Ch 11 quiz
Consider this, The average life expectancy of a US business is approximately:
10.2
Consider this, Approximately what percentage of start up firms in the US go bankrupt within the first two years?
22
Purely competitive industry X has constant costs and its product is an inferior good. The industry is currently in long-run equilibrium. The economy now goes into a recession and average incomes decline. The result will be:
An increase in output, but not in the price, of the product
Which of the following is an example of creative destruction?
Automobile production causes the wagon industry to shut down.
Under pure competition in the long run:
Both allocative efficiency and productive efficiency are achieved
Which of the following statements is correct?
Economic profits induce firms to enter and industry; losses encourage firms to leave
Which of the following distinguishes the short run from the long run in pure competition?
Firms can enter and exit the market in the long run but not in the short run.
(Last Word) Patents are most likely to infringe on innovation:
For products that incorporate many different technologies into a single product
Allocative efficiency occurs whenever:
It is impossible to produce a net benefit for society by changing the combination of goods and services produced
Assume a purely competitive, increasing-cost industry is in long run equilibrium. If a decline in demand occurs firms will:
Leave the industry, and price and output will both decline
If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then:
New firms will enter this market
3 Assume that a decline in consumer demand occurs in a purely competitive industry that is initially in long-run equilibrium. We can:
Not compare the original and the new prices without knowing what cost conditions exist in the industry
Consider this, Which of the following statements is true about US firms?
Over half are bankrupt within the first five years after starting up.
Which of the following will not hold true for a competitive firm in long-run equilibrium?
P equals AFC
Which of the following conditions is true for a purely competitive firm in long-run equilibrium?
P=MC=minimum ATC
If the long run supply curve of a purely compettive industry slopes upward this implies that the prices of relevant resources:
Rise as the idustry expands
When LCD televisions first came on the market, they sold for at least $1000 and some for much more. Now many units can be purchased for under $400. These facts imply that:
The LCD television industry is a decreasing -cost industry.
2 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
If a purely competitive firm is producing where price exceeds marginal cost, then:
The firm will fail to maximize profit and resources will be under allocated to the product.
Under what conditions would an increase in demand lead to lower long-run equilibrium price?
The firms in the market are part of a decreasing cost industry
Assume a purely competitive firm is maximizing profit at some output at which long run average total cost is at a minimum. Then:
There is no tendency for the firm's industry to expand or contract
In a purely competitive industry:
There may be economic profits in the short run but not in the long run
Creative destruction is least beneficial to:
Workers in the "destroyed" industries.
Refer to the diagrams, which pertain to a purely competitive firm producing output q and the industry in which it operates. The predicted long-run adjustments in this industry might be offset by:
a Technological improvement in production methods
Refer to the diagram. Line (2) reflects the long-run supply curve for:
a constant-cost industry
Refer to the diagram. Line (1) reflects the long-run supply curve for:
an increasing cost industry
Suppose losses cause industry X to contract and , as a result, the prices of relevant inputs decline. Industry X is:
an increasing cost industry
An increasing cost industry is associated with:
an upsloping long run supply curve
Suppose a purely competitive, increasing-cost industry is in long-run equilibrium. Now assume that a decrease in consumer demand occurs. After all resulting adjustments have been completed, the new equilibrium price:
and industry output will be less than the initial price output
If for a firm P = minimum ATC = MC, then:
both allocative efficiency and productive efficiency are being achieved
Refer to the diagram. By producing at output level Q:
both productive and allocative efficiency are achieved
(Last Word) "Patent trolls:"
buy up patents in order to collect royalties and sue other companies
A purely competitive firm:
cannot earn economic profit in the long run
5 Which of the following outcomes is consistent with a purely competitive market in long-run equilibrium?
consumer and producer surplus will be maximized
Which of the following would not be expected to occur in a purely competitive market in long run equilibrium?
consumer and producer surplus will be minimized
The process by which new firms and new products replace existing dominant firms and products is called:
creative destruction
Refer to the diagram. If this competitive firm produces output Q, it will:
earn a normal profit
The primary force encouraging the entry of new firms into a purely competitive industry is:
economic profits earned by firms already in the industry
(last word) Eliminating patents would tend to:
encourage innovation in products mad up of many different technologies but discourage innovation of easy to copy products requiring large R&D costs to create.
If production is occurring where marginal cost exceeds price, the purely competitive firm will:
fail to maximize profit and resources will be overallocated to the product
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.
An increasing-cost industry is the result of:
higher resource prices that occur as the industry expands.
Assume a purely competitive increasing cost industry is initially in log run equilibrium and that an increase in consumer demand occurs. After all economic adjustments have been completed, product price will be:
higher, and total output will be larger than originally
A constant-cost industry is one in which:
if 100 units can be produced for $100, then 150 can be produced for $150, 200 for $200 and so forth
The MR=MC rule applies:
in both the short run and the long run
Refer to the diagram. Line (1) reflects a situation where resource prices:
increase as industry output expands
If a purely competitive constant cost industry is realizing economic profits, we can expect industry supply to:
increase, output to increase, price to decrease, and profits to decrease
A decreasing-cost industry is one in which:
input prices fall or technology improves as the industry expands
Refer to the diagram showing the average total cost curve for a purely competitive firm. At the long run equilibrium level of output, this firm's total revenue:
is $400
Refer to the diagram showing the average total cost curve for a purely competitive firm. At the long run equilibrium level of output, this firm's economic profit:
is 0
In a decreasing-cost industry:
lower demand leads to higher long run equilibrium prices
In the long run equilibrium, purely competitive markets:
maximize the sum of consumer surplus and producer surplus
Refer to the diagram. At output level Q1:
neither productive nor allocative efficiency is achieved
2 A purely competitive firm is precluded from making economic profits in the long run because:
of unimpeded entry to the industry
Innovations that lower production costs or create new products:
often generate short run economic profits that do not last into the long run
Allocative efficiency is achieved when the production of a good occurs where:
price = MC
When a purely competitive firm is in long-run equilibrium:
price equals marginal cost.
A firm is producing an output such that the benefit from one more unit is more than the cost of producing that additional unit. This means the firm is:
producing less output than allocative efficiency requires
If the price of product Y is $25 and its marginal cost is $18:
resources are being underallocated to Y
A constant cost industry is one in which:
resources prices remain unchanged as output is increased
4 Long-run competitive equilibrium:
results in zero economic profits
The diagram portrays:
the equilibrium position of a competitive firm in the long run.
Suppose an increase in product demand occurs in a decreasing cost industry. As a result:
the new long-run equilibrium price will be lower than the original long run equilibrium price
