Exam 4 Chapter 11

The long-run supply curve for a purely competitive industry would be horizontal when: An increase in product demand causes an increase in resource prices A decrease in product demand causes a decrease in the number of firms An increase in product demand causes a decrease in resource prices A decrease in product demand causes no effect in resource prices

A decrease in product demand causes no effect in resource prices

If the entry or exit of firms does not affect the resource prices in an industry, we refer to it as a: Constant-cost industry Price-controlled industry Price-taking industry Fixed-price industry

Constant-cost industry

One explanation for the existence of an increasing-cost industry is: As the industry expands, prices are bid up for some factors of production Perfectly elastic long-run supply schedules are observed in the industry Increasing marginal returns to labor occur Firms produce beyond the point of minimum long-run average total costs

As the industry expands, prices are bid up for some factors of production

In long-run equilibrium under pure competition, all firms will produce at minimum: Marginal cost Total cost Average total cost Average variable cost

Average total cost

Which of the following is not a factor that automatically pushes firms in pure competition to earn only normal profits in the long run? Changes in the firms' plant size Exit of some firms Entry of new firms Changes in the market demand

Changes in the market demand

When a purely competitive market is at its long-run equilibrium, then all of the following are true, except: Marginal benefit of the last unit of the product equals the marginal cost of producing that unit Maximum willingness of buyers to pay for the last unit of the product equals the minimum acceptable price for the seller of that unit Combined amount of consumer and producer surpluses is at its minimum possible Price equals marginal cost, and they are equal to the lowest attainable average cost of production

Combined amount of consumer and producer surpluses is at its minimum possible

Productive efficiency refers to: Production at a level where P = MC Maximizing profits by producing where MR = MC Setting TR = TC Cost minimization, where P = minimum ATC

Cost minimization, where P = minimum ATC

Productive efficiency refers to: Setting TR = TC Production at a level where P = MC Maximizing profits by producing where MR = MC Cost minimization, where P = minimum ATC

Cost minimization, where P = minimum ATC

Creative destruction is illustrated by which of the following pairs of products: Netflix and iPads DVD players and DVDs Bicycles and helmets Digital cameras and film

Digital cameras and film

The long-run supply curve under pure competition will be: Vertical in a constant-cost industry and upward-sloping in a decreasing-cost industry Downward-sloping in a decreasing-cost industry and upward-sloping in an increasing-cost industry Horizontal in a constant-cost industry and downward-sloping in an increasing-cost industry Upward-sloping in an increasing-cost industry and vertical in a constant-cost industry

Downward-sloping in a decreasing-cost industry and upward-sloping in an increasing-cost industry

An industry where a change in the number of firms does not affect the prices of the resources used in the industry will have a long run supply curve that is: Upsloping Vertical Downsloping Horizontal

Horizontal

Which of the following statements about a competitive firm is correct? In long-run equilibrium a competitive firm will produce at the point of minimum average costs To maximize profits a competitive firm should produce at that output at which total revenue is greatest A competitive firm will close down in the short run whenever price is less than the minimum attainable average total cost A competitive firm will produce in the short run so long as total receipts are sufficient to cover total fixed costs

In long-run equilibrium a competitive firm will produce at the point of minimum average costs

When a purely competitive firm is in long-run equilibrium, it is said to achieve allocative efficiency because: Total revenue is at a maximum Marginal cost equals marginal revenue Average cost is at a minimum Average cost equals marginal cost

Marginal cost equals marginal revenue

When a purely competitive firm is in long-run equilibrium, price is equal to: Minimum average cost, and also to marginal cost Marginal revenue, but may be greater or less than both average and marginal cost Marginal cost, but may be greater or less than average cost Minimum average cost, but may be greater or less than marginal cost

Minimum average cost, and also to marginal cost

If a purely competitive firm is facing a situation where the price of its product is lower than the average cost, then all of the following applies, except: The firm may be earning some accounting profits, but less than what it could earn elsewhere Other firms will want to enter the industry because of the positive economic profits The firm may earn economic profits in the long run if it expands its plant in order to exploit economies of scale. The firm is suffering losses, and if things are not expected to improve, the firm will leave the industry

Other firms will want to enter the industry because of the positive economic profits

Resources are efficiently allocated when production occurs at that output at which: P equals MC P equals AVC P exceeds MR P equals MR

P equals MC

Which is true of a purely competitive firm in the long-run equilibrium? Average fixed cost equals price Average variable cost equals marginal cost Marginal cost equals marginal product Price equals marginal cost

Price equals marginal cost

The long-run supply curve would be upward-sloping if: Resource prices are not affected by changes in industry output-level Resource prices fall as industry production contracts Resource prices are set by the government Resource prices rise as industry production contracts

Resource prices fall as industry production contracts

A patent is the legal right granted to a firm that allows it to: Be the exclusive distributor of a particular imported product Be the sole buyer of a particular product or resource Sell its new product exclusively for a set number of years Make copies of other firm's products

Sell its new product exclusively for a set number of years

Suppose that the corn market is purely competitive. If the corn farmers are currently earning negative economic profits, then we would expect that in the long run the market's: Demand curve will shift to the right Demand curve will shift to the left Supply curve will shift to the left Supply curve will shift to the right

Supply curve will shift to the left

The difference between the maximum price a consumer is willing to pay for a product and the actual price the consumer pays is: Productive efficiency The consumer surplus The producer surplus Allocative efficiency

The consumer surplus

The difference between the actual price that a producer receives and the minimum acceptable price a producer is willing to accept is: Allocative efficiency The consumer surplus The producer surplus Productive efficiency

The producer surplus

The difference between the actual price that a producer receives and the minimum acceptable price a producer is willing to accept is: Productive efficiency The consumer surplus Allocative efficiency The producer surplus

The producer surplus

Assume a purely competitive constant-cost industry is initially at long-run equilibrium. Now suppose that a decrease in consumer demand occurs. After all the long-run adjustments have been completed, the new equilibrium price: Will be greater than the initial, but the new output will be less Will be less than the initial price, but the new output will be greater Will be the same as the initial price, and the output will be less And industry output will be less than the initial price and output

Will be the same as the initial price, and the output will be less

The representative firm in a purely competitive industry: Will always earn an economic profit in the long run Will always earn a profit in the short run May earn either an economic profit or a loss in the long run Will earn zero economic profit in the long run

Will earn zero economic profit in the long run