Question 1

If there is allocative efficiency in a purely competitive market for a product, the maximum price consumers are willing to pay is

Accepted Answer

A)  less than marginal benefit.
B)  greater than marginal cost.
C)  equal to the amount of efficiency or deadweight losses.
D)  equal to the minimum price producers are willing to accept.E) None of the above
F) A) and B)

Question 2

Productive efficiency refers to

Accepted Answer

A)  cost minimization, where P = minimum ATC.
B)  production at a level where P = MC.
C)  maximizing profits by producing where MR = MC.
D)  setting TR = TC.E) A) and B)
F) A) and C)

Question 3

Pure competition produces a socially optimal allocation of resources in the long run because

Accepted Answer

A)  marginal cost equals marginal revenue.
B)  marginal cost equals average total cost.
C)  marginal revenue equals price.
D)  marginal cost equals price.E) A) and C)
F) C) and D)

Question 4

The fact that the life expectancy of a US business is rather short-just 10.2 years-is a reflection of the consequences of

Accepted Answer

A)  competition and creative destruction.
B)  producer and consumer surplus.
C)  productive and allocative efficiency.
D)  short-run and long-run equilibrium.E) A) and C)
F) A) and D)

Question 5

In purely competitive market, the entry and exit of firms will push price toward equality with marginal revenue.

Accepted Answer

A) True 
 B)False

Question 6

The reason why the long-run supply curve for a purely competitive industry may be upward-sloping is because of diminishing marginal returns.

Accepted Answer

A) True 
 B)False

Question 7

In pure competition, resources are optimally or efficiently allocated when production occurs at the output level where P = MC.

Accepted Answer

A) True 
 B)False

Question 8

The costs of competition's creative destruction are often widespread, while the benefits often accrue to only a few.

Accepted Answer

A) True 
 B)False

Question 9

Long-run adjustments in purely competitive markets primarily take the form of

Accepted Answer

A)  variations in the cost curves of different firms in the market.
B)  entry or exit of firms in the market.
C)  evolution of the market from a constant-cost to an increasing-cost industry.
D)  product differentiation.E) All of the above
F) C) and D)

Question 10

A long-run supply curve that is downward-sloping indicates that the firms' ATC curves

Accepted Answer

A)  shift up when the industry expands.
B)  shift down when the industry contracts.
C)  shift down when the industry expands.
D)  do not shift when the industry contracts.E) A) and B)
F) All of the above

Question 11

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) A) and B)
F) B) and C)

Question 12

In the context of analyzing economic efficiency, we can interpret the market demand curve to be showing

Accepted Answer

A)  the average cost of producing the product at each output level.
B)  the marginal revenue from each extra unit of the product.
C)  the marginal benefit that consumers place on each unit of the product.
D)  the average variable cost of producing the product.E) All of the above
F) B) and C)

Question 13

Which statement is correct? The long-run supply curve for a purely competitive

Accepted Answer

A)  decreasing-cost industry will be upward-sloping.
B)  increasing-cost industry will be perfectly elastic.
C)  increasing-cost industry will be upward-sloping.
D)  increasing-cost industry will be less elastic than the short-run supply curve.E) C) and D)
F) A) and D)

Question 14

The plusses and minuses of the patent system include the following except

Accepted Answer

A)  giving inventors an incentive to bear the research and development costs of new products.
B)  allowing stodgy old firms to survive longer than they should against innovative rivals.
C)  preventing the existence of "patent trolls" or firms whose main purpose is to sue companies.
D)  possibly hindering creative destruction, especially in complex products that encompass several patents.E) B) and D)
F) None of the above

Question 15

The long-run supply curve would be upward-sloping if

Accepted Answer

A)  resource prices fall as industry production contracts.
B)  resource prices rise as industry production contracts.
C)  resource prices are not affected by changes in industry output-level.
D)  resource prices are set by the government.Topic: Long-Run Supply CurvesE) B) and D)
F) B) and C)

Question 16

Entrepreneurs in purely competitive industries

Accepted Answer

A)  have no incentive to innovate because in the long run they will earn no economic profits.
B)  innovate to lower operating costs and generate short-run economic profits.
C)  utilize pricing strategies to generate short-run economic profits.
D)  rarely try to innovate because of a lack of financial resources.E) B) and C)
F) B) and D)

Question 17

Because the equilibrium position of a purely competitive seller entails an equality of price and marginal costs, competition produces an efficient allocation of economic resources.

Accepted Answer

A) True 
 B)False

Question 18

Creative destruction is illustrated by which of the following pairs of products?

Accepted Answer

A)  bicycles and helmets
B)  digital cameras and film
C)  DVD players and DVDs
D)  Netflix and iPadsE) All of the above
F) B) and D)

Question 19

Creative destruction is most often associated with

Accepted Answer

A)  international trade.
B)  technological advance.
C)  government spending.
D)  private consumption.E) B) and C)
F) A) and D)

Question 20

If production is occurring where marginal cost exceeds price, the purely competitive firm will

Accepted Answer

A)  maximize profit, but resources will be underallocated to the product.
B)  maximize profit, but resources will be overallocated to the product.
C)  fail to maximize profit and resources will be overallocated to the product.
D)  fail to maximize profit and resources will be underallocated to the product.E) A) and D)
F) None of the above

Exam 11: Pure Competition in the Long Run

In purely competitive market, the entry and exit of firms will push price toward equality with marginal revenue.

Correct AnswerverifiedShow Answer

If production is occurring where marginal cost exceeds price, the purely competitive firm will

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Entrepreneurs in purely competitive industries

Correct AnswerverifiedShow Answer

Creative destruction is most often associated with

Correct AnswerverifiedShow Answer

The fact that the life expectancy of a US business is rather short-just 10.2 years-is a reflection of the consequences of

Correct AnswerverifiedShow Answer

If there is allocative efficiency in a purely competitive market for a product, the maximum price consumers are willing to pay is

Correct AnswerverifiedShow Answer

Which statement is correct? The long-run supply curve for a purely competitive

Correct AnswerverifiedShow Answer

The reason why the long-run supply curve for a purely competitive industry may be upward-sloping is because of diminishing marginal returns.

Correct AnswerverifiedShow Answer

The costs of competition's creative destruction are often widespread, while the benefits often accrue to only a few.

Correct AnswerverifiedShow Answer

Pure competition produces a socially optimal allocation of resources in the long run because

Correct AnswerverifiedShow Answer

Long-run adjustments in purely competitive markets primarily take the form of

Correct AnswerverifiedShow Answer

The plusses and minuses of the patent system include the following except

Correct AnswerverifiedShow Answer

Productive efficiency refers to

Correct AnswerverifiedShow Answer

In pure competition, resources are optimally or efficiently allocated when production occurs at the output level where P = MC.

Correct AnswerverifiedShow Answer

Creative destruction is illustrated by which of the following pairs of products?

Correct AnswerverifiedShow Answer

A long-run supply curve that is downward-sloping indicates that the firms' ATC curves

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the context of analyzing economic efficiency, we can interpret the market demand curve to be showing

Correct AnswerverifiedShow Answer

Because the equilibrium position of a purely competitive seller entails an equality of price and marginal costs, competition produces an efficient allocation of economic resources.

Correct AnswerverifiedShow Answer

The long-run supply curve would be upward-sloping if

Correct AnswerverifiedShow Answer

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