ECON 202 EXAM ANSWERS
Test Bank: II Topic: Long-Run Supply Curves
If the long-run supply curve is upward-sloping, it indicates that resource prices fall when
A. production in the industry decreases in the long run.
production in theindustry increases in thelongrun.
new firms enter theindustry.
short-run profits in the industry are positive.
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Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-03 Explain the differences betweenconstant-cost, increasing-cost, and decreasing-cost industries.
Test Bank: II Topic: Long-Run Supply Curves
A long-runsupply curve that is downward-sloping indicates that the firms' ATC curves
shift up when the industry expands.
shift down when the industry contracts.
C. shift down when the industryexpands.
D. do not shift when the industrycontracts.
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Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-03 Explain the differences betweenconstant-cost, increasing-cost, and decreasing-cost industries.
Test Bank: II Topic: Long-Run Supply Curves
What happens in a decreasing-cost industry when some firms leave andtheindustry's output contracts?
A. Theaverage cost will increase.
The average cost will decrease.
The total cost will decrease.
The productprice will decrease.
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Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-03 Explain the differences betweenconstant-cost, increasing-cost, and decreasing-cost industries.
Test Bank: II Topic: Long-Run Supply Curves
Assume a purely competitive decreasing-cost industry is initially in long-run equilibrium but then thereis a decreasein market demandfor the product. After all economic adjustments to this new situation havetaken place, product pricewillbe
A. higher,buttotal output will be lower.
lower, and total output will be lower.
higher, and total output will be higher.
lower, but total output will be higher.
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Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-03 Explain the differences betweenconstant-cost, increasing-cost, and decreasing-cost industries.
Test Bank: II Topic: Long-Run Supply Curves
Assume a purely competitive constant-cost industry is initially at long-runequilibrium. Now suppose that a decrease in demand occurs. After all the long-run adjustments have been completed,the new equilibrium price
A. and industry output will be less than the initial price and output.
B. will be thesame as the initial price, and the output will be less.
will be greater than the initial,butthe new output will be less.
will be less than the initial price, but thenewoutput will be greater.
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Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-03 Explain the differences betweenconstant-cost, increasing-cost, and decreasing-cost industries.
Test Bank: II Topic: Long-Run Supply Curves
Which statement is correct? The long-run supply curve for a purely competitive
decreasing-cost industry will be upward-sloping.
increasing-cost industry will be perfectly elastic.
C. increasing-cost industry will be upward-sloping.
D. increasing-cost industry will be less elastic than theshort-run supply curve.
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LearningObjective: 11-03 Explain the differences betweenconstant-cost, increasing-cost, and decreasing-cost industries.
Test Bank: II Topic: Long-Run Supply Curves
One explanation for the existence of an increasing-cost industry is that
increasing marginal returns to labor occur.
firms produce beyond the point of minimumlong-run averagetotal costs.
perfectly elastic long-run supply schedules are observed in the industry.
D. asthe industry expands,prices are bid up for some factors of production.
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LearningObjective: 11-03 Explain the differences betweenconstant-cost, increasing-cost, and decreasing-cost industries.
Test Bank: II Topic: Long-Run Supply Curves
Which of the followingstatements is true for a long-run supply curve that slopes upward?
A. If total market output is increased, unit costs of production increase.
If total market outputis unchanged, unit costs of production increase.
The total cost of producing15 units is no larger than the costof producing 10 units.
If total market output is decreased, total costs of production will remain unchanged.
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LearningObjective: 11-03 Explain the differences betweenconstant-cost, increasing-cost, and decreasing-cost industries.
Test Bank: II Topic: Long-Run Supply Curves
An industry that has increasing returns to scaleandfixed factor prices will have a long-run supply curve that is
vertical.
horizontal.
upward-sloping.
D. downward-sloping.
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Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-03 Explain the differences betweenconstant-cost, increasing-cost, and decreasing-cost industries.
Test Bank: II Topic: Long-Run Supply Curves
141.
The provided graph represents a(n)
A. decreasing-cost industry: Firms may be paying lower prices for their inputs when the industry expands.
increasing-cost industry: Firms may be paying higher prices for their inputs when the industry expands.
competitive industry with diseconomies of scale: The short-runsupply curves are upward-sloping.
constant-cost industry: Prices of the inputs stay the same, andother production costs are constant as the industryexpands.
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Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-03 Explain the differences betweenconstant-cost, increasing-cost, and decreasing-cost industries.
Test Bank: II Topic: Long-Run Supply Curves
142.
The provided graph depicts long-run supply for
a constant-cost industry.
a decreasing-cost industry.
C. an increasing-cost industry.
D. None of theseis correct.
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Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-03 Explain the differences betweenconstant-cost, increasing-cost, and decreasing-cost industries.
Test Bank: II Topic: Long-Run Supply Curves
143.
The provided graph depicts a situationwhere, if the market demandfor the productincreases, the prices of the resourcesused by the firms in the industry would
A. increase.
decrease.
stay constant.
be set by the government.
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Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-03 Explain the differences betweenconstant-cost, increasing-cost, and decreasing-cost industries.
Test Bank: II Topic: Long-Run Supply Curves
144.
The industryrepresented by the accompanying graph must be one where
resource prices rise when the industry contracts.
resource prices fall when the industry expands.
C. resource prices fall when the industry contracts.
D. resource prices are unaffected by the industry's expansion.
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Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-03 Explain the differences betweenconstant-cost, increasing-cost, and decreasing-cost industries.
Test Bank: II Topic: Long-Run Supply Curves
145.
The industryindicated by the accompanying graphs would be a(n)
A. increasing-cost industry.
B. decreasing-cost industry.
constant-cost industry.
monopoly industry.
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Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-03 Explain the differences betweenconstant-cost, increasing-cost, and decreasing-cost industries.
Test Bank: II Topic: Long-Run Supply Curves
146.
The industryrepresented by the accompanying graph must be one where
A. resource prices rise when the industry contracts.
resource prices rise when theindustry expands.
resource prices fall when the industry contracts.
resource prices are unaffected by the industry's expansion.
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Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-03 Explain the differences betweenconstant-cost, increasing-cost, and decreasing-cost industries.
Test Bank: II Topic: Long-Run Supply Curves
Productive efficiency refers to
A. cost minimization, where P = minimumATC.
production at a level where P = MC.
maximizing profits by producing where MR = MC.
setting TR = TC.
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LearningObjective: 11-04 Show how long-run equilibrium in pure competition produces an efficientallocation of resources.
Test Bank: II Topic: Pure Competition and Efficiency
An industry is producing at the least-cost rate of production when
marginal cost is greaterthan average total cost.
marginal revenueis greater than price.
C. price and the minimumaverage cost are equal.
D. price and marginalrevenue are equal.
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LearningObjective: 11-04 Show how long-run equilibrium in pure competition produces an efficientallocation of resources.
Test Bank: II Topic: Pure Competition and Efficiency
Allocative efficiency occurs when the
minimum of average total cost equals averagerevenue.
minimum of averagetotal cost equals marginalrevenue.
C. marginal cost equals the marginalbenefit to society.
D. marginal revenue equals marginal benefit to society.
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LearningObjective: 11-04 Show how long-run equilibrium in pure competition produces an efficientallocation of resources.
Test Bank: II Topic: Pure Competition and Efficiency
Allocative efficiency means that
A. the product is produced at the lowestunit-cost possible.
B. society’s scarce resources are used to produce products that align with consumer preferences.
the product is sold at a price equal to the average cost of producingit.
the marginal benefit of the productexceeds its marginal cost.
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Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-04 Show how long-run equilibrium in pure competition produces an efficientallocation of resources.
Test Bank: II Topic: Pure Competition and Efficiency
In long-run equilibrium, a purely competitive firm will operatewhere price is
greater than MR but equal to MC and minimum ATC.
greater than MR and MC, but equal to minimum ATC.
greater than MC and minimum ATC,butequal to MR.
D. equal to MR, MC, and minimum ATC.
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Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-04 Show how long-run equilibrium in pure competition produces an efficientallocation of resources.
Test Bank: II Topic: Pure Competition and Efficiency
Which would indicate that a firm is operating under conditions of pure competition and is being productively efficient?
It is making economic profits in the long run.
Marginal cost equals average variable cost.
C. It produces at the minimum averagetotal cost.
D. Its marginal revenue is less than average revenue.
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LearningObjective: 11-04 Show how long-run equilibrium in pure competition produces an efficientallocation of resources.
Test Bank: II Topic: Pure Competition and Efficiency
Which of the followingstatements about a competitive firm is correct?
A. To maximize profits, a competitive firm shouldproduce the outputlevel at which total revenueis greatest.
B. In long-run equilibrium, a competitive firm will produce atthe point of minimumaverage costs.
A competitive firm will produce in the short run so long as total receipts are sufficient to cover total fixed costs.
A competitive firm will close down in the short run whenever priceis less than theminimum attainable averagetotal cost.
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LearningObjective: 11-04 Show how long-run equilibrium in pure competition produces an efficientallocation of resources.
Test Bank: II Topic: Pure Competition and Efficiency
In long-run equilibrium under pure competition, all firms will produce at minimum
A. average total cost.
marginal cost.
total cost.
average variable cost.
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LearningObjective: 11-04 Show how long-run equilibrium in pure competition produces an efficientallocation of resources.
Test Bank: II Topic: Pure Competition and Efficiency
In the context of analyzing economicefficiency, we can interpretthe market demand curveto be showing
the average cost of producingthe product at each output level.
the marginal revenue from each extra unit of the product.
C. the marginal benefit that consumers place on each unit of the product.
D. the averagevariable cost of producingthe product.
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Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-04 Show how long-run equilibrium in pure competition produces an efficientallocation of resources.
Test Bank: II Topic: Pure Competition and Efficiency
In the context of analyzing economicefficiency, we can interpretthe market supply curveto be showing
the average cost of producingthe product at each output level.
the marginal revenue from each extra unit of the product.
the average variable cost of producing theproduct.
D. the marginal opportunity cost to produce each unit of the product.
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Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-04 Show how long-run equilibrium in pure competition produces an efficientallocation of resources.
Test Bank: II Topic: Pure Competition and Efficiency
Pure competition produces a socially optimal allocationof resources in the long run because
marginal cost equals marginalrevenue.
marginal cost equals average total cost.
marginal revenueequals price.
D. marginal cost equals price.
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Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-04 Show how long-run equilibrium in pure competition produces an efficientallocation of resources.
Test Bank: II Topic: Pure Competition and Efficiency
When a purelycompetitive firm is in long-run equilibrium, it is said to achieve allocative efficiency because
A. total revenueis ata maximum.
B. marginal cost equals marginalrevenue.
average cost equals marginalcost.
average cost is at a minimum.
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Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-04 Show how long-run equilibrium in pure competition produces an efficientallocation of resources.
Test Bank: II Topic: Pure Competition and Efficiency
Which is true of a purely competitive firm in long-run equilibrium?
Average fixed cost equals price.
Marginal cost equals marginalproduct.
C. Priceequals marginal cost.
D. Averagevariable cost equals marginal cost.
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LearningObjective: 11-04 Show how long-run equilibrium in pure competition produces an efficientallocation of resources.
Test Bank: II Topic: Pure Competition and Efficiency
Resources are efficiently allocated when productionoccurs at that output atwhich
P equals MR.
P equals AVC.
P exceeds MR.
D. P equals MC.
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Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-04 Show how long-run equilibrium in pure competition produces an efficientallocation of resources.
Test Bank: II Topic: Pure Competition and Efficiency
Resources are efficiently allocated when productionoccurs at that output level where price
A. equals marginal cost.
equals marginal revenue.
is greatestover average cost.
is equal to average total cost.
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Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-04 Show how long-run equilibrium in pure competition produces an efficientallocation of resources.
Test Bank: II Topic: Pure Competition and Efficiency
When a purelycompetitive firm is in long-run equilibrium, price is equal to
A. marginal cost but may be greateror less than average cost.
B. minimum average cost and also to marginal cost.
minimum average cost but may be greateror less than marginalcost.
marginal revenue but may be greater or less than both average and marginalcost.
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Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-04 Show how long-run equilibrium in pure competition produces an efficientallocation of resources.
Test Bank: II Topic: Pure Competition and Efficiency
163.
The accompanying graph shows thelong-run supply and demand curves in a purely competitivemarket. The curves suggest that this industryis
A. a constant-cost industry.
an increasing-cost industry.
a decreasing-cost industry.
not possible, because the supply curvealways slopes up.
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Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-04 Show how long-run equilibrium in pure competition produces an efficientallocation of resources.
Test Bank: II Topic: Pure Competition and Efficiency
164.
The accompanying graph shows thelong-run supply and demand curves in a purely competitivemarket. The curves suggest that in this industry,the marginal benefitto consumers of each extra unit of the product is
constant.
increasing.
C. decreasing.
D. not indicatedin the graph.
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Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-04 Show how long-run equilibrium in pure competition produces an efficientallocation of resources.
Test Bank: II Topic: Pure Competition and Efficiency
165.
The accompanying graph shows thelong-run supply and demand curves in a purely competitivemarket. The curves suggest that in this industry,the dollars' worth of other productsthat have to be sacrificed in order to produce each unit of the output of this industryis
A. constant.
increasing.
decreasing.
not indicatedin the graph.
AACSB: KnowledgeApplication
Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-04 Show how long-run equilibrium in pure competition produces an efficientallocation of resources.
Test Bank: II Topic: Pure Competition and Efficiency
166.
The accompanying graph shows thelong-run supply and demand curves in a purely competitivemarket. We know that in this market, the marginal
A. cost equals marginalbenefit at P1Q1.
B. benefit exceeds marginal cost at theoutput level of Q2.
cost exceeds marginalbenefit at the output level of Q2.
benefit equals marginal cost at all points on the supply curve.
AACSB: KnowledgeApplication
Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-04 Show how long-run equilibrium in pure competition produces an efficientallocation of resources.
Test Bank: II Topic: Pure Competition and Efficiency
167.
The accompanying graph shows thelong-run supply and demand curves in a purely competitivemarket. We know that when this market reaches equilibrium,themarginal
A. cost equals marginal benefit.
benefit exceeds marginal cost.
cost exceeds marginalbenefit.
cost equals zero.
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Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-04 Show how long-run equilibrium in pure competition produces an efficientallocation of resources.
Test Bank: II Topic: Pure Competition and Efficiency
In a purelycompetitive industry, an optimal allocationof scarce resources occurs when
A. P = AC.
B. P = MC.
MR = AC.
TR = TC.
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Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-04 Show how long-run equilibrium in pure competition produces an efficientallocation of resources.
Test Bank: II Topic: Pure Competition and Efficiency
The differencebetween the maximumprice a consumeris willing to pay for a productand the actual pricetheconsumer paysis
allocative efficiency.
productive efficiency.
C. the consumer surplus.
D. the producer surplus.
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Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-04 Show how long-run equilibrium in pure competition produces an efficientallocation of resources.
Test Bank: II Topic: Pure Competition and Efficiency
The difference between the actual pricethat a producerreceives and the minimum acceptableprice a producer is willing to accept is
A. the consumer surplus.
B. the producer surplus.
allocative efficiency.
productive efficiency.
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Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-04 Show how long-run equilibrium in pure competition produces an efficientallocation of resources.
Test Bank: II Topic: Pure Competition and Efficiency
After long-run adjustments, a purely competitivemarket achieves
productive efficiency but not necessarily allocative efficiency.
allocative efficiency but not necessarily productive efficiency.
either productive efficiency or allocative efficiency, but not both.
D. both productive and allocative efficiency.
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LearningObjective: 11-04 Show how long-run equilibrium in pure competition produces an efficientallocation of resources.
Test Bank: II Topic: Pure Competition and Efficiency
172.
The accompanying graph represents the purely competitive market for a product. When themarket is at equilibrium, the consumer surplus would be represented by the area
a + b + c + d.
a +b+ c.
C. a.
D. b + c.
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Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-04 Show how long-run equilibrium in pure competition produces an efficientallocation of resources.
Test Bank: II Topic: Pure Competition and Efficiency
173.
The accompanying graph represents the purely competitive market for a product. When themarket is at equilibrium, the value of the total benefits derived by consumers from this productwould be represented by the area
A. a + b + c + d.
B. a +b+ c.
a.
b + c.
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Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-04 Show how long-run equilibrium in pure competition produces an efficientallocation of resources.
Test Bank: II Topic: Pure Competition and Efficiency
174.
The accompanying graph represents the purely competitive market for a product. When themarket is at equilibrium, the producer surplus would be represented by the area
A. b + c.
B. b.
c.
b + c + d.
AACSB: KnowledgeApplication
Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-04 Show how long-run equilibrium in pure competition produces an efficientallocation of resources.
Test Bank: II Topic: Pure Competition and Efficiency
175.
The accompanying graph represents the purely competitive market for a product. When themarket is at equilibrium, the total opportunity cost of producingthe equilibrium output level would be represented by the area
b + c.
b.
C. c.
D. a + b + c.
AACSB: KnowledgeApplication
Blooms:Understand Difficulty: 02 Medium
LearningObjective: 11-04 Show how long-run equilibrium in pure competition produces an efficientallocation of resources.
Test Bank: II Topic: Pure Competition and Efficiency
176.
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