Title: Exam 2 Flashcards | Quizlet
Headings: Exam 2
Exam 2
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Terms in this set (56)

Content: a constant-cost industry
In the long run, a purely competititve firm will only ear a ________ profit
normal
Economists maintain that new firms are attracted into an industry due to
economic profits
The quantity that a firm should produce can be determined at MR = MC or where
total revenue exceeds total cost by the maximum amount
Competition, reflected in the entry and exit of firms, eliminates economic profits and losses by adjusting the production ________ to equal the minimum long-run average _______ cost
price; total
Competitive market economies strive to generate
allocative and productive efficiency
Which of the 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 the industry; if price is less than minimum average variable cost, resulting losses will cause firms to leave the industry. a decreasing-cost industry is one in which firms experience ______________ costs as their industry ______________. lower; expands
higher; contracts
________ efficiency means that goods are produced in the least costly way
productive
__________ efficiency means that resources are distributed among firms and industries to yield a mix of products and services that is most wanted by society
allocative
what does a decreasing-cost industry experience
lower costs as industry output expands
In purely competitive markets, efficiency can be temporarily disrupted and then resorted by changes in
technological changes, consumer tastes, and resource supplies
In ________ competition, there could potentially be no dynamism and no innovation
pure
productive efficiency requires that ______
goods be produced in the least costly way
strategies attempted by firms for increasing their profits include ________
developing a new products that is popular with consumers, lowering production costs through better technology, and lowering production costs through improved business organization
New firms entering an increasing-cost industry _________ resource prices
increase
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
destruction
Allocative efficiency requires that
resources be apportioned among firms and industries to yield the mix of products and services that is most wanted by society
Describe producer surplus
It is the difference between the minimum price that producers are willing to accept for a product and the market price for the product
all firms in __________ industry share the same basic efficiency characteristics
a purely competitive
If the 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)
When are society's resources allocated efficiently
when purely competitive firms produce where price is equal to marginal cost (MC)
the character of the long-run supply curve of the competitve industry can be best described as
the effect, if any, that changes in the number of firms in the industry will have on cost of the individual firms in the industry
even if resource prices and technology are the same for all firms, which are the first to leave the industry when demand declines
Firms with less productive labor forces or higher transportation costs, and less skillfully managed firms that tend to incur higher costs
lowering production costs through better technology or improved business organiation can result in firms
increasing their profits
When disrupted by changes in the economy, a purely competitive market can restore the efficiency associated with marginal revenue or ___________ = ________________ cost = lowest ATC
price, marginal
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
higher resource prices will result in ________ total costs
higher average
___________ efficiency means that goods are produced in the least costly way
productive
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
consumers benefit from productive efficiency by paying the ______ product price possible under prevailing technology and cost conditions, causing firms to earn only ______ profit
lowest; a normal
In which of the following could there potentially be no dynamism or innovation
perfect competition
the entry of new firms entering an increasing-cost industry increase resource prices particularly
in industries using specialized resources whose long-run supplies do not readily increase in response to increases in resource demand
the shape of the long-run supply curve for a constant-cost industry can best be described as
flat
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 agian to equal minimum average total cost
the long-run goal of every perfectly competitive firm is
to operate at their minimum ATC
in the long run, perfectly competitive firms will not survive if they do not use a least-cost production method because
pure competition forces firms to produce at the minimum average total cost and to charge a price that is consistent with that cost
When efficiency is disrupted in pure competition, produces will reallocate resources until product supply is cuh that price will again _____ marginal cost
equal
when dominant positions of wagons, ship and barges was undermined by the railroad system, which in turn was undermined by truck and later airplanes. creative destruction
What is Downward-sloping
the long-run supply curve of a decreasing-cost industry
int he real world, firms do not have exactly the same _______ because skillls vary from firm to firm
cost curvers
When discussing pure competition, the term long run refers to a period of time long enough to allowe
firms already in a n industry to either expand or contract their capacities, and new firms to enter or existing firms to leave
Suppose that the pen-making industry is perfectly competitive. Also suppose that each current firm and any potential firms that might enter the industry all have identical cost curves, with minimum ATC = $1.25 per pen.