Question 1

In a purely competitive industry, an optimal allocation of scarce resources occurs when

Accepted Answer

A)  P = AC.
B)  P = MC.
C)  MR = AC.
D)  TR = TC.E) B) and D)
F) None of the above

Question 2

When a purely competitive firm is in long-run equilibrium, price is equal to

Accepted Answer

A)  marginal cost but may be greater or less than average cost.
B)  minimum average cost and also to marginal cost.
C)  minimum average cost but may be greater or less than marginal cost.
D)  marginal revenue but may be greater or less than both average and marginal cost.E) A) and B)
F) A) and C)

Question 3

If there is a decrease in demand for a product in a purely competitive industry, it results in an industry contraction that will end when the product price is

Accepted Answer

A)  greater than its marginal cost.
B)  equal to its marginal cost.
C)  less than its marginal cost.
D)  greater than its average cost.E) B) and C)
F) A) and C)

Question 4

The long-run supply curve for a decreasing-cost industry is downsloping.

Accepted Answer

A) True 
 B)False

Question 5

If the entry or exit of firms does not affect the resource prices in an industry, we refer to it as a

Accepted Answer

A)  fixed-price industry.
B)  price-controlled industry.
C)  constant-cost industry.
D)  price-taking industry.E) B) and D)
F) None of the above

Question 6

If the long-run supply curve is upward-sloping, it indicates that resource prices fall when

Accepted Answer

A)  production in the industry decreases in the long run.
B)  production in the industry increases in the long run.
C)  new firms enter the industry.
D)  short-run profits in the industry are positive.E) C) and D)
F) B) and D)

Question 7

Assume that a decline in consumer demand occurs in a purely competitive industry that is initially in long-run equilibrium.We can

Accepted Answer

A)  predict that the new price will be greater than the original price.
B)  predict that the new price will be less than the original price.
C)  predict that the new price will be the same as the original price.
D)  not compare the original and the new prices without knowing what cost conditions exist in the industry.E) B) and D)
F) B) and C)

Question 8

When new firms enter a purely competitive industry, the market supply curve will shift to the left.

Accepted Answer

A) True 
 B)False

Question 9

The process by which new firms and new products destroy existing dominant firms and their products is called creative destruction.Learning Objective: 11-05 Discuss creative destruction and the profit incentives for innovation.Test Bank: I Topic: Technological Advance and Competition

Accepted Answer

A) True 
 B)False

Question 10

Assume a purely competitive constant-cost industry is initially at long-run equilibrium.Now suppose that a decrease in demand occurs.After all the long-run adjustments have been completed, the new equilibrium price

Accepted Answer

A)  and industry output will be less than the initial price and output.
B)  will be the same as the initial price, and the output will be less.
C)  will be greater than the initial, but the new output will be less.
D)  will be less than the initial price, but the new output will be greater.E) A) and B)
F) None of the above

Question 11

The term allocative efficiency refers to

Accepted Answer

A)  the level of output that coincides with the intersection of the MC and AVC curves.
B)  minimization of the AFC in the production of any good.
C)  the production of the product mix most desired by consumers.
D)  the production of a good at the lowest average total cost.E) A) and D)
F) A) and C)

Question 12

Which of the following statements is correct? Test Bank: I Topic: The Long-Run Adjustment Process in Pure Competition

Accepted Answer

A)  Economic profits induce firms to enter an industry; losses encourage firms to leave.
B)  Economic profits induce firms to leave an industry; profits encourage firms to leave.
C)  Economic profits and losses have no significant impact on the growth or decline of an industry.
D)  Normal profits will cause an industry to expand.E) All of the above
F) None of the above

Question 13

In long-run equilibrium, a purely competitive firm will operate where price is

Accepted Answer

A)  greater than MR but equal to MC and minimum ATC.
B)  greater than MR and MC, but equal to minimum ATC.
C)  greater than MC and minimum ATC, but equal to MR.
D)  equal to MR, MC, and minimum ATC.E) A) and C)
F) A) and B)

Question 14

An increasing-cost industry is the result of

Accepted Answer

A)  higher resource prices that occur as the industry expands.
B)  a change in the industry's minimum efficient scale.
C)  X-inefficiency.
D)  the law of diminishing returns.E) None of the above
F) B) and C)

Question 15

Resources are efficiently allocated when production occurs at that output at which

Accepted Answer

A)  P equals MR.
B)  P equals AVC.
C)  P exceeds MR.
D)  P equals MC.E) B) and D)
F) A) and C)

Question 16

An industry is producing at the least-cost rate of production when

Accepted Answer

A)  marginal cost is greater than average total cost.
B)  marginal revenue is greater than price.
C)  price and the minimum average cost are equal.
D)  price and marginal revenue are equal.E) B) and D)
F) A) and B)

Question 17

Marginal cost is a measure of the alternative goods that society forgoes in using resources to produce an additional unit of some specific product.

Accepted Answer

A) True 
 B)False

Question 18

In a purely competitive industry,

Accepted Answer

A)  there will be no economic profits in either the short run or the long run.
B)  economic profits may persist in the long run if consumer demand is strong and stable.
C)  there may be economic profits in the short run but not in the long run.
D)  there may be economic profits in the long run but not in the short run.E) All of the above
F) None of the above

Question 19

When a purely competitive firm is in long-run equilibrium,

Accepted Answer

A)  marginal revenue exceeds marginal cost.
B)  price equals marginal cost.
C)  total revenue exceeds total cost.
D)  minimum average total cost is less than the product price.E) A) and B)
F) All of the above

Question 20

From the viewpoint of a firm, competition can come even from other firms that are not in the same industry.

Accepted Answer

A) True 
 B)False

Exam 11: Pure Competition in the Long Run

The long-run supply curve for a decreasing-cost industry is downsloping.

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If the entry or exit of firms does not affect the resource prices in an industry, we refer to it as a

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Resources are efficiently allocated when production occurs at that output at which

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Which of the following statements is correct? Test Bank: I Topic: The Long-Run Adjustment Process in Pure Competition

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An increasing-cost industry is the result of

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Marginal cost is a measure of the alternative goods that society forgoes in using resources to produce an additional unit of some specific product.

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The process by which new firms and new products destroy existing dominant firms and their products is called creative destruction.Learning Objective: 11-05 Discuss creative destruction and the profit incentives for innovation.Test Bank: I Topic: Technological Advance and Competition

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In long-run equilibrium, a purely competitive firm will operate where price is

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Assume that a decline in consumer demand occurs in a purely competitive industry that is initially in long-run equilibrium.We can

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An industry is producing at the least-cost rate of production when

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When a purely competitive firm is in long-run equilibrium, price is equal to

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In a purely competitive industry,

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The term allocative efficiency refers to

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If the long-run supply curve is upward-sloping, it indicates that resource prices fall when

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When a purely competitive firm is in long-run equilibrium,

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Assume a purely competitive constant-cost industry is initially at long-run equilibrium.Now suppose that a decrease in demand occurs.After all the long-run adjustments have been completed, the new equilibrium price

Correct AnswerverifiedShow Answer

From the viewpoint of a firm, competition can come even from other firms that are not in the same industry.

Correct AnswerverifiedShow Answer

When new firms enter a purely competitive industry, the market supply curve will shift to the left.

Correct AnswerverifiedShow Answer

If there is a decrease in demand for a product in a purely competitive industry, it results in an industry contraction that will end when the product price is

Correct AnswerverifiedShow Answer

In a purely competitive industry, an optimal allocation of scarce resources occurs when

Correct AnswerverifiedShow Answer

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