Pure Competition in the Long Run
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
An unfavorable shift or __ in demand will upset the original industry equilibrium and produce __
Decrease; losses
If demand for the good decreases creating economic losses, firms will exit the industry in the long run. As firms exit in the long run, industry supply will __ and market price will __
Decrease; rise
Producer surplus
Difference between the actual price a producer receives and the minimum acceptable price. (Sum of the vertical distances between the equilibrium price and the supply curve.)
Consumer surplus
Difference between the maximum price a consumer is willing to pay for an additional unit of a product and its market price. (Sum of the vertical distances between the demand curve and equilibrium price.
__ profits in a competitive industry will attract new firms into the industry.
Economic
If there are losses in the long run, what adjustments will take place?
Firms will exit the industry until losses are eliminated.
Competitive market economies generate
Productive efficiency Allocative efficiency
A competitive market generates __ efficiency and __ efficiency.
Productive; allocative
At firms in a __ industry share the same basic efficiency characteristics.
Purely competitive.
What are the effects of the "invisible hand" in a purely competitive economy?
Resource allocation that maximizes consumer satisfaction. Maximum profits for individual producers.
A competitive firm may realize an economic profit or loss in the __ run but will earn only a normal profit in the __ run.
Short; Long
In purely competitive markets, efficiency can be temporary disrupted and then restored by changes in
Technological changes Consumer tastes Resource supplies
Allocative efficiency
The apportionment of resources among firms and industries to obtain the production of the products most wanted by society.
Which of the following occur only in the long-run
The expansion or contraction of plant capacity. The entry and exit of firms.
Creative Destruction
The hypothesis that the creation of new products and production methods destroys the market power of existing monopolies.
Productive Efficiency
The production of a good in the least costly way; occurs when production takes place at the output level at which pre-unit production costs are minimized.
As firms exit the industry in the long run, market price rises and the losses for the remaining firms begin to subside. Firms will continue to exit until which of the following happens?
There are no economic losses.
__ 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
________ efficiency means that resources are distributed among firms and industries to yield a mix of products and services that is most wanted by society.
Allocative
Increasing-cost industries
An industry in which expansion through the entry of new firms raises the prices firms in the industry must pay for resources and therefore increases their production costs.
Why will firms choose not to enter an industry when marginal revenue, marginal cost, price, and average total cost are equal?
Existing firms are earning only normal profits.
There is no incentive for firms to enter or exit the industry in the long run when
MR=MC Price equals minimum average total cost. Firms earn a normal profit.
Economic profit will fall to zero and firms will choose not to enter an industry when price is equal to which of the following factors?
Minimum average total cost. Marginal Cost.
Economists maintain that new firms are attracted into an industry due to:
Economic profits
What must be eliminated or avoided if the "invisible hand" is to produce socially optimal outcomes in purely competitive markets?
Externalities
Long-run Supply
a schedule or curve showing the prices at which a purely competitive industry will make various quantities of the product available in the long run
Productive efficiency requires that goods be produced
In the least costly way
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, multiple equality occurs where the 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.
Decreasing-cost industries
Industry in which expansion through the entry of firms lowers the prices tat firms in the industry must pay for resources and therefore decreases their production costs.
Which of the following statements are true about allocative efficiency?
It is impossible to produce net gains for society by altering the mix of goods and services produced. The goods and services produced are those that society most want to consume. The marginal cost and marginal benefit of producing each unit of output is equal.
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.
In the long run, every purely competitive firm tends to operate at its
Minimum ATC
Constant-cost Industry
An industry in which the entry and exit of firms have no effect on the prices firms in the industry must pay for resources and thus no effect on production costs.
The entry and exit of firms in an industry are considered to be __ -run adjustments
Long
In the long run, a purely competitive firm will only earn a __ profit.
Normal
__ efficiency means that goods are produced in the least costly way
Productive
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.
T/F: Efficiency within pure competition can be temporarily disrupted by a change in consumer tastes.
True
In this graph, the equilibrium price is $50 and is equal to firm's average total cost. Therefore, the firm is earning __ economic profits, or a __ profit
Zero; normal