ch 11 hw

Question 1

Which of the following distinguishes the short run from the long run in pure competition?

Answer 1

Firms can enter and exit the market in the long run but not in the short run.

Question 2

Long-run competitive equilibrium

Answer 2

results in zero economic profits.

Question 3

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

Answer 3

potential new firms will be encouraged by Betty’s success to enter the market.

Question 4

Which of the following will not hold true for a competitive firm in long-run equilibrium?

Answer 4

P equals AFC.

Question 5

In a purely competitive industry,

Answer 5

there may be economic profits in the short run but not in the long run.

Question 6

Under what conditions would an increase in demand lead to a lower long-run equilibrium price?

Answer 6

The firms in the market are part of a decreasing-cost industry.

Question 7

If the price of bottled water is $2 and the marginal cost of producing it is $2.50,

Answer 7

resources are being overallocated to bottled water.

Question 8

Which of the following would not be expected to occur in a purely competitive market in long-run equilibrium?

Answer 8

Consumer and producer surplus will be minimized.

Question 9

The process by which new firms and new products replace existing dominant firms and products is called

Answer 9

creative destruction.

Question 10

Creative destruction is least beneficial to

Answer 10

workers in the “destroyed” industries.

Question 11

If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then

Answer 11

new firms will enter this market.