Chapter 9. Pure Competition in the Long Run

In a purely competitive industry there may be economic profits in the _____, but not in the ______.

short run but not in the long run.

If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then ____ will ____ the market

new firms will enter the market.

Long-run competitive equilibrium results in ____ ____ profits.

zero economic profits.

Economic profits encourage firms to enter an industry and ____ encourages firms to _____.

losses encourage firms to leave.

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:

higher and total output will be larger than originally.

Assume a purely competitive, increasing-cost industry is in long-run equilibrium. If a decline in demand occurs, firms will ___ and price and output will ____.

leave the industry and price and output will decline.

When a purely competitive firm is in long-run equilibrium price equals _____ _____.

price equals marginal cost.

An increasing-cost industry is associated with what an _______ ______ _____ supply curve.

upsloping long-run supply curve.

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 ____ ____ for the industry’s firms to ____ or ____.

there is no tendency for the industry’s firms to expand or contract.

Assuming that a decline in consumer demand occurs in a purely competitive industry which is initially in long-run equilibrium. We can not compare the ____ and the ___ price without knowing about ______ _______ in the industry.

not compare the original and the new price without knowing about cost conditions in the industry.

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:

the LCD television industry is a decreasing-cost industry.

Suppose that an industry’s long-run supply curve is downsloping. This suggests that the this is a ______ _____ industry.

it is a decreasing-cost industry.

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. What will happen to output and price?

an increase in output, but not in the price of the product.

The MR = MC rule applies in both the ___ ___ and then the ___ ___.

short run and the long run.

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

rise as the industry expands.

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 ___ ____ then the _____ _____ requires.

less output than allocative efficiency requires.

The term productive efficiency refers to:

the production of a good at the lowest average total cost.

The term allocative efficiency refers to:

the production of the product-mix most desired by consumers.

Under pure competition in the long run both _____ ______ and _____ _____ are achieved.

allocative efficiency and productive efficiency are achieved.

If a purely competitive firm is producing where price exceeds marginal cost, then the firms will ____ to ____ profit and ____ will be ______ to the product.

the firm will fail to maximize profit and resources will be underallocated to the product.

Allocative efficiency occurs whenever:

it is impossible to produce a net benefit for society by changing the combination of goods and services produced.

In long-run equilibrium consumer and producer surplus will be maximized in what market type?

purely competitive market

Creative destruction is:

the process by which new firms and new products replace existing dominant firms and products.

The entry of generic drugs into a previously monopolized pharmaceutical market will ______ _____ by ____ ____ ____.

increase efficiency by increasing consumer surplus.