack of incentive for innovation or product improvement

Resource allocation that maximizes consumer satisfaction Maximum profits for individual producers

Which of the following factors will alter costs and shift the marginal cost or short-run supply curve to a new location? Multiple select question. Technology Availability of product substitutes Consumer preferences Prices of variable inputs

Technology Prices of variable inputs

Which of the following occur only in the long run? Multiple select question. The expansion or contraction of plant capacity Price changes in response to demand The reduction of output to zero The entry and exit of firms

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

Which factors illustrate that the demand curve for a purely competitive firm is perfectly elastic? Multiple select question. The firm has no legal or financial barriers for entering or exiting the industry. The firm produces only a small fraction of the total industry output. The firm does not need to lower its price to increase its sales volume. The firm cannot obtain a higher price by restricting its output.

The firm does not need to lower its price to increase its sales volume. The firm cannot obtain a higher price by restricting its output.

Which of the following statements are true about allocative efficiency? Multiple select question. The marginal cost and marginal benefit of producing each unit of output is equal. Producer surplus is maximized and consumer surplus is minimized. 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.

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.

Which of the following best describes the economic break-even point? Multiple choice question. The point where total revenues exceed those of the strongest competitor in the industry. The point where total revenue covers fixed costs but not variable costs. The point where total revenue exceeds total costs and economic profits are realized. The point where total revenue covers all costs, but there is no economic profit.

The point where total revenue covers all costs, but there is no economic profit.

In a purely competitive market, price per unit to a buyer equals: Multiple choice question. average revenue to a seller total revenue to a seller total profits to a seller average profits to a seller

average revenue to a seller

An industry where expansion or contraction will not affect resource prices and production costs is known as a(n) Blank______. Multiple choice question. constant-cost industry decreasing-cost industry economies-of-scale industry increasing-cost industry

constant-cost industry

Productive efficiency requires that goods be produced: Multiple choice question. using the least amount of resources. in the least amount of time. only with nonscarce resources. in the most costly way. in the least costly way.

in the least costly way.

The quantity of a product supplied by a firm in pure competition should Blank______ as long as price rises. Multiple choice question. remain constant increase decrease

increase

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) Blank______ industry. Multiple choice question. constant-cost decreasing-cost increasing-cost sunk-cost

increasing-cost

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) Blank______ industry. Multiple choice question. decreasing-cost constant-cost increasing-cost sunk-cost

increasing-cost

Strategies attempted by firms for increasing their profits include: Multiple select question. lowering production costs through improved business organization. increasing product prices to increase revenues. lowering production costs through better technology. developing a new product that is popular with consumers.

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 Blank______. Multiple choice question. maximum ATC minimum ATC minimum AFC minimum AVC

minimum ATC

Total revenue equals Blank______ times Blank______. Multiple choice question. price; quantity average revenue; price demand; quantity average revenue; demand

price; quantity

The provided graph gives short-run data for a firm. If the product price is P2, the firm will Multiple Choiceproduce Q2 units and suffer a loss.produce Q2 units and make an economic profit.produce Q5 units and break even.close down to avoid a loss.

produce Q2 units and make an economic profit.-WRONG

In purely competitive markets, efficiency can be temporarily disrupted and then restored by changes in: Multiple select question. resource supplies. technological changes. consumer and producer surplus. consumer tastes.

resource supplies. correct Reason: The existing Price-MC equality may be disrupted by either raising or lowering MC. The resulting inequality will cause producers, in either pursuing profits or avoiding losses, to reallocate resources until supply is such that price once again equals MC. technological changes. correct Reason: The existing Price-MC equality may be disrupted by either raising or lowering MC. The resulting inequality will cause producers, in either pursuing profits or avoiding losses, to reallocate resources until supply is such that price once again equals MC. consumer tastes. correct Reason: The existing Price-MC equality may be disrupted by either raising or lowering MC. The resulting inequality will cause producers, in either pursuing profits or avoiding losses, to reallocate resources until supply is such that price once again equals MC.

After all long-run adjustments are completed in a perfectly competitive market, output will occur at each firm's minimum average Blank______. Multiple choice question. total cost where product price is greater than marginal revenue total cost where product price is equal to marginal revenue variable cost where product price is equal to marginal revenue total cost where product price is less than marginal revenue

total cost where product price is equal to marginal revenue

All of the following statements apply to a purely competitive market in the long run, except Multiple Choicein the long-run, all inputs are variable in quantity.firms can expand their plant capacities in the long run.firms may enter or leave the industry in the long run.total fixed costs remain constant even when output expands in the long run.

total fixed costs remain constant even when output expands in the long run.

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

true Not False BC False Reason: Efficiency within pure competition can be temporarily disrupted by a change in consumer tastes.