Deck 15: Competitive Markets in the Long Run

Question 1

Constant-cost rent is the average cost of the firm when economic rent is included as a cost.

Answer 1

False

Question 2

As long as firms in a perfectly competitive industry earn extra-normal profits, other firms will be attracted and will decide to enter the industry.

Answer 2

True

Question 3

In constant-cost industires, the long-run supply curve is flat.

Answer 3

True

Question 4

Pecuniary externalities exist when the action of one agent increases the price of a good to other agents.

Question 5

Which of the following is the third step in deriving a flat long-run supply curve?

A) market demand increases
B) market supply increases until price returns to the original value
C) firms earn extra-normal profits

Question 6

In the long run, a firm has enough time to adjust ___________ factors of production to meet any level of demand.

A) all
B) only one
C) no

Question 7

In a long-run equilibrium in a perfectly competitive industry, no firm will want to

A) exit the industry because it is earning an amount at least equal to its opportunity cost
B) enter the industry because it will not be able to make extra-normal profits
C) Both answers are correct

Question 8

When new firms enter an industry, the supply curve

A) does not shift
B) shifts to the right
C) shifts to the left

Question 9

In the long run, when demand increases, equilibrium price unambiguously goes

A) up
B) down
C) Neither answer is correct

Question 10

At a price above the perfectly competitive equilibrium, society will suffer a deadweight loss.

Question 11

A long-run equilibrium is one price-quantity combination that exists as a perfectly competitive market moves from the short run to the long run.

Question 12

The average cost of the firm when economic rent is included as a cost is called

A) rent-exclusive average cost
B) rent-controlled fixed cost
C) rent-inclusive average cost

Question 13

At the long-run equilibrium of a perfectly competitive industry, price is set so that it is greater than marginal cost.

Question 14

Decreasing-cost industries have a long-run cost curve that is downward sloping.

Question 15

Which of the following does not characterize long-run equilibrium?

A) No individual firm wishes to change the amount of the good it is supplying to the market
B) At least one firm in the market has an incentive to change the amount of one of the inputs it is using
C) The aggregate supply in the market equals the aggregate demand for the good

Question 16

The return to a factor of production over and above what is needed to secure the services of that factor is known as economic rent.

Question 17

In a long-run perfectly competitive equilibrium with heterogeneous firms, the market price __________ driven down to the bottom of each firm's average cost curve.

A) may not be
B) must be
C) will never be

Question 18

The country of Delta has two electricity-generating plants. One is located near a dam that has a reservoir that can be used to generate electricity hydroelectrically. The other plant must burn high-priced oil to generate power. Which firm should have the lower LRAC?

A) the hydroelectric plant
B) the oil-burning plant
C) There is not enough information to answer the question

Question 19

Industries with a long-run cost curve that is upward sloping are increasing-cost industries.

Question 20

The price-quantity combination that will prevail in a perfectly competitive market in the long run is called

A) short-run equilibrium
B) Nash equilibrium
C) long-run equilibrium

Question 21

For a constant-cost industry,

A) the industry must consume a large share of the inputs in the market
B) the entry of one additional firm causes a pecuniary externality
C) inputs must be in abundant supply

Question 22

At the long-run equilibrium of a perfectly competitive industry, price is set so that it is equal to

A) average fixed cost
B) average total cost
C) marginal cost

Question 23

You own a firm that possesses some special factor that gives you a cost advantage. Why would you incur an opportunity cost for holding this special factor?

Question 24

In a perfectly competitive industry over the long run, competition ensures that goods sold to consumers will be produced at _____________________ cost.

A) the lowest possible
B) zero
C) the highest possible

Question 25

An industry's long-run supply curve will be flat if inputs are in abundant supply and if the industry consumes only a small share of the inputs in the market. Why?

Question 26

At the long-run equilibrium of a perfectly competitive industry, the sum of consumer surplus and producer surplus is

A) minimized
B) maximized
C) equal to the deadweight loss

Question 27

Each firm in a competitive industry finds its optimal quantity to produce by setting its marginal cost to be _______________ the market price.

A) greater than
B) equal to
C) less than

Question 28

Perfect competition

A) ensures that the goods sold to consumers will be produced at the lowest possible cost
B) leads to the efficient organization of production
C) Both answers are correct

Question 29

What is the difference between how economic planners and a perfectly competitive market would allocate production in an industry?

Question 30

Perfectly competitive markets will set a price and quantity at which the deadweight loss to society is

A) zero
B) small
C) very large

Question 31

Refer to Exhibit 15-1. Which quantity minimizes deadweight loss to society?

A) q1
B) q*
C) q1'

Question 32

In long-run equilibrium for a perfectly competitive market, no firm earns extra-normal profits. Describe why firms that earn zero extra-normal profits would stay in business.

Question 33

A price that is set at the intersection of the supply and demand curves must be _______________ the marginal cost.

A) greater than
B) less than
C) equal to

Question 34

Industries in which the long-run supply curve is upward sloping are

A) constant-cost industries
B) increasing-cost industries
C) decreasing-cost industries

Question 35

At the long-run equilibrium of a competitive industry, goods are produced at ______________________ average cost.

A) zero
B) the highest possible
C) the lowest possible

Question 36

What does it mean to say that society experiences a deadweight loss when markets are organized as monopolies?

Question 37

The market structure that is optimal in terms of welfare and that produces goods in the most efficient manner is

A) perfect competition
B) monopoly
C) oligopoly

Question 38

The ideal for which economists aim is the market structure of

A) oligopoly
B) perfect competition
C) monopoly

Question 39

Industries in which the long-run supply curve is downward sloping are

A) constant-cost industries
B) increasing-cost industries
C) decreasing-cost industries

Question 40

Industries in which the long-run supply curve is flat are

A) constant-cost industries
B) increasing-cost industries
C) decreasing-cost industries