Question : 9.6   Perfect Competition and Efficiency 1) Which of the following describes : 1267143

9.6   Perfect Competition and Efficiency

1) Which of the following describes a situation in which a good or service is produced at the lowest possible cost?

A) productive efficiency

B) allocative efficiency

C) marginal efficiency

D) profit maximization

2) What is productive efficiency?

A)  a situation in which resources are allocated to their highest profit use

B)  a situation in which resources are allocated such that goods can be produced at their lowest possible average cost

C) a situation in which resources are allocated such the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it

D) a situation in which firms produce as much as possible

3) The perfectly competitive market structure benefits consumers because

A) firms do not produce goods at the lowest possible price in the long run.

B) firms are forced by competitive pressure to be as efficient as possible.

C) firms add a much smaller markup over average cost than firms in any other type of market structure.

D) firms produce high quality goods at low prices.

4) If the long-run average cost curve is U-shaped, the optimal scale of production from society’s viewpoint is

A) the minimum efficient scale.

B) where maximum economic profit is earned by producers.

C) where firm profit is large enough to finance research and development.

D) one which guarantees economic profit.

5) Which of the following describes a situation in which every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it?

A) productive efficiency

B) allocative efficiency

C) marginal efficiency

D) profit maximization

6) What is allocative efficiency?

A) It refers to a situation in which resources are allocated to their highest profit use.

B) It refers to a situation in which resources are allocated such that goods can be produced at their lowest possible average cost.

C) It refers to a situation in which resources are allocated such that the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it.

D) It refers to a situation in which resources are allocated fairly to all consumers in a society.

7) A perfectly competitive industry achieves allocative efficiency because

A) goods and services are produced at the lowest possible cost.

B) goods and services are produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it.

C) it produces where market price equals marginal production cost.

D) firms carry production surpluses.

Figure 9-13

8) Refer to Figure 9-13. If the market price is P1, what is the allocatively efficient output level?

A) Q0

B) Q1

C) Q2

D) There is no allocatively efficient output level because the firm is making a loss.

9) Assume that the LCD and plasma television sets industry is perfectly competitive. Suppose a producer develops a successful innovation that enables it to lower its cost of production. What happens in the short run and in the long run? 

A) Initially, the firm will be able to increase its profit significantly, but in the long run its profits will still be greater than zero but lower than its short run profits because other firms would also innovate.

B) The firm will probably incur losses temporarily because of the high cost of the innovation, but in the long run it will start earning positive profits.

C) This firm will be able to earn above normal profits indefinitely if it obtains a patent for its innovation.

D) The firm will be able to increase its profits temporarily, but in the long run its profits will be eliminated as other firms copy the innovation.

10) In early 2007, Pioneer and JVC, two Japanese electronics firms, each announced that their profits were going to be lower than expected because they both had to cut prices for LCD and plasma television sets. Which of the following could explain why these firms did not simply raise their prices and increase their profits?

A) The move to cut prices is probably just a temporary one to gain market share. In the long run the firms will raise prices and be able to increase their profits.

B) Most likely, intense competition between these two major producers probably pushed prices down. Thereafter, each feared that it would lose its customers to the other if it raised its prices.

C) In perfect competition, prices are determined by the market and firms will keep lowering prices until there are no profits to be earned.

D) The firms are still making profits, just not as high as expected so there is room to lower prices until one can force the other out of business.