Question 1

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) B) and C)
F) B) and D)

Question 2

Creative destruction is least beneficial to:

Accepted Answer

A)   workers in the "destroyed" industries.
B)   workers in the "created" industries.
C)   consumers.
D)   society as a whole.E) C) and D)
F) None of the above

Question 3

Suppose that an industry's long-run supply curve is downsloping.This suggests that:

Accepted Answer

A)   it is an increasing-cost industry.
B)   relevant inputs have become more expensive as the industry has expanded.
C)   technology has become less efficient as a result of the industry's expansion.
D)   it is a decreasing-cost industry.E) C) and D)
F) All of the above

Question 4

An increasing-cost industry is associated with:

Accepted Answer

A)   a perfectly elastic long-run supply curve.
B)   an upsloping long-run supply curve.
C)   a perfectly inelastic long-run supply curve.
D)   an upsloping long-run demand curve.E) None of the above
F) A) and D)

Question 5

The process by which new firms and new products replace existing dominant firms and products is called:

Accepted Answer

A)   monopolistic competition.
B)   mergers and acquisitions.
C)   process innovation.
D)   creative destruction.E) A) and D)
F) B) and C)

Question 6

If the long-run supply curve of a purely competitive industry slopes upward,this implies that the prices of relevant resources:

Accepted Answer

A)   will fall as the industry expands.
B)   are constant as the industry expands.
C)   rise as the industry contracts.
D)   rise as the industry expands.E) A) and D)
F) C) and D)

Question 7

Innovations that lower production costs or create new products:

Accepted Answer

A)   are rare in competitive industries.
B)   discourage new firms from entering the industry.
C)   often generate short-run economic profits that do not last into the long run.
D)   usually generate long-run economic profits for the innovator.E) A) and D)
F) None of the above

Question 8

Resources are efficiently allocated when production occurs where:

Accepted Answer

A)   marginal cost equals average variable cost.
B)   price is equal to average revenue.
C)   price is equal to marginal cost.
D)   price is equal to average variable cost.E) A) and C)
F) C) and D)

Question 9

The theory of creative destruction was advanced many years ago by:

Accepted Answer

A)   Bill Gates.
B)   Alfred Marshall.
C)   Joseph Schumpeter.
D)   Adam Smith.E) A) and C)
F) A) and B)

Question 10

(Last Word) "Patent trolls:"

Accepted Answer

A)   block firms from acquiring patents on intellectual property.
B)   buy up patents in order to collect royalties and sue other companies.
C)   legally challenge new patent applications in an effort to extract rents.
D)   promote innovation by keeping firms from having a stranglehold on intellectual property.E) B) and C)
F) A) and D)

Question 11

A purely competitive firm:

Accepted Answer

A)   must earn a normal profit in the short run.
B)   cannot earn economic profit in the long run.
C)   may realize either economic profit or losses in the long run.
D)   cannot earn economic profit in the short run.E) B) and C)
F) A) and C)

Question 12

Which of the following distinguishes the short run from the long run in pure competition?

Accepted Answer

A)   Firms can enter and exit the market in the long run but not in the short run.
B)   Firms attempt to maximize profits in the long run but not in the short run.
C)   Firms use the MR = MC rule to maximize profits in the short run but not in the long run.
D)   The quantity of labor hired can vary in the long run but not in the short run.E) None of the above
F) B) and D)

Question 13

Allocative efficiency occurs whenever:

Accepted Answer

A)   consumer surplus is maximized.
B)   it is impossible to produce a net benefit for society by changing the combination of goods and services produced.
C)   firms have maximized their profits.
D)   it is impossible to make someone in society better off without making someone else worse off.E) None of the above
F) A) and B)

Question 14

Allocative efficiency is achieved when the production of a good occurs where:

Accepted Answer

A)   P = minimum ATC.
B)   P = MC.
C)   P = minimum AVC.
D)   total revenue is equal to TFC.E) B) and D)
F) All of the above

Question 15

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) None of the above

Question 16

Suppose losses cause industry X to contract and,as a result,the prices of relevant inputs decline.Industry X is:

Accepted Answer

A)   a constant-cost industry.
B)   a decreasing-cost industry.
C)   an increasing-cost industry.
D)   encountering X-inefficiency.E) A) and B)
F) C) and D)

Question 17

Assume that society places a higher value on the last unit of X produced than the value of the resources used to produce that unit.With no spillovers,this information means that:

Accepted Answer

A)   total cost is greater than total revenue.
B)   price is greater than marginal cost.
C)   marginal cost is greater than price.
D)   resources are being overallocated to X.E) A) and D)
F) B) and C)

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) A) and C)

Question 19

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:

Accepted Answer

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

Question 20

If the price of product Y is $25 and its marginal cost is $18:

Accepted Answer

A)   Y is being produced with the least-cost combination of resources.
B)   society will realize a net gain if less of Y is produced.
C)   resources are being underallocated to Y.
D)   resources are being overallocated to Y.E) B) and D)
F) A) and B)

Exam 11: Pure Competition in the Long Run

Assume that society places a higher value on the last unit of X produced than the value of the resources used to produce that unit.With no spillovers,this information means that:

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Suppose that an industry's long-run supply curve is downsloping.This suggests that:

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Innovations that lower production costs or create new products:

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If the price of product Y is $25 and its marginal cost is $18:

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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:

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An increasing-cost industry is associated with:

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Allocative efficiency occurs whenever:

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The process by which new firms and new products replace existing dominant firms and products is called:

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Creative destruction is least beneficial to:

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If the long-run supply curve of a purely competitive industry slopes upward,this implies that the prices of relevant resources:

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

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In a purely competitive industry:

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The term allocative efficiency refers to:

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Suppose losses cause industry X to contract and,as a result,the prices of relevant inputs decline.Industry X is:

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Allocative efficiency is achieved when the production of a good occurs where:

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(Last Word) "Patent trolls:"

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Resources are efficiently allocated when production occurs where:

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A purely competitive firm:

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Which of the following distinguishes the short run from the long run in pure competition?

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The theory of creative destruction was advanced many years ago by:

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