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Chapter 11 Pure Competition in the Long Run Answer Key
Multiple Choice Questions
1. Which of the following distinguishes the short run from the long run in pure competition?
2. The primary force encouraging the entry of new firms into a purely competitive industry is
3. In a purely competitive industry,
11-2
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Blooms: Understand
Diff icult y:
02 Medium
Learning Objective: 11-01 Explain how the long run differs from the short run in pure
competition.
Test Bank: I
Topic:
The Long Run in Pure Competition
4. Balin’s Burger Barn operates in a perfectly competitive market. Balin’s is currently earning
economic profits of $20,000 per year. Based on this information, we can conclude that
5. 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
6. Karlee’s Kreations sells handbags in a purely competitive market. Karlee’s is currently
breaking even. Based on this information, we can conclude that Karlee’s Kreations
11-3
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
A. must be operating in long-run equilibrium.
B. will leave this market in the long run because no economic profits are being earned.
C. will continue operating in this market only if the market price rises.
D. may be operating in either short-run or long-run equilibrium.
AACSB: Knowledge Application
Ac c e s s i b ili t y :
Keyboard Navigation
Blooms: Understand
Diff icult y:
02 Medium
Learning Objective: 11-01 Explain how the long run differs from the short run in pure
competition.
Test Bank: I
Topic:
The Long Run in Pure Competition
7. Which of the following is true concerning purely competitive industries?
8. If a purely competitive firm is producing at the MR = MC output level and earning an
economic profit, then
11-4
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Learning Objective: 11-02 Describe how profits and losses drive the long-run adjustment
process of pure competition.
Test Bank: I
Topic:
The Long-Run Adjustment Process in Pure Competition
9. Long-run adjustments in purely competitive markets primarily take the form of
10. Long-run competitive equilibrium
11. Suppose that Betty’s Beads is a typical firm operating in a perfectly competitive market.
Currently Betty’s MR = $15, MC = $12, ATC = $10, and AVC = $8. Based on this information,
we can conclude that
11-5
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
D. potential new firms will be discouraged by Betty’s struggles and not enter the market.
AACSB: Knowledge Application
Ac c e s s i b ili t y :
Keyboard Navigation
Blooms: Understand
Diff icult y:
02 Medium
Learning Objective: 11-02 Describe how profits and losses drive the long-run adjustment
process of pure competition.
Test Bank: I
Topic:
The Long-Run Adjustment Process in Pure Competition
12. We would expect an industry to expand if firms in that industry are
13. Which of the following statements is correct?
14. Suppose a purely competitive, increasing-cost industry is in long-run equilibrium. Now
assume that a decrease in consumer demand occurs. After all resulting adjustments have been
completed, the new equilibrium price
15. Suppose the market for corn is a purely competitive, constant-cost industry that is in long-run
equilibrium. Now assume that an increase in consumer demand occurs. After all resulting
adjustments have been completed, the new equilibrium price will be
16. Which of the following statements is correct?
11-7
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
B. The long-run supply curve for a purely competitive increasing-cost industry will be perfectly
elastic.
C. The long-run supply curve for a purely competitive industry will be less elastic than the
industry's short-run supply curve.
D. The long-run supply curve for a purely competitive decreasing-cost industry will be
upsloping.
AACSB: Knowledge Application
Ac c e s s i b ili t y :
Keyboard Navigation
Blooms: Understand
Diff icult y:
02 Medium
Learning Objective: 11-03 Explain the differences between constant-cost, increasing-cost, and
decreasing-cost industries.
Test Bank: I
Topic:
Long-Run Supply Curves
17. A constant-cost industry is one in which
18. Which of the following will not hold true for a competitive firm in long-run equilibrium?
11-8
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Learning Objective: 11-01 Explain how the long run differs from the short run in pure
competition.
Test Bank: I
Topic:
The Long Run in Pure Competition
19. Assume a purely competitive increasing-cost industry is initially in long-run equilibrium and
that an increase in consumer demand occurs. After all economic adjustments have been
completed, product price will be
20. Assume a purely competitive, increasing-cost industry is in long-run equilibrium. If a decline
in demand occurs, firms will
21. When a purely competitive firm is in long-run equilibrium,
11-9
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
C. total revenue exceeds total cost.
D. minimum average total cost is less than the product price.
AACSB: Knowledge Application
Ac c e s s i b ili t y :
Keyboard Navigation
Blooms: Understand
Diff icult y:
02 Medium
Learning Objective: 11-01 Explain how the long run differs from the short run in pure
competition.
Learning Objective: 11-04 Show how long-run equilibrium in pure competition
produces an efficient allocation of resources.
Test Bank: I
Topic:
Pure Competition and Efficiency
Topic:
The Long Run in Pure Competition
22. A purely competitive firm
23. A constant-cost industry is one in which
11-10
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Topic:
Long-Run Supply Curves
24. An increasing-cost industry is associated with
25.
Refer to the diagrams, which pertain to a purely competitive firm producing output q and the
industry in which it operates. Which of the following is correct?
11-11
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Diff icult y:
02 Medium
Learning Objective: 11-01 Explain how the long run differs from the short run in pure
competition.
Test Bank: I
Topic:
The Long Run in Pure Competition
Type: Graph
26.
Refer to the diagrams, which pertain to a purely competitive firm producing output q and the
industry in which it operates. In the long run we should expect
27.
Refer to the diagrams, which pertain to a purely competitive firm producing output q and the
industry in which it operates. The predicted long-run adjustments in this industry might be offset
by
28. Assume a purely competitive firm is maximizing profit at some output at which long-run
average total cost is at a minimum. Then
11-13
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Diff icult y:
02 Medium
Learning Objective: 11-02 Describe how profits and losses drive the long-run adjustment
process of pure competition.
Test Bank: I
Topic:
The Long-Run Adjustment Process in Pure Competition
29. An increasing-cost industry is the result of
30. A purely competitive firm is precluded from making economic profits in the long run because
31. If a purely competitive constant-cost industry is realizing economic profits, we can expect
industry supply to
11-14
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
D. increase, output to decrease, price to decrease, and profits to decrease.
AACSB: Knowledge Application
Ac c e s s i b ili t y :
Keyboard Navigation
Blooms: Understand
Diff icult y:
02 Medium
Learning Objective: 11-02 Describe how profits and losses drive the long-run adjustment
process of pure competition.
Test Bank: I
Topic:
The Long-Run Adjustment Process in Pure Competition
32. Assume that a decline in consumer demand occurs in a purely competitive industry that is
initially in long-run equilibrium. We can
33. Under what conditions would an increase in demand lead to a lower long-run equilibrium
price?
11-15
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Topic:
Long-Run Supply Curves
34. In a decreasing-cost industry,
35. A decreasing-cost industry is one in which
36. 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
11-16
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Ac c e s s i b ili t y :
Keyboard Navigation
Blooms: Understand
Diff icult y:
02 Medium
Learning Objective: 11-03 Explain the differences between constant-cost, increasing-cost, and
decreasing-cost industries.
Test Bank: I
Topic:
Long-Run Supply Curves
37. Suppose that an industry's long-run supply curve is downsloping. This suggests that
38. Suppose an increase in product demand occurs in a decreasing-cost industry. As a result,
39. Purely competitive industry X has constant costs and its product is an inferior good. The
industry is currently in long-run equilibrium. The economy now goes into a recession and
average incomes decline. The result will be
11-17
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
A. an increase in output and in the price of the product.
B. an increase in output, but not in the price, of the product.
C. a decrease in the output, but not in the price, of the product.
D. a decrease in output and in the price of the product.
AACSB: Knowledge Application
Ac c e s s i b ili t y :
Keyboard Navigation
Blooms: Understand
Diff icult y:
02 Medium
Learning Objective: 11-03 Explain the differences between constant-cost, increasing-cost, and
decreasing-cost industries.
Test Bank: I
Topic:
Long-Run Supply Curves
40. Suppose losses cause industry X to contract and, as a result, the prices of relevant inputs
decline. Industry X is
41.
The diagram shows the average total cost curve for a purely competitive firm. At the long-run
equilibrium level of output, this firm's total revenue
42.
The diagram shows the average total cost curve for a purely competitive firm. At the long-run
equilibrium level of output, this firm's total cost
43.
The diagram shows the average total cost curve for a purely competitive firm. At the long-run
equilibrium level of output, this firm's economic profit
44. The MR = MC rule applies
