ECO2023 Chapter 11
Terms in this set (46)
_____ efficiency means that resources are distributed among firms and industries to yield a mix of products and services that is most wanted by society
A decreasing-cost industry is one in which firms experience ____ costs as their industry _____
An industry whose average total cost curve shifts upward as the industry expands and shifts downward as the industry contracts is known as
Productive efficiency requires that
Goods be produced in the least costly way
Which of the following conditions may or will cause firms to exit an industry?
If price is less than minimum average total cost, resulting losses will cause firms to leave industry
______ profits in a competitive industry will attract new firms into the industry
An industry where expansion or contraction will not affect resource prices and production costs is known as:
Competitive market economies strive to generate
Allocative efficiency; Productive efficiency
The entry and exit of firms in an industry are considered _____ ______ adjustments
New firms entering an increasing-cost industry _____resource prices
Which of the following does a decreasing-cost industry experience?
Lower costs as industry output expands
Creative _______ captures the idea that the creation of new products and new production methods erodes the market positions of firms committed to existing products and old ways of doing business
If market price initially exceeds minimum average total costs, the resulting economic profits will attract new firms to the industry eventually resulting in?
Industry expansion that increases supply until price equals minimum average total cost (ATC)
Efficiency can be temporarily disrupted and then restored in pure competition by
Resource costs; Technological changes; Changes in consumer tastes
In the ____ run, competitive firms have sufficient time either to increase or to decrease their capacities
Which of the following will cause new firms to enter an industry?
If market price exceeds minimum average total costs, the resulting economic profits will attract new firms to the industry
When are society's resources allocated efficiently?
When purely competitive firms produce where price is equal to marginal cost (MC)
Lowering production costs through better technology or improved business organization can result in firms:
Earning economic profits; increasing their profits
A competitive market strives to generate _____ efficiency and ______ efficiency
A competitive firm may realize an economic profit or loss in the ____ run but will earn only a normal profit in the ______ run
When an increase in product demand results in economic profits
Industry expansion occurs and thus resource demand increases resource prices, as well as the minimum average total cost
Competition, reflected in the entry and exit of firms, eliminates economic profits and losses by adjusting the product _____ to equal the minimum long-run average _____ cost
The character of the long-run supply curve of the competitive industry can be best described as
The effect, if any, that changes in the number of firms in the industry will have on costs of the individual firms in the industry
In _____ competition, there could potentially be no dynamism and no innovation
Whether a purely competitive industry is a constant-cost industry or an increasing cost-industry, the final long-run equilibrium position of all competitive firms share which of the following characteristics?
In the long run, a multiple equality occurs where price equals marginal revenue which equals the minimum average total cost; Price or marginal revenue will settle where it is equal to minimum average total cost; In the long run, a multiple equality occurs where price equals marginal cost which equals the minimum average total cost
In the short run, a competitive industry is composed of a ______ number of firms, each with a ______, unalterable plant
T/F: In pure competition, consumers benefit from productive efficiency by paying the highest price possible
Higher resource prices will result in ____ total costs
When disrupted by changes in the economy, a purely competitive market can restore the efficiency associated with marginal revenue or ________=_______ cost = lowest ATC
Which of the following are considered long-run adjustments in an industry?
The expansion or contraction of plant capacity; The entry and exit firms
Which of the following best explains why the long-run supply curve of a constant-cost industry is perfectly elastic?
The entry and exit of firms changes industry output bringing the price back to its original level, where it is equal to the constant minimum ATC.
Even if resource prices and technology are the same for all firms, which are the first to leave the industry when demand declines?
Less skillfully managed firms that tend to incur higher costs; Firms with less productive labor forces or higher transportation costs.
A purely competitive firm should produce the amount of output where _____ equals _______ equals _______
Price; Marginal Revenue; Marginal Cost
In a perfectly competitive market, after all long-run adjustments are completed
Output will occur at each firms minimum average total cost where product price is equal to marginal revenue
Competition forces firms to select output levels at which ______ is minimized
Average total cost
If price is initially less than minimum average total cost, resulting losses will cause firms to leave the industry eventually resulting in:
Industry contraction that decreases supply until price rises again to equal minimum average total cost (ATC)
Firms will not enter an industry when marginal revenue, marginal cost, price and average total cost are equal because
Economic profit is zero and existing firms are earning only normal profits
In the real world, firms do not have exactly the same _____ because skills vary from firm to firm
The long-run supply curve of a _____ cost industry is perfectly _____
The quantity that a firm should produce can be determined at MR=MC or where
Total revenue exceeds total cost by the maximum amount
A specific number of firms , all with fixed unalterable plants, mainly describes:
An industry's short run
The supply curve for an increasing-cost industry slopes upward because:
Greater output will be supplied at higher prices
T/F: Higher resource prices create lower ATC and cause an upward shift of the long-run ATC curve
The long-run goal of every perfectly competitive firm is:
To operate at their minimum ATC
When efficiency is disrupted in pure competition, producers will reallocate resources until product supply is such that price will again _____ marginal cost
Perfect competition, involving the easy entry and exit of firms in an industry, is potentially just a game of copycat because:
Firms simply duplicate the production methods and cost structures of existing firms to earn above-normal profits