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The economic profits of firms in long-run competitive equilibrium are:
D)zero if it is a constant cost industry, positive otherwise.
Which of the following is a characteristic of equilibrium in long-run competitive markets?
A)Consumer surplus is minimized
B)Producer surplus exceeds consumer surplus
C)Combined consumer and producer surplus is maximized
D)The difference between producer surplus and consumer surplus is maximized
The long-run industry supply curve will be horizontal:
A)in a decreasing cost industry.
B)if resource prices rise at the same rate as industry demand rises.
C)if resource prices fall at the same rate as industry demand rises.
D)if resource prices remain constant as industry demand rises or falls.
Allocative efficiency in the production of wheat requires:
A)producing every unit of wheat whose marginal benefit equals or exceeds its marginal cost.
B)that each wheat farm produces its output at minimum average variable cost.
C)zero economic profits for all wheat farmers.
D)maximizing consumer surplus while minimizing producer surplus.
"Creative destruction" refers to:
A)the exit of firms following a long term reduction in demand.
B)the process by which old industries or technologies are replaced by newer ones.
C)the unwillingness of competitive firms to adopt new technologies because competition precludes their ability to earn long-run economic profits.
D)the process by which competitive industries become monopolies in the long run.
Suppose a decrease in product demand occurs in a decreasing-cost industry. Compared to the original equilibrium the new long-run competitive equilibrium will entail:
A)a higher price and a higher total output.
B)a lower price and a lower total output.
C)a higher price and a lower total output.
D)a lower price and a higher total output.
Combined consumer and producer surplus is maximized in a competitive market:
A)at the quantity corresponding to the intersection of the market supply and demand curves.
B)if the market price exceeds minimum average total cost.
C)at any output level at least as large as the market equilibrium quantity.
D)provided price exceeds marginal cost.
An increasing cost industry is characterized by:
A)an upsloping long-run supply curve.
B)an upsloping long-run demand curve.
C)a perfectly elastic long-run supply curve.
D)less than optimal long-run output.
Use the following diagrams to answer the next question.

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Refer to the above diagrams, which pertain to a purely competitive firm and the industry in which it operates. In the long run we should expect:
A)new firms to enter, market demand to rise, and price to fall.
B)demand to increase, and price to rise.
C)input prices to fall, supply to increase, and price to fall
D)some firms to exit, supply to decrease, and price to rise.
In the long run, competitive markets achieve:
A)allocative efficiency because P = min ATC but not productive efficiency because P > min AVC.
B)allocative efficiency because P = MC and productive efficiency because P = min ATC.
C)productive efficiency because P = min ATC but not allocative efficiency because P > MR.
D)neither productive nor allocative efficiency.

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