Economics -- Chp. 11 (pg. 142-145)
The long-run equilibrium in pure competition is for marginal revenue to equal marginal cost (MR=MC) and for price price to equal the minimum of average total cost.
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The long-run supply curve for a constant-cost industry in pure competition is horizontal.
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Under conditions of pure competition, firms achieve productive efficiency by producing in the least costly way.
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When firms in purely competitive industry are earning profits that are less than normal, the supply of the product will eventually decrease.
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When there are economic losses in a purely competitive industry, some of the existing firms will exit the industry.
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With pure competition, any advantage that innovative firms gain by either lowering production costs or introducing new products will not persist over time.
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3. "Keeping the competition out works quite simply." Explain how it works.
• Reducing the number of firms in an industry decreases the supply of the good, thus driving up its price.
When a purely competitive industry is in long-run equilibrium, which statement is true?
(a) Firms in the industry are earning normal profits.
For a purely competitive firm in long-run equilibrium,
(a) MR = MC = minimum ATC
Which triple identity results in the most efficient use of resources?
(a) P = MC = minimum ATC
The long-run supply curve in a constant-cost industry will be
(a) perfectly elastic
The idea of the "invisible hand" operating in the competitive market system means that
(a) there is a unity of private and social interests that promotes efficiency
An economy is producing the goods most wanted by society when, for each and every good, its
(b) price and marginal cost are equal
The elimination of the market positions of firms and their products by new firms with new products and innovative ways of doing business would be most closely associated wit the concept of
(c) creative destruction
Increasing-cost industries find that their costs rise as a consequence of an increased demand for their product because of
(c) higher resource prices
The long run-supply curve under pure competition will be
(c) horizontal in a constant-cost industry and upsloping in an increasing-cost industry
In a decreasing-cost industry, the long-run
(d) supply curve would be downsloping
Assume that the market for wheat is purely competitive. Currently, firms growing wheat are experiencing economic losses. In the long run, we can expect this market's
(c) supply curve to decrease
Pure competition in the long run in an industry is most affected by
(c) the entry and exit of firms
If there is an increase in demand for a product in a purely competitive industry, it results in a dynamic adjustment in which there is an industry
(d) expansion that will end when the price of the product is equal to its marginal cost
As firms experiencing economic losses exit a purely competitive industry, product price for the typical firm will decrease until eventually price equals marginal cost and the minimum of average total cost.
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Assuming a constant- or increasing-cost industry, the final long-run equilibrium positions of all firms have the same basic efficiency characteristics: P > MC > ATC
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In constant-cost industry in pure competition, an expansion of the industry will increase resource prices.
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In pure competition, allocative efficiency is achieved when product price is greater than marginal cost.
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Pure competition minimizes the combined consumer and producer surplus.
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The long-run supply curve for a decreasing-cost industry in pure competition is vertical.
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The long-run supply curve for an increasing-cost industry in pure competition is downsloping.
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When new firms enter a purely competitive industry, it will lead to an increase in market demand.
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When there is long-run equilibrium in pure competition, the normal profit is zero for the existing firms.
F
A major attribute of pure competition is the ability to restore productive and allocative efficiency when it is disrupted by changes in the economy.
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As new firms enter a purely competitive industry with economic profits, product price for the typical firm will decrease until eventually price equals marginal cost at the minimum of average total cost.
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Creative destruction is the concept that the creation of new products and new production methods is beneficial for society, but that it also leads to the destruction of jobs, businesses, and even industries.
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In a decreasing-cost industry in pure competition, an expansion of the industry will decrease resource prices.
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In a purely competitive market, product price measures the marginal benefit, or additional satisfaction, that society obtains from producing additional units of the product.
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In an increasing-cost industry in pure competition, an expansion of the industry will decrease resource prices.
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In the long run in pure competition, economic profits will attract new firms to enter an industry, while economic losses will cause existing firms to leave an industry.
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In the long run, pure competition forces firms to produce at the minimum average total cost of production and to charge a price that is just consistent with the cost.
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The "invisible hand" of the competitive market system organizes the private interests of producers in a way that complements society's interest in the efficient use of scarce resource.
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The existence of economic profits in an industry will attract new firms to enter an industry.
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