PURE COMPETITION IN THE LONG RUN QUIZ

Purely competitive industries have which of the following characteristics?

I, II, III, IV

If a perfectly competitive firm’s variable cost increases, all of the following occur in the short run EXCEPT…

The firm’s average fixed cost increases.

Assume profit-maximizing firms in a perfectly competitive industry are earning only a normal rate of return. In that condition, all of the following occur EXCEPT…

Firms earn a positive economic profit.

If the market price for a perfectly competitive industry yields economic losses in the short run, existing firms in the industry will exit. The result will be that…

The industry supply curve with shift leftward, the quantity demanded with decrease and the market price in the long run will increase.

In the long run, a purely competitive firm will only operate at a point where…

Average total cost is at a minimum.

In a perfectly competitive industry in which firms are achieving short-run economic profit…

Firms will enter the industry.

In a competitive, constant-cost industry, the industry long-run supply curve is…

Perfectly elastic

The long-run increasing cost supply curve reflect an industry in which…

Expansion will increase resource prices

Assume the firm competes in a purely competitive, constant cost-industry and that the firm is able to cover all its variable costs. The firm finds that its average revenue is greater than its marginal cost. To maximize profit, this firm will…

Increase output knowing the price remains constant

Assume that a perfectly competitive firm finds that its property tax (a lump-sum cost) increases. In the short-run, the firm will…

not change its output.

Assume the firm competes in a purely competitive, constant cost-industry and that the firm is able to cover all its variable costs. The firm finds that its average revenue is less than its marginal cost. To maximize profit, this firm will…

decrease output knowing price will remain constant.

Entrepreneurs in a perfectly competitive industry attempt to increase their short-run profits by…

reducing production costs

developing new products

improving technology

Assuming a competitive, increasing-cost industry, an increase in market demand in the long run will result in…

market price will increase, resource prices will increase, and ATC will increase.

Allocative efficiency is identified as the output where…

price = marginal cost.

If firms in a perfectly competitive industry are earning positive economic profits in the short run, then in the long run…

firms will enter industry, industry demand will be constant, industry supply increases, and market price decreases.

In pure competition, which of the following are true in the long run?

Individual firms have the freedom to enter or exit the industry.

Individual firms’ output decisions are based on their costs and their market price.

Individual firms profits attract entry, while losses prompt exit.

In long-run equilibrium for a competitive firm and market in which all costs and benefits have been included, which of the following is true?

Consumer surplus and producer surplus are maximum and efficiency is optimal.

Assume the firms in constant-cost industries engaged in pure competition. Each firm will have…

marginal revenue that equals marginal cost at average total cost minimum

A contraction in an increasing cost industry supply curve in the long run will…

increase costs per unit for the industry and the firms.

Assume the firms in constant-cost industries engaged in pure competition. For these firms and industries, which of the following will be true?

These industries will generate optimal allocative efficiency.

These industries will be productively efficient.

These firms will compete in markets that maximize producer and consumer surplus.

If consumer demand for the product in a perfectly competitive industry increases, which effects will occur for the individual firms in the short run?

The product price will increase

The firm will increase output

The long-run supply curve for a constant-cost industry is…

horizontal because industry expansion and contraction will not affect resource costs.

In a pure competition, which of the following are true in the long run?

I, II, III, IV

If competitive firms in the short run have positive economic profit where marginal cost equals marginal revenue…

long run adjustments will create optimal efficiency with the sum of consumer and producer surplus being maximized.

In the long run, which of the following are true in a competitive industry?

Firms can expand or contract productive capacity.

Firms can freely enter or exit.

Firms are driven by incentives based on profits and losses.

In pure competition, the freedom to enter or exit an industry ensures that, in the long run, firms earn…

only normal returns.

sufficient revenues to cover explicit and implicit costs.