978-1259723223 Test Bank TBChap011 Part 3

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Ac c e s s i b ili t y :

Keyboard Navigation

Blooms: Understand

Diff icult y:

02 Medium

Learning Objective: 11–05 Discuss creative destruction and the profit incentives for innovation.

Test Bank: I

Topic:

Technological Advance and Competition

82. (Consider This) Approximately what percentage of start–up firms in the United States go

bankrupt within the first two years?

83. (Consider This) Which of the following statements is true about U.S. firms?

84. (Last Word) Patents are most likely to infringe on innovation

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85. (Last Word) “Patent trolls”

86. (Last Word) Eliminating patents would tend to

True / False Questions

87. After all long–run adjustments have been completed, a firm in a competitive industry will

produce that level of output where average total cost is at a minimum.

88. The long-run supply curve for a decreasing-cost industry is downsloping.

89. Long-run supply curves for a purely competitive industry can never be downsloping.

90. Marginal cost is a measure of the alternative goods that society forgoes in using resources to

produce an additional unit of some specific product.

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AACSB: Knowledge Application

Ac c e s s i b ili t y :

Keyboard Navigation

Blooms: Understand

Diff icult y:

02 Medium

Learning Objective: 11–04 Show how long-run equilibrium in pure competition produces an

efficient allocation of resources.

Test Bank: I

Topic:

Pure Competition and Efficiency

91. Because the equilibrium position of a purely competitive seller entails an equality of price

and marginal costs, competition produces an efficient allocation of economic resources.

92. Allocative efficiency is achieved by equalizing consumer surplus and producer surplus.

93.

If this diagram represents a typical firm in the industry and the firm is producing at the profit-

maximizing level of output in the short run, then in the long run we would expect more firms to

enter the market.

94.

If this diagram represents a typical firm in the industry and the firm is producing at the profit-

maximizing level of output in the short run, then in the long run we would expect economic

profits in this market to rise.

95.

If the firm shown in this graph is producing at the profit-maximizing level of output in the short

run, then it is achieving productive and allocative efficiency.

96. When entrepreneurs in competitive industries successfully innovate to lower production

costs, it usually results in long-run economic profits for the firm.

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Diff icult y:

02 Medium

Learning Objective: 11–05 Discuss creative destruction and the profit incentives for innovation.

Test Bank: I

Topic:

Technological Advance and Competition

97. The process by which new firms and new products destroy existing dominant firms and their

products is called creative destruction.

98. All of the following are long-run changes, except

99. If the entry or exit of firms does not affect the resource prices in an industry, we refer to it as

a

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written consent of McGraw-Hill Education.

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: II

Topic:

The Long Run in Pure Competition

100. All of the following statements apply to a purely competitive market in the long run, except

101. Which of the following is not an assumption that we make in analyzing pure competition in

the long run?

102. In pure competition, if the market price of the product is higher than the minimum average

cost of the firms, then

103. If a purely competitive firm is currently facing a situation where the price of its product is

lower than the average variable cost, but it believes that the market demand for its product will

increase soon, then

104. If a purely competitive firm is facing a situation where the price of its product is lower than

the average cost, then all of the following apply, except

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C. other firms will want to enter the industry because of the positive economic profits.

D. the firm may earn economic profits in the long run if it expands its plant in order to exploit

economies of scale.

105. Assume that the market for soybeans is purely competitive. Currently, firms growing

soybeans are earning positive economic profits. In the long run, we can expect

106. Assume that the market for corn is purely competitive. Currently, firms growing corn are

suffering economic losses. In the long run, we can expect

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Test Bank: II

Topic:

The Long-Run Adjustment Process in Pure Competition

107. The representative firm in a purely competitive industry

108. Which of the following is true of normal profits?

109. Which of the following statements about pure competition in the long run is not true?

110. Which of the following is not a factor that automatically pushes firms in pure competition to

earn only normal profits in the long run?

111. If the representative firm in a purely competitive industry is in short-run equilibrium and, at

its current output level, its marginal cost exceeds its average total cost, then we can conclude

that

112.

The graphs are for a purely competitive market in the short run. The graphs suggest that in the

long run, assuming no changes in the given information,

113.

The accompanying graphs are for a purely competitive market in the short run. The graphs

suggest that in the long run, assuming no changes in the given information, the market

114.

The accompanying graphs are for a purely competitive market in the short run. The graphs

suggest that in the long run, as automatic market adjustments occur, the demand curve facing the

individual firm will

115.

The accompanying graphs are for a purely competitive market in the short run. The graphs

suggest that as long run adjustments consequently occur, the firms in the industry will find that

116. Suppose that the corn market is purely competitive. If the corn farmers are currently earning

negative economic profits, then we would expect that in the long run the market’s

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Learning Objective: 11–02 Describe how profits and losses drive the long-run adjustment

process of pure competition.

Test Bank: II

Topic:

The Long-Run Adjustment Process in Pure Competition

117. If firms enter a purely competitive industry, then in the long run this change will shift the

industry

118. If firms are losing money in a purely competitive industry, then the long-run adjustments in

this situation will cause the market supply to

119. Assume the market for ball bearings is purely competitive. Currently, each of the firms in

this market is earning positive economic profits. In the long run, as adjustments occur in the

industry, we can expect the market price of ball bearings to

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B. increase and individual firms‘ profits to increase.

C. decrease and individual firms’ profits to increase.

D. decrease and individual firms‘ profits to decrease.

120.

Refer to the accompanying graphs for a competitive market in the short run. Which of the

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121.

Refer to the accompanying graphs for a competitive market in the short run. What will happen in

the long run to industry supply and the equilibrium price, P, of the product?

122.