Question 1

Figure 9-19
  
-Refer to Figure 9-19.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 continue to suffer economic losses. 
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 continue to suffer economic losses.

Question 2

Figure 9-19
  
-Refer to Figure 9-19.To maximize profit,the firm should produce an output level of

Accepted Answer

A) zero;the firm should shut down immediately. 
B) Q₂. 
C) Q₃. 
D) Q₄. 
A) zero;the firm should shut down immediately. 
B) Q₂. 
C) Q₃. 
D) Q₄.

Question 3

If a restaurant in a summer tourist area is highly profitable during the summer months but unable to cover even its variable costs during the winter months,the restaurant should

Accepted Answer

A) go out of business immediately,because no firm should continue to operate if it is losing money;doing so is contrary to the idea of profit maximization. 
B) go out of business as soon as the summer is over;losses should never be tolerated. 
C) operate during all months of the year as long as its profits during the summer exceed its losses during the winter. 
D) shut down during the winter,but continue operating during the summer as long as the summer profits exceed the losses (fixed costs)during the winter shutdown period. 
A) go out of business immediately,because no firm should continue to operate if it is losing money;doing so is contrary to the idea of profit maximization. 
B) go out of business as soon as the summer is over;losses should never be tolerated. 
C) operate during all months of the year as long as its profits during the summer exceed its losses during the winter. 
D) shut down during the winter,but continue operating during the summer as long as the summer profits exceed the losses (fixed costs)during the winter shutdown period.

Question 4

Competitive price-taker markets are characterized by

Accepted Answer

A) low entry barriers and a large number of firms selling a homogeneous product. 
B) intense rivalry among firms selling differentiated products. 
C) quality competition among firms and a wide variety of products. 
D) advertising. 
A) low entry barriers and a large number of firms selling a homogeneous product. 
B) intense rivalry among firms selling differentiated products. 
C) quality competition among firms and a wide variety of products. 
D) advertising.

Question 5

In the competitive price-taker model,individual firms exert no effect on the market price.Therefore,the firm's marginal revenue curve is

Accepted Answer

A) indeterminate. 
B) an upward-sloping curve. 
C) a downward-sloping curve. 
D) the same as the firm's demand curve. 
A) indeterminate. 
B) an upward-sloping curve. 
C) a downward-sloping curve. 
D) the same as the firm's demand curve.

Question 6

In a price-taker market,profits are

Accepted Answer

A) the result of consumers being charged arbitrarily high prices. 
B) a reward for creating value. 
C) the result of barriers to entry into the market. 
D) a signal that fewer resources are needed in a market. 
A) the result of consumers being charged arbitrarily high prices. 
B) a reward for creating value. 
C) the result of barriers to entry into the market. 
D) a signal that fewer resources are needed in a market.

Question 7

Which of the following is a residual reward that accrues to business decision makers who use resources so as to increase their value?

Accepted Answer

A) opportunity cost 
B) earnings of employees 
C) economic profit 
D) interest earnings of corporate bondholders 
A) opportunity cost 
B) earnings of employees 
C) economic profit 
D) interest earnings of corporate bondholders

Question 8

Suppose the demand for large (and therefore high-gasoline consumption)cars decreases sharply during an energy crisis.The most likely market adjustment would be

Accepted Answer

A) a sharp rise in the price of large cars in the short run as people rush to purchase these vehicles before producers cut back on manufacturing them. 
B) a moderate increase in short-run prices,followed by a larger long-run price increase as the supply of large cars is depleted. 
C) lower short-run prices,which will lead to an expansion in the number of large cars sold. 
D) a decrease in the price of large cars in the short run,leading to a reduction in output,which will moderate the price decline in the long run. 
A) a sharp rise in the price of large cars in the short run as people rush to purchase these vehicles before producers cut back on manufacturing them. 
B) a moderate increase in short-run prices,followed by a larger long-run price increase as the supply of large cars is depleted. 
C) lower short-run prices,which will lead to an expansion in the number of large cars sold. 
D) a decrease in the price of large cars in the short run,leading to a reduction in output,which will moderate the price decline in the long run.

Question 9

Figure 9-12
  
-Figure 9-12 illustrates a

Accepted Answer

A) competitive price-taker firm that is earning economic profit. 
B) competitive price-taker firm that is only able to break even when it is maximizing economic profit. 
C) firm that should shut down immediately. 
D) competitive price-taker firm that is making economic losses. 
A) competitive price-taker firm that is earning economic profit. 
B) competitive price-taker firm that is only able to break even when it is maximizing economic profit. 
C) firm that should shut down immediately. 
D) competitive price-taker firm that is making economic losses.

Question 10

Tom,a math major,examines Jane's economics class notes and observes that when price-taking firms earn economic profit,they do not seem to produce a quantity that minimizes their costs.Is he correct? Is there significance to this observation?

Accepted Answer

Tom is right,but he is forgetting the fa

Question 11

Regardless of quantity in long-run equilibrium,the competitive price-taker market price cannot exceed the

Accepted Answer

A) long-run average cost of supplying that quantity. 
B) total variable cost of supplying that quantity. 
C) long-run total cost of supplying that quantity. 
D) minimum long-run marginal cost of supplying that quantity. 
A) long-run average cost of supplying that quantity. 
B) total variable cost of supplying that quantity. 
C) long-run total cost of supplying that quantity. 
D) minimum long-run marginal cost of supplying that quantity.

Question 12

The motivating force behind an increase in supply in a long-run adjustment to equilibrium is

Accepted Answer

A) lower prices. 
B) economic profits that are present in the short run. 
C) higher profit expectations among owners of firms in the industry,triggered by increased prices. 
D) normal profits witnessed by individuals outside the industry that trigger entry. 
E) the decreases in average cost that can be obtained through economies of scale. 
A) lower prices. 
B) economic profits that are present in the short run. 
C) higher profit expectations among owners of firms in the industry,triggered by increased prices. 
D) normal profits witnessed by individuals outside the industry that trigger entry. 
E) the decreases in average cost that can be obtained through economies of scale.

Question 13

In the short run,a firm that is a price taker will stay in business as long as

Accepted Answer

A) price equals average revenue. 
B) marginal revenue is greater than or equal to marginal cost. 
C) price exceeds average variable cost. 
D) price is less than average variable cost. 
A) price equals average revenue. 
B) marginal revenue is greater than or equal to marginal cost. 
C) price exceeds average variable cost. 
D) price is less than average variable cost.

Question 14

Suppose the development of new drought-resistant hybrid seed corn leads to a 50-percent increase in the average yield per acre without increasing the cost to the farmers who use the new technology.If the conditions in the corn production industry are approximated by the price-taker model,which of the following is most likely to occur?

Accepted Answer

A) The price of corn will increase. 
B) The price of soybeans (a substitute for corn)will increase. 
C) The profits of corn farmers who quickly adopt the new technology will increase. 
D) The profits of corn farmers who do not adopt the new technology will increase. 
A) The price of corn will increase. 
B) The price of soybeans (a substitute for corn)will increase. 
C) The profits of corn farmers who quickly adopt the new technology will increase. 
D) The profits of corn farmers who do not adopt the new technology will increase.

Question 15

Harry Smith sells wheat in a price-taker market.With regard to Smith's price and output choices,which of the following is true?

Accepted Answer

A) Smith will constantly attempt to increase the price of his product so he can increase his total revenue. 
B) Since the price of his product is dictated by the market,Smith will not have an incentive to control per-unit cost. 
C) Since the price of his product is dictated by the market,Smith has no production decisions to make. 
D) It would be senseless for Smith to try to increase sales by lowering the price of his product. 
A) Smith will constantly attempt to increase the price of his product so he can increase his total revenue. 
B) Since the price of his product is dictated by the market,Smith will not have an incentive to control per-unit cost. 
C) Since the price of his product is dictated by the market,Smith has no production decisions to make. 
D) It would be senseless for Smith to try to increase sales by lowering the price of his product.

Question 16

A competitive price-taker firm would be willing to remain in the industry in the long run at zero economic profit because

Accepted Answer

A) it would find it too difficult to exit from the industry in the long run. 
B) accounting profit would be negative. 
C) it is covering all costs,including the opportunity cost of capital and labor. 
D) its sunk costs would prevent it from leaving the industry. 
A) it would find it too difficult to exit from the industry in the long run. 
B) accounting profit would be negative. 
C) it is covering all costs,including the opportunity cost of capital and labor. 
D) its sunk costs would prevent it from leaving the industry.

Question 17

A firm is currently operating where the MC of the last unit produced is $84,and the MR of this unit is $70.What would you advise this firm to do?

Accepted Answer

A) Shut down. 
B) Increase output. 
C) Stay at its current output. 
D) Decrease output. 
E) Decrease price. 
A) Shut down. 
B) Increase output. 
C) Stay at its current output. 
D) Decrease output. 
E) Decrease price.

Question 18

Figure 9-8
  
-The average total cost (ATC)and marginal costs (MC)of a firm producing in a price-taker industry are depicted in Figure 9-8.If the current market price of the firm's product is $3,what output should this firm produce per day?

Accepted Answer

A) 10 
B) 15 
C) 20 
D) 25 
A) 10 
B) 15 
C) 20 
D) 25

Question 19

The competitive market process tends to promote economic prosperity because it

Accepted Answer

A) keeps the prices of goods higher than their production costs. 
B) creates inefficiencies,which causes people to economize. 
C) directs self-interested action toward the production of goods that are highly valued relative to their cost. 
D) sends signals to the government about which goods to produce. 
A) keeps the prices of goods higher than their production costs. 
B) creates inefficiencies,which causes people to economize. 
C) directs self-interested action toward the production of goods that are highly valued relative to their cost. 
D) sends signals to the government about which goods to produce.

Question 20

For a firm in a price-taker market,the firm's demand curve is

Accepted Answer

A) a horizontal line at the market price that is equal to the firm's marginal revenue curve. 
B) an upward-sloping line that is equal to the firm's marginal cost above AVC. 
C) a downward-sloping line that lies below the firm's marginal revenue curve. 
D) undefined because it cannot determine the price it charges for its output. 
A) a horizontal line at the market price that is equal to the firm's marginal revenue curve. 
B) an upward-sloping line that is equal to the firm's marginal cost above AVC. 
C) a downward-sloping line that lies below the firm's marginal revenue curve. 
D) undefined because it cannot determine the price it charges for its output.

Exam 22: Aprice Takers and the Competitive Process

Figure 9-19 -Refer to Figure 9-19.Given the current market conditions,in the long run,

Figure 9-19 -Refer to Figure 9-19.To maximize profit,the firm should produce an output level of

If a restaurant in a summer tourist area is highly profitable during the summer months but unable to cover even its variable costs during the winter months,the restaurant should

Competitive price-taker markets are characterized by

In the competitive price-taker model,individual firms exert no effect on the market price.Therefore,the firm's marginal revenue curve is

In a price-taker market,profits are

Which of the following is a residual reward that accrues to business decision makers who use resources so as to increase their value?

Suppose the demand for large (and therefore high-gasoline consumption)cars decreases sharply during an energy crisis.The most likely market adjustment would be

Figure 9-12 -Figure 9-12 illustrates a

Tom,a math major,examines Jane's economics class notes and observes that when price-taking firms earn economic profit,they do not seem to produce a quantity that minimizes their costs.Is he correct? Is there significance to this observation?

Regardless of quantity in long-run equilibrium,the competitive price-taker market price cannot exceed the

The motivating force behind an increase in supply in a long-run adjustment to equilibrium is

In the short run,a firm that is a price taker will stay in business as long as

Harry Smith sells wheat in a price-taker market.With regard to Smith's price and output choices,which of the following is true?

A competitive price-taker firm would be willing to remain in the industry in the long run at zero economic profit because

A firm is currently operating where the MC of the last unit produced is $84,and the MR of this unit is $70.What would you advise this firm to do?

Figure 9-8 -The average total cost (ATC)and marginal costs (MC)of a firm producing in a price-taker industry are depicted in Figure 9-8.If the current market price of the firm's product is $3,what output should this firm produce per day?

The competitive market process tends to promote economic prosperity because it

For a firm in a price-taker market,the firm's demand curve is

The Economic Approach

Asome Tools of the Economist

Asupply,demand,and the Market Process

Asupply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Ataking the Nations Economic Pulse

Economic Fluctuations, unemployment, and Inflation

Aan Introduction to Basic Macroeconomic Markets

Dynamic Change, economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and Historical Perspective

Fiscal Policy, incentives, and Secondary Effects

Amoney and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, output, and Employment

Creating an Environment for Growth and Prosperity

Institutions,policies,and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Consumer Choice and Elasticity

Acosts and the Supply of Goods

Price-Searcher Markets With Low Entry Barriers

Aprice-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Government Spending and Taxation

The Economics of Social Security

The Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Great Debates in Economics: Keynes Versus Hayek

The Crisis of 2008: Causes and Lessons for the Future

Lessons From the Great Depression

Lessons From Japan and Canada

The Federal Budget and the National Debt

The Economics of Healthcare

Education: Problems and Performance

Earnings Differences Between Men and Women

Do Labor Unions Increase the Wages of Workers

The Question of Resource Exhaustion

Difficult Environmental Cases and the Role of Government

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