Question 1

The figure shows a representative firm in a price-taker market.Which of the following is true regarding the situation depicted in the figure?

Accepted Answer

A) This firm should shut down immediately. 
B) This firm is earning positive economic profit. 
C) This firm is able to cover its variable cost but not its total cost. 
D) All of the above are true. 
A) This firm should shut down immediately. 
B) This firm is earning positive economic profit. 
C) This firm is able to cover its variable cost but not its total cost. 
D) All of the above are true.

Question 2

FYI Sanitation is currently eight months into a year-long lease contract on a garbage truck at a cost that averages $500 per month.Other variable costs (fuel,workers,etc. )for operating the truck amount to $300 per month.If the monthly revenue from operating the truck is $400,and these conditions are expected to continue into the future,to maximize its profit,FYI Sanitation should

Accepted Answer

A) stop operating the truck immediately and not renew the lease for next year. 
B) continue operating the truck indefinitely. 
C) continue operating the truck until the lease expires,then not renew the lease for next year. 
D) stop operating the truck now but renew the lease and begin operating the truck again next year. 
A) stop operating the truck immediately and not renew the lease for next year. 
B) continue operating the truck indefinitely. 
C) continue operating the truck until the lease expires,then not renew the lease for next year. 
D) stop operating the truck now but renew the lease and begin operating the truck again next year.

Question 3

Which of the following is the best example of a business firm operating in a competitive price-taker market?

Accepted Answer

A) a Midwest farmer producing beef cattle 
B) a Laundromat located a few blocks from a major university 
C) a pizza parlor located in a major metropolitan area 
D) a small brewery supplying a local brand of beer 
E) Wal-Mart,a large retailer that competes in many markets 
A) a Midwest farmer producing beef cattle 
B) a Laundromat located a few blocks from a major university 
C) a pizza parlor located in a major metropolitan area 
D) a small brewery supplying a local brand of beer 
E) Wal-Mart,a large retailer that competes in many markets

Question 4

Competition as a dynamic process implies that individual firms in a market

Accepted Answer

A) seek to utilize a variety of techniques,such as product,style,and convenience of location,to win the dollar vote of consumers,but they never use price to compete. 
B) use price competition as well as other forms of competition to gain the dollar votes of consumers. 
C) produce a homogeneous product. 
D) cooperate,attempting to establish a price and output structure so each firm can survive and continue to serve the consumer. 
A) seek to utilize a variety of techniques,such as product,style,and convenience of location,to win the dollar vote of consumers,but they never use price to compete. 
B) use price competition as well as other forms of competition to gain the dollar votes of consumers. 
C) produce a homogeneous product. 
D) cooperate,attempting to establish a price and output structure so each firm can survive and continue to serve the consumer.

Question 5

When an economist states that a firm is earning zero economic profit,this statement implies that the firm

Accepted Answer

A) will be forced out of business unless market conditions change. 
B) is doing as well as it could in any other line of business. 
C) is earning a zero rate of return on its assets. 
D) could earn a higher rate of return in other industries. 
A) will be forced out of business unless market conditions change. 
B) is doing as well as it could in any other line of business. 
C) is earning a zero rate of return on its assets. 
D) could earn a higher rate of return in other industries.

Question 6

Figure 9-2
  
-Figure 9-2 illustrates a firm

Accepted Answer

A) capable of earning economic profit. 
B) that is only able to break even when it maximizes profit. 
C) taking economic losses. 
D) that should shut down immediately. 
A) capable of earning economic profit. 
B) that is only able to break even when it maximizes profit. 
C) taking economic losses. 
D) that should shut down immediately.

Question 7

Figure 9-18
  
-Refer to Figure 9-18.Given the current market conditions,in the long run,

Accepted Answer

A) new firms will enter the industry and market price will fall. 
B) firms will exit the industry and market price will rise. 
C) firms will neither enter nor exit because the market is in long-run equilibrium. 
D) firms will maintain their current level of economic profit. 
A) new firms will enter the industry and market price will fall. 
B) firms will exit the industry and market price will rise. 
C) firms will neither enter nor exit because the market is in long-run equilibrium. 
D) firms will maintain their current level of economic profit.

Question 8

When a firm is operating in a price-taker market,marginal revenue will always equal

Accepted Answer

A) average total cost. 
B) one minus the elasticity of the market demand curve. 
C) total revenue. 
D) price. 
A) average total cost. 
B) one minus the elasticity of the market demand curve. 
C) total revenue. 
D) price.

Question 9

If factor prices rise as demand increases and the firms expand output,the long-run market supply curve will be upward sloping.In terms of economics,this describes

Accepted Answer

A) an oligopolistic industry. 
B) a constant cost industry. 
C) an increasing cost industry. 
D) a decreasing cost industry. 
A) an oligopolistic industry. 
B) a constant cost industry. 
C) an increasing cost industry. 
D) a decreasing cost industry.

Question 10

Which of the following is always true in competitive price-taker markets?

Accepted Answer

A) There are more sellers than buyers. 
B) Barriers to entry into the market are low. 
C) The products of firms in the industry are differentiated. 
D) The firms never earn economic profit. 
A) There are more sellers than buyers. 
B) Barriers to entry into the market are low. 
C) The products of firms in the industry are differentiated. 
D) The firms never earn economic profit.

Question 11

In some industries,like insurance,both small and very large firms coexist and compete quite effectively in the market.This indicates that the long-run average total cost curve in these industries

Accepted Answer

A) is "U" shaped. 
B) is downward sloping over all levels of output. 
C) exhibits constant returns to scale over a wide range of output. 
D) exhibits diseconomies of scale beginning at a low rate of output. 
A) is "U" shaped. 
B) is downward sloping over all levels of output. 
C) exhibits constant returns to scale over a wide range of output. 
D) exhibits diseconomies of scale beginning at a low rate of output.

Question 12

If long-run equilibrium is present in a competitive market,the typical firm in the market will be

Accepted Answer

A) making economic losses. 
B) making zero economic profit. 
C) making economic profit. 
D) making a rate of return that is higher than the rate earned in other industries. 
E) both c and d are correct. 
A) making economic losses. 
B) making zero economic profit. 
C) making economic profit. 
D) making a rate of return that is higher than the rate earned in other industries. 
E) both c and d are correct.

Question 13

Figure 9-7
  
-If the market price in Figure 9-7 increases to $4,what should the firm do?

Accepted Answer

A) produce 5,000 per week 
B) produce 7,500 per week 
C) produce 10,000 per week 
D) increase its price to $5 
A) produce 5,000 per week 
B) produce 7,500 per week 
C) produce 10,000 per week 
D) increase its price to $5

Question 14

Figure 9-3
  
-Figure 9-3 depicts the cost curves of a firm in a price-taker industry.At what output would the firm's per-unit cost be at a minimum?

Accepted Answer

A) 100 
B) 125 
C) 150 
D) an output greater than 150 
A) 100 
B) 125 
C) 150 
D) an output greater than 150

Question 15

If a price-taker industry is in long-run equilibrium,the market price in the industry will be just sufficient to cover the firm's average

Accepted Answer

A) total costs. 
B) fixed costs. 
C) variable costs. 
D) variable costs plus a 10 percent accounting profit. 
A) total costs. 
B) fixed costs. 
C) variable costs. 
D) variable costs plus a 10 percent accounting profit.

Question 16

Figure 9-11
  
-Which of the following indicates the firm's profit (or loss)at the profit-maximizing output in Figure 9-11?

Accepted Answer

A) profit BCFG 
B) profit OCDM 
C) zero economic profit 
D) loss AEFC 
A) profit BCFG 
B) profit OCDM 
C) zero economic profit 
D) loss AEFC

Question 17

The dynamic process of competition

Accepted Answer

A) provides profit-seeking sellers with little incentive to heed consumer preferences. 
B) was shown by Adam Smith to be a major source of economic inefficiency. 
C) provides consumers with alternative suppliers and thus a mechanism with which they can discipline sellers. 
D) will permit business decision makers to earn long-run economic profit unless they are regulated by government officials. 
A) provides profit-seeking sellers with little incentive to heed consumer preferences. 
B) was shown by Adam Smith to be a major source of economic inefficiency. 
C) provides consumers with alternative suppliers and thus a mechanism with which they can discipline sellers. 
D) will permit business decision makers to earn long-run economic profit unless they are regulated by government officials.

Question 18

Suppose product price is fixed at $24;MR = MC at Q = 200;AFC = $6;AVC = $25.What do you advise this firm to do?

Accepted Answer

A) Increase output. 
B) Decrease output. 
C) Shut down operations. 
D) Stay at the current output;the firm is earning a profit of $1,400. 
E) Stay at the current output;the firm is losing $1,400. 
A) Increase output. 
B) Decrease output. 
C) Shut down operations. 
D) Stay at the current output;the firm is earning a profit of $1,400. 
E) Stay at the current output;the firm is losing $1,400.

Question 19

Figure 9-14
  
-Consider Figure 9-14.At which quantity will this firm maximize profit?

Accepted Answer

A) point a 
B) point b 
C) point c 
D) point d 
E) point e 
A) point a 
B) point b 
C) point c 
D) point d 
E) point e

Question 20

If a price taker in a competitive market is going to maximize profits,he must

Accepted Answer

A) increase the price of his product. 
B) minimize his fixed costs of production. 
C) minimize the per-unit cost of producing the good. 
D) use the highest valued set of resources to produce his product. 
A) increase the price of his product. 
B) minimize his fixed costs of production. 
C) minimize the per-unit cost of producing the good. 
D) use the highest valued set of resources to produce his product.

Exam 22: Aprice Takers and the Competitive Process

The figure shows a representative firm in a price-taker market.Which of the following is true regarding the situation depicted in the figure?

Which of the following is the best example of a business firm operating in a competitive price-taker market?

Competition as a dynamic process implies that individual firms in a market

When an economist states that a firm is earning zero economic profit,this statement implies that the firm

Figure 9-2 -Figure 9-2 illustrates a firm

Figure 9-18 -Refer to Figure 9-18.Given the current market conditions,in the long run,

When a firm is operating in a price-taker market,marginal revenue will always equal

If factor prices rise as demand increases and the firms expand output,the long-run market supply curve will be upward sloping.In terms of economics,this describes

Which of the following is always true in competitive price-taker markets?

In some industries,like insurance,both small and very large firms coexist and compete quite effectively in the market.This indicates that the long-run average total cost curve in these industries

If long-run equilibrium is present in a competitive market,the typical firm in the market will be

Figure 9-7 -If the market price in Figure 9-7 increases to $4,what should the firm do?

Figure 9-3 -Figure 9-3 depicts the cost curves of a firm in a price-taker industry.At what output would the firm's per-unit cost be at a minimum?

If a price-taker industry is in long-run equilibrium,the market price in the industry will be just sufficient to cover the firm's average

Figure 9-11 -Which of the following indicates the firm's profit (or loss)at the profit-maximizing output in Figure 9-11?

The dynamic process of competition

Suppose product price is fixed at $24;MR = MC at Q = 200;AFC = $6;AVC = $25.What do you advise this firm to do?

Figure 9-14 -Consider Figure 9-14.At which quantity will this firm maximize profit?

If a price taker in a competitive market is going to maximize profits,he must

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