Question 1

Assume a purely competitive constant-cost industry is initially at long-run equilibrium. Now suppose that a decrease in demand occurs. After all the long-run adjustments have been completed, the new equilibrium price

Accepted Answer

In a purely competitive constant-cost industry, a decrease in demand will lead to a decrease in output as firms reduce production in response to lower demand. However, because it is a constant-cost industry, the long-run equilibrium price returns to its original level after adjustments, as firms exit or enter the market to restore the profit to normal levels.

Question 2

The provided graph depicts a situation where, if the market demand for the product increases, the prices of the resources used by the firms in the industry would

Accepted Answer

The answer of  The provided graph depicts a situation...

Question 3

The provided graph depicts long-run supply for

Accepted Answer

The answer of  The provided graph depicts long-run supply...

Question 4

Which of the following statements is true for a long-run supply curve that slopes upward?

Accepted Answer

An upward-sloping long-run supply curve indicates that as the total output in the market increases, the unit costs of production also increase. This is often due to factors like diminishing returns to scale, increased input prices as demand for inputs rises, or other inefficiencies that occur at higher levels of production.

Question 5

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

Accepted Answer

A downward-sloping long-run supply curve suggests that as the industry expands, firms experience lower average total costs (ATC), indicating economies of scale or other factors that reduce costs as output increases.

Question 6

Resources are efficiently allocated when production occurs where

Accepted Answer

Resources are efficiently allocated when the price of a good equals the marginal cost of producing it. This condition ensures that the value consumers place on the last unit produced is exactly equal to the cost of producing that unit, leading to an efficient allocation of resources.

Question 7

The industry represented by the accompanying graph must be one where

Accepted Answer

The answer of  The industry represented by the accompanying...

Question 8

What happens in a decreasing-cost industry when some firms leave and the industry's output contracts?

Accepted Answer

In a decreasing-cost industry, as firms leave and output contracts, the average cost increases because economies of scale are reduced, leading to higher costs per unit.

Question 9

The provided graph represents a(n)

Accepted Answer

The answer of  The provided graph represents a(n)
...

Question 10

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

Accepted Answer

If the benefit (marginal benefit) from producing one more unit of output is greater than the cost (marginal cost) of producing that additional unit, the firm is producing less output than what would be considered allocatively efficient. Allocative efficiency is achieved when the marginal cost of producing an additional unit equals the marginal benefit derived from that unit.

Question 11

Assume a purely competitive decreasing-cost industry is initially in long-run equilibrium but then there is a decrease in market demand for the product. After all economic adjustments to this new situation have taken place, product price will be

Accepted Answer

The answer of Assume a purely competitive decreasing-cost industry is...

Question 12

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

Accepted Answer

The price of a product reflects the value that consumers place on the last unit of the product they purchase, while the marginal cost reflects the cost of producing one more unit of the product. If the price ($25) is higher than the marginal cost ($18), it indicates that the value consumers place on the product is greater than the cost of producing it, suggesting that more resources could be profitably allocated to its production. Therefore, resources are being underallocated to Y.

Question 13

Allocative efficiency is achieved when the production of a good occurs where

Accepted Answer

Allocative efficiency is achieved when the price of a good is equal to the marginal cost (MC) of production. This indicates that resources are being allocated in a way that maximizes the overall benefit to society, as the value consumers place on a good (reflected by the price they are willing to pay) matches the cost to society of making one more unit of the good.

Question 14

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

Accepted Answer

In a purely competitive increasing-cost industry, the long-run supply curve is upward sloping because as industry output increases, the prices of inputs or factors of production tend to increase, leading to higher costs and prices.

Question 15

If the price of bottled water is $2 and the marginal cost of producing it is $2.5,

Accepted Answer

When the price of a good is lower than its marginal cost, it indicates that resources are being overallocated to the production of that good, as it costs more to produce than it sells for, leading to inefficiencies in resource allocation.

Question 16

An industry that has increasing returns to scale and fixed factor prices will have a long-run supply curve that is

Accepted Answer

In an industry with increasing returns to scale, as production increases, the average cost of production decreases. This leads to a downward sloping long-run supply curve because firms can supply more at a lower cost.

Question 17

The term productive efficiency refers to

Accepted Answer

Productive efficiency occurs when a good is produced at the lowest possible cost, which means producing goods at the lowest average total cost.

Question 18

The industry represented by the accompanying graph must be one where

Accepted Answer

The answer of  The industry represented by the accompanying...

Question 19

One explanation for the existence of an increasing-cost industry is that

Accepted Answer

An increasing-cost industry experiences higher costs as it expands, primarily because the prices for some factors of production increase. This can happen due to higher demand for these inputs as the industry grows, leading to increased competition for limited resources, which in turn drives up prices.

Question 20

The industry indicated by the accompanying graphs would be a(n)

Accepted Answer

The answer of  The industry indicated by the accompanying...

Quiz 11: Pure Competition in the Long Run

Assume a purely competitive constant-cost industry is initially at long-run equilibrium. Now suppose that a decrease in demand occurs. After all the long-run adjustments have been completed, the new equilibrium price

The provided graph depicts a situation where, if the market demand for the product increases, the prices of the resources used by the firms in the industry would

The provided graph depicts long-run supply for

Which of the following statements is true for a long-run supply curve that slopes upward?

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

Resources are efficiently allocated when production occurs where

The industry represented by the accompanying graph must be one where

What happens in a decreasing-cost industry when some firms leave and the industry's output contracts?

The provided graph represents a(n)

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

Assume a purely competitive decreasing-cost industry is initially in long-run equilibrium but then there is a decrease in market demand for the product. After all economic adjustments to this new situation have taken place, product price will be

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

Allocative efficiency is achieved when the production of a good occurs where

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

If the price of bottled water is $2 and the marginal cost of producing it is $2.5,

An industry that has increasing returns to scale and fixed factor prices will have a long-run supply curve that is

The term productive efficiency refers to

The industry represented by the accompanying graph must be one where

One explanation for the existence of an increasing-cost industry is that

The industry indicated by the accompanying graphs would be a(n)