Chapter 11 ND 12 – Flashcards
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1. The primary force encouraging the entry of new firms into a purely competitive industry is:
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economic profits earned by firms already in the industry.
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2. In a purely competitive industry:
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there may be economic profits in the short run, but not in the long run.
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3. Suppose a firm in a purely competitive market discovers that the price of its product is above its minimum AVC point but everywhere below ATC. Given this, the firm:
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should continue producing in the short run, but leave the industry in the long run if the situation persists.
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4. Which of the following is true concerning purely competitive industries?
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In the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits.
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5. If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then:
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new firms will enter this market.
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6. Long-run competitive equilibrium:
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results in zero economic profits.
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7. We would expect an industry to expand if firms in that industry are:
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earning economic profits.
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8. Which of the following statements is correct?
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Economic profits induce firms to enter an industry; losses encourage firms to leave.
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9. 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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and industry output will be less than the initial price and output.
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10. Which of the following statements is correct?
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The long-run supply curve for a purely competitive increasing-cost industry will be upsloping.
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11. A constant-cost industry is one in which:
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if 100 units can be produced for $100, then 150 can be produced for $150, 200 for $200, and so forth.
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12. Assume a purely competitive increasing-cost industry is initially in long-run equilibrium and that an increase in consumer demand occurs. After all economic adjustments have been completed product price will be:
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higher and total output will be larger than originally.
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13. Assume a purely competitive, increasing-cost industry is in long-run equilibrium. If a decline in demand occurs, firms will:
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leave the industry and price and output will both decline.
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14. A purely competitive firm:
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cannot earn economic profit in the long run.
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15. A constant-cost industry is one in which:
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resource prices remain unchanged as output is increased.
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16. An increasing-cost industry is associated with:
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an upsloping long-run supply curve.
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17. Refer to the above diagrams which pertain to a purely competitive firm producing output q and the industry in which it operates. Which of the following is correct?
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The diagrams portray short-run equilibrium, but not long-run equilibrium.
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18. Refer to the above 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:
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firms to leave the industry, market supply to fall, and product price to rise.
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19. An increasing-cost industry is the result of:
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higher resource prices which occur as the industry expands.
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20. A purely competitive firm is precluded from making economic profit in the long run because:
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of unimpeded entry to the industry..
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21. If a purely competitive constant-cost industry is realizing economic profits, we can expect industry supply to:
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increase, output to increase, price to decrease, and profits to decrease..
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22. A decreasing-cost industry is one in which:
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input prices fall or technology improves as the industry expands.
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23. When LCD televisions first came on the market, they sold for at least $1,000, and some for much more. Now many units can be purchased for under $400. These facts imply that:
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the LCD television industry is a decreasing-cost industry.
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=.
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it is a decreasing-cost industry.
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25. Suppose an increase in product demand occurs in a decreasing-cost industry. As a result:
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the new long-run equilibrium price will be lower than the original long-run equilibrium price.
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26. The MR = MC rule applies:
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in both the short run and the long run.
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27. 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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rise as the industry expands.
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28. Refer to the above diagram. Line (1) reflects the long-run supply curve for:
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an increasing-cost industry.
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29. Refer to the above diagram. Line (2) reflects the long-run supply curve for:
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a constant-cost industry.
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30. Allocative efficiency is achieved when the production of a good occurs where:
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P = MC.
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31. Resources are efficiently allocated when production occurs where:
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price is equal to marginal cost.
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32. The term productive efficiency refers to:
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the production of a good at the lowest average total cost.
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33. If the price of product Y is $25 and its marginal cost is $18:
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resources are being underallocated to Y.
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34. The term allocative efficiency refers to:
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the production of the product-mix most desired by consumers.
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35. Under pure competition in the long run:
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both allocative efficiency and productive efficiency are achieved.
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36. If for a firm P = minimum ATC = MC, then:
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both allocative efficiency and productive efficiency are being achieved..
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37. Refer to the above diagram. If this competitive firm produces output Q, it will:
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+earn a normal profit.
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38. Refer to the above diagram. By producing output level Q:
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both productive and allocative efficiency are achieved.
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39. Refer to the above diagram. At output level Q1:
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neither productive nor allocative efficiency are achieved.
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40. Refer to the above diagram. At output level Q1:
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resources are underallocated to this product and productive efficiency is not realized.
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41. Refer to the above diagram. At output level Q2:
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resources are overallocated to this product and productive efficiency is not realized.
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42. Which of the following conditions is true for a purely competitive firm in long-run equilibrium?
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P = MC = minimum ATC.
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44. Entrepreneurs in purely competitive industries:
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innovate to lower operating costs and generate short-run economic profits.
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45. Innovations that lower production costs or create new products:
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often generate short-run economic profits that do not last into the long run.
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46. The process by which new firms and new products replace existing dominant firms and.
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creative destruction.
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47. Creative destruction is:
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the process by which new firms and new products replace existing dominant firms and products.
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48. (Last Word) Patents are most likely to infringe on innovation:
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for products that incorporate many different technologies into a single product.
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49. (Last Word) "Patent trolls:"
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buy up patents in order to collect royalties and sue other companies.
