Question 1

Diminishing marginal returns are the reason why some industries have positively-sloped long-run average cost curves.

Accepted Answer

Diminishing marginal returns occur in the short run when one input is increased while others are fixed. In the long run, all inputs are variable, and positively-sloped long-run average cost curves are typically due to diseconomies of scale, not diminishing marginal returns.

Question 2

One of the defining characteristics of a perfectly competitive market is&#10;A)both buyers and sellers are well informed about the market&#10;B)a small number of buyers&#10;C)high barriers to entry&#10;D)a small number of buyers but a large number of sellers&#10;E)buyers are better informed about the market than sellers

Accepted Answer

One of the defining characteristics of a perfectly competitive market is that both buyers and sellers are well informed about the market. In such a market, there are numerous buyers and sellers, and none of them have enough market power to influence the price. Thus, all buyers and sellers have access to the same information and can make informed decisions about their transactions.

Question 3

Which of the following is not a characteristic of a perfectly competitive market&#10;A)buyers and sellers are well informed about the market&#10;B)standardized product&#10;C)many buyers and few sellers&#10;D)easy exit out of the industry&#10;E)easy entry into the industry

Accepted Answer

A perfectly competitive market has many buyers and many sellers, not few sellers. The other characteristics listed (well-informed buyers and sellers, standardized product, easy exit, and easy entry) are all typical features of a perfectly competitive market.

Question 4

In perfect competition,technological advances will allow economic profits for&#10;A)all firms.&#10;B)only the firm developing the new technology.&#10;C)early adopters.&#10;D)none of the firms,as the advance will be immediately adopted by all of them.

Accepted Answer

In perfect competition, early adopters of new technology can temporarily earn economic profits before the technology becomes widespread and profits normalize.

Question 5

In a perfectly competitive market,a technological advance allows all firms to earn higher economic profits in the long run.

Accepted Answer

In a perfectly competitive market, technological advances may initially allow firms to earn higher profits, but in the long run, new firms enter the market, driving profits back to normal levels.

Deck 10: B:Perfect Competition