Micro Econ Chapter 11

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

Firms can enter and exit the market in the long run but not in the short run.

The primary force encouraging the entry of new firms into a purely competitive industry is:

economic profits earned by firms already in the industry.

In a purely competitive industry:

there may be economic profits in the short run but not in the long run.

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:

should continue producing in the short run but leave the industry in the long run if the situation persists.

Which of the following is true concerning purely competitive industries?

In the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits.

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

new firms will enter this market.

Long-run competitive equilibrium:

results in zero economic profits.

Which of the following statements is correct?

Economic profits induce firms to enter an industry; losses encourage firms to leave.

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

price equals marginal cost.

A purely competitive firm:

cannot earn economic profit in the long run.

A constant-cost industry is one in which:

resource prices remain unchanged as output is increased.

An increasing-cost industry is associated with:

an 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 no tendency for the firm’s industry to expand or contract.

A purely competitive firm is precluded from making economic profits in the long run because:

of unimpeded entry to the industry.

In a decreasing-cost industry:

lower demand leads to higher long-run equilibrium prices.

A decreasing-cost industry is one in which:

input prices fall or technology improves as the industry expands.

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 down sloping. This suggests that:

it is a decreasing-cost industry.

The MR = MC rule applies:

in both the short run and the long run.

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 less output than allocative efficiency requires.

The term productive efficiency refers to:

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

Under pure competition in the long run:

both allocative efficiency and productive efficiency are achieved.

The diagram portrays:

the equilibrium position of a competitive firm in the long run.

Creative destruction is:

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

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

Joseph Schumpeter.

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