Question : 7.3  Extending the Reach of the Invisible Hand: Allocation of : 1377394

7.3  Extending the Reach of the Invisible Hand: Allocation of Resources Across Industries

1) Positive economic profits in a perfectly competitive market imply that:

A) producers are earning more than their opportunity cost.

B) existing firms are likely to leave the market.

C) cost of production is equalized across producers.

D) government intervention is required to stabilize the market.

2) The entry of new firms into a perfectly competitive market will cause:

A) both the equilibrium price and quantity to increase.

B) both the equilibrium price and quantity to decrease.

C) the equilibrium price to increase but the equilibrium quantity to decrease.

D) the equilibrium price to decrease but the equilibrium quantity to increase.

3) The entry of new firms into a perfectly competitive market will cause:

A) an increase in the profitability of existing firms.

B) a decrease in the profitability of existing firms.

C) an inward shift of the demand curve of the good being produced by the firms.

D) an outward shift of the demand curve of the good being produced by the firms.

4) In a perfectly competitive market, if market price is higher than the average total cost of production, ________.

A) firms will incur losses in the long run

B) firms will make profits in the long run

C) new firms will enter the industry

D) firms will exit the industry

5) The incentive for new firms to enter into a perfectly competitive market is primarily the:

A) large number of existing firms in the market.

B) positive profits earned by the existing firms in the market.

C) high level of government intervention in the market.

D) large number of buyers in the market.

6) Which of the following suggests that a competitive firm earns zero economic profits?

A) P = MC > ATC

B) P > MC = ATC

C) P = MC = ATC

D) P > MC > ATC

7) When positive economic profits exist in an industry:

A) the market price of the good produced by the industry is lesser than the average total cost of the industry.

B) resources flow from less productive uses to that particular industry.

C) there is an exit of firms from the industry.

D) the market price of the good produced by the industry is less than the marginal cost faced by the industry.

8) Which of the following statements is true?

A) In a competitive market, the invisible hand encourages the movement of resources from more productive uses to less productive uses.

B) In a competitive market, firms in the long run tend to earn positive economic profits.

C) Competitive equilibrium provides incentives for entrepreneurs to shift their resources from unprofitable industries to profitable ones.

D) At the competitive equilibrium, production occurs at the point of maximum average total cost.

9) Which of the following statements is true of perfect competition?

A) The outcome in perfectly competitive market is Pareto inefficient.

B) The total value of production across a perfectly competitive industry is maximized.

C) Firms under perfect competition produce at a point where price is greater than marginal cost.

D) Consumers in a competitive market purchase at a point where marginal utility is greater than price.

10) Which of the following statements is true?

A) Production in a perfectly competitive market is efficient because resources in the market leave those sectors in which price cannot cover their costs of production and enter those sectors where price can cover their costs of production.

B) Production in a perfectly competitive market is suboptimal because absence of free entry and exit of firms allows firms to specialize in only one particular industry.

C) Production in a perfectly competitive market is Pareto inefficient because the government or a central planner carefully analyzes the needs and requirements of the society and instructs firms on what to produce and in what quantity.

D) Production in a perfectly competitive market is Pareto efficient because the government or a central planner carefully analyzes the needs and requirements of the society and instructs firms on what to produce and in what quantity.