MICR-Ch. 11

The long-run market supply curve would be downward sloping if the representative firms' A. ATC curves shift down as the industry expands B. demand curves shift up as the industry expands. C. supply curves shift left as the industry expands. D. demand curves shift down as the industry expands.

ATC curves shift down as the industry expands

Which of the following is an example of creative destruction? A. Starbucks shuts down stores to create greater demand for its remaining outlets. B. Automobile production causes the wagon industry to shut down. C. Apple earns more economic profits than other manufacturers of MP3 players. D. An economic recession forces firms out of business.

Automobile production causes the wagon industry to shut down.

Which of the following outcomes is consistent with a purely competitive market in long-run equilibrium? A. The minimum willingness to pay equals the maximum acceptable price. B. We would expect all of these to occur in the long run in a purely competitive market. C. Combined consumer and producer surplus will be maximized. D. P = MC = lowest AVC.

Combined consumer and producer surplus will be maximized.

Which of the following is true concerning purely competitive industries? A. There will be economic losses in the long run because of cut-throat competition. B. Economic profits will persist in the long run if consumer demand is strong and stable. C. There are economic profits in the long run but not in the short run. D. In the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits.

In the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits.

The theory of creative destruction was advanced many years ago by A. Alfred Marshall. B. Bill Gates. C. Joseph Schumpeter. D. Adam Smith.

Joseph Schumpeter.

When a purely competitive industry is in long-run equilibrium, which statement is true? A. Marginal cost is at its maximum level. B. Average total cost is less than marginal cost. C. Price and average total cost are equal. D. Marginal revenue is greater than price.

Price and average total cost are equal.

Refer to the accompanying graphs for a competitive market in the short run. What will happen in the long run to industry supply and the equilibrium price, P, of the product?

S will decrease; P will increase due to the fact that MR is below minimum ATC in this industry (loss) firms will leave

Refer to the diagrams, which pertain to a purely competitive firm producing output q and the industry in which it operates. Which of the following is correct?

The diagrams portray short-run equilibrium but not long-run equilibrium P=MC, but there is not a normal profit

If for a firm P = minimum ATC = MC, then A. both allocative efficiency and productive efficiency are being achieved. B. neither allocative efficiency nor productive efficiency is being achieved. C. allocative efficiency is being achieved, but productive efficiency is not. D. productive efficiency is being achieved, but allocative efficiency is not.

both allocative efficiency and productive efficiency are being achieved.

A purely competitive firm A. cannot earn economic profit in the short run. B. must earn a normal profit in the short run. C. cannot earn economic profit in the long run. D. may realize either economic profit or losses in the long run.

cannot earn economic profit in the long run.

The primary force encouraging the entry of new firms into a purely competitive industry is A. normal profits earned by firms already in the industry. B. economic profits earned by firms already in the industry. C. government subsidies for start-up firms. D. a desire to provide goods for the betterment of society.

economic profits earned by firms already in the industry.

Refer to the diagrams, which pertain to a purely competitive firm producing output q and the industry in which it operates. In the long run we should expect

firms to leave the industry, market supply to fall, and product price to rise since MR is below minimum ATC

Assume a purely competitive decreasing-cost industry is initially in long-run equilibrium but then there is a decrease in market demand for the product. After all economic adjustments to this new situation have taken place, product price will be A. higher, and total output will be higher. B. lower, but total output will be higher C. higher, but total output will be lower. D. lower, and total output will be lower.

higher, but total output will be lower.

Allocative efficiency occurs whenever A. it is impossible to produce a net benefit for society by changing the combination of goods and services produced. B. it is impossible to make someone in society better off without making someone else worse off. C. consumer surplus is maximized D. firms have maximized their profits.

it is impossible to produce a net benefit for society by changing the combination of goods and services produced.

Assume that a decline in consumer demand occurs in a purely competitive industry that is initially in long-run equilibrium. We can A. not compare the original and the new prices without knowing what cost conditions exist in the industry. B. predict that the new price will be the same as the original price C. predict that the new price will be less than the original price D. predict that the new price will be greater than the original price.

not compare the original and the new prices without knowing what cost conditions exist in the industry.

In pure competition, if the market price of the product is lower than the minimum average total cost of the firms, then A. some firms will enter the industry and the industry supply will increase. B. other firms will enter the industry and the industry supply will decrease. C. other firms will exit the industry and the industry supply will decrease. D. some firms will exit the industry and the industry supply will increase.

other firms will exit the industry and the industry supply will decrease.

When a purely competitive firm is in long-run equilibrium, A. minimum average total cost is less than the product price. B. marginal revenue exceeds marginal cost. C. price equals marginal cost. D. total revenue exceeds total cost.

price equals marginal cost.

The economic profits generated by Elon Musk's series of innovations are most threatened by A. government regulation. B. rival firms entering the market or copying Musk's innovations. C. the lack of cost efficiency in producing these goods and services. D. lack of demand for the goods and services they produce.

rival firms entering the market or copying Musk's innovations.

Suppose a firm in a purely competitive market discovers that the price of its product is above its minimum AVC point but everywhere below ATC. Given this, the firm A. should continue producing in the short run but leave the industry in the long run if the situation persists. B. should close down immediately C. maximizes profits by producing where MR = ATC. D. minimizes losses by producing at the minimum point of its AVC curve.

should continue producing in the short run but leave the industry in the long run if the situation persists.

Creative destruction is most often associated with A. international trade. B. private consumption. C. technological advance. D. government spending.

technological advance.

When LCD televisions first came on the market, they sold for at least $1,000, and some for much more. Now many units can be purchased for under $400. These facts imply that A. fewer firms produce LCD televisions than was the case five or ten years ago. B. the LCD television industry is a decreasing-cost industry. C. the demand curve for LCD televisions has shifted leftward. D. the LCD television industry was once competitive but is now monopolistic.

the LCD television industry is a decreasing-cost industry.

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

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

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

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

Creative destruction is least beneficial to A. society as a whole. B. workers in the "destroyed" industries. C. workers in the "created" industries. D. consumers.

workers in the "destroyed" industries.

The accompanying graph represents the purely competitive market for a product. When the market is at equilibrium, the deadweight loss would be

zero because the graph is in equilibrium