Question 1

Which of the following is true for a constant cost industry?

Accepted Answer

A) The total cost of producing 500 units will be the same as the total cost of producing 250 units. 
B) If 100 units can be produced for $500,then 200 units can be produced for $1,000. 
C) The demand curve and,therefore,the unit price in the industry are constant. 
D) Firms in the industry will hold output constant if the price of the product increases. 
A) The total cost of producing 500 units will be the same as the total cost of producing 250 units. 
B) If 100 units can be produced for $500,then 200 units can be produced for $1,000. 
C) The demand curve and,therefore,the unit price in the industry are constant. 
D) Firms in the industry will hold output constant if the price of the product increases.

Question 2

When the conditions in a competitive price-taker market are such that the firms are consistently unable to cover their production costs,

Accepted Answer

A) the firms will suffer short-run economic losses that will be exactly offset by long-run economic profits. 
B) all firms will go out of business since consumers will not pay prices that enable firms to cover their production costs. 
C) some firms will exit from the industry,and market price will rise until the remaining firms can earn the normal rate of return. 
D) resource prices will increase,competition will decline,and eventually the firms in the industry will earn monopoly profit. 
A) the firms will suffer short-run economic losses that will be exactly offset by long-run economic profits. 
B) all firms will go out of business since consumers will not pay prices that enable firms to cover their production costs. 
C) some firms will exit from the industry,and market price will rise until the remaining firms can earn the normal rate of return. 
D) resource prices will increase,competition will decline,and eventually the firms in the industry will earn monopoly profit.

Question 3

Historically,most economists have referred to markets where firms are price takers as

Accepted Answer

A) purely competitive markets. 
B) monopoly markets. 
C) open-door markets. 
D) price-searcher markets. 
A) purely competitive markets. 
B) monopoly markets. 
C) open-door markets. 
D) price-searcher markets.

Question 4

The schedule of total cost for a firm in a price-taker market is given in the table.If the market price for this product is $50,which of the following output levels should this firm produce if it wants to maximize its profit?

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
A) 1 
B) 2 
C) 3 
D) 4

Question 5

Suppose a typical firm in a particular industry is making positive economic profits.These economic profits

Accepted Answer

A) reflect a waste of society's scarce resources and reflect inefficient production. 
B) signal owners of factors of production to move their resources out of that industry. 
C) imply that accounting costs are greater than economic costs in this industry. 
D) signal owners of factors of production to move resources into this industry. 
A) reflect a waste of society's scarce resources and reflect inefficient production. 
B) signal owners of factors of production to move their resources out of that industry. 
C) imply that accounting costs are greater than economic costs in this industry. 
D) signal owners of factors of production to move resources into this industry.

Question 6

In a competitive market,profit can be considered a reward to businesses that

Accepted Answer

A) produce a good that consumers value more highly than its component resources. 
B) reduce the value of resources used as inputs in production. 
C) prohibit rival firms from entering the market and competing. 
D) control costs,rather than following the wishes of consumers when deciding what products to produce. 
A) produce a good that consumers value more highly than its component resources. 
B) reduce the value of resources used as inputs in production. 
C) prohibit rival firms from entering the market and competing. 
D) control costs,rather than following the wishes of consumers when deciding what products to produce.

Question 7

When firms have an incentive to exit a competitive price-taker market,their exit will

Accepted Answer

A) lower market price. 
B) necessarily raise the costs of firms that remain in the market. 
C) raise profits for firms that remain in the market. 
D) reduce demand for the product. 
A) lower market price. 
B) necessarily raise the costs of firms that remain in the market. 
C) raise profits for firms that remain in the market. 
D) reduce demand for the product.

Question 8

When market conditions in a price-taker market are such that firms cannot cover their production costs,

Accepted Answer

A) the firms will suffer long-run economic losses. 
B) the firms will suffer short-run economic losses that will be exactly offset by long-run economic profits. 
C) some firms will go out of business,causing prices to rise until the remaining firms can cover their production costs. 
D) all firms will go out of business,since consumers will not pay prices that enable firms to cover their production costs. 
A) the firms will suffer long-run economic losses. 
B) the firms will suffer short-run economic losses that will be exactly offset by long-run economic profits. 
C) some firms will go out of business,causing prices to rise until the remaining firms can cover their production costs. 
D) all firms will go out of business,since consumers will not pay prices that enable firms to cover their production costs.

Question 9

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 10

When a law is passed that requires businesses to obtain permission from government officials in order to enter a market,this is an example of

Accepted Answer

A) price-control legislation. 
B) a barrier to entry 
C) antitrust legislation. 
D) the invisible hand principle. 
A) price-control legislation. 
B) a barrier to entry 
C) antitrust legislation. 
D) the invisible hand principle.

Question 11

When price is greater than marginal cost for a firm in a competitive market,

Accepted Answer

A) marginal cost must be falling. 
B) the firm must be minimizing its losses. 
C) there are opportunities to increase profit by increasing production. 
D) the firm should decrease output to maximize profit. 
A) marginal cost must be falling. 
B) the firm must be minimizing its losses. 
C) there are opportunities to increase profit by increasing production. 
D) the firm should decrease output to maximize profit.

Question 12

The following table gives the average total cost of production for various levels of output for a competitive price-taker firm
 
If the firm's fixed cost of production is $3 and the market price is $10,how many units should the firm produce to maximize its profit?

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
A) 1 
B) 2 
C) 3 
D) 4

Question 13

The dynamic process of competition

Accepted Answer

A) is hindered by the self-interest of business decision makers. 
B) puts the profit motive of sellers to work for buyers. 
C) conflicts with the interest of consumers when businesses pursue profit rather than the public interest. 
D) will permit business decision makers to earn long-run economic profit unless they are regulated by government. 
A) is hindered by the self-interest of business decision makers. 
B) puts the profit motive of sellers to work for buyers. 
C) conflicts with the interest of consumers when businesses pursue profit rather than the public interest. 
D) will permit business decision makers to earn long-run economic profit unless they are regulated by government.

Question 14

If a competitive price-taker firm is currently producing a level of output at which marginal cost exceeds marginal revenue,then

Accepted Answer

A) average revenue exceeds marginal cost. 
B) the firm is earning a positive profit. 
C) a one-unit decrease in output would increase the firm's profit. 
D) All of the above are correct. 
A) average revenue exceeds marginal cost. 
B) the firm is earning a positive profit. 
C) a one-unit decrease in output would increase the firm's profit. 
D) All of the above are correct.

Question 15

In a competitive price-taker market,the actions of any single buyer or seller will

Accepted Answer

A) have a negligible impact on the market price. 
B) have little effect on overall production but will ultimately change final product price. 
C) cause a noticeable change in overall production and a change in final product price. 
D) adversely affect the profitability of more than one firm in the market. 
A) have a negligible impact on the market price. 
B) have little effect on overall production but will ultimately change final product price. 
C) cause a noticeable change in overall production and a change in final product price. 
D) adversely affect the profitability of more than one firm in the market.

Question 16

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 shown is earning zero economic profit. 
B) The industry is in long-run equilibrium. 
C) Firms will neither enter nor exit the market. 
D) All of the above are true. 
A) This firm shown is earning zero economic profit. 
B) The industry is in long-run equilibrium. 
C) Firms will neither enter nor exit the market. 
D) All of the above are true.

Question 17

A competitive price-taker firm's marginal cost curve is regarded as its supply curve because

Accepted Answer

A) the position of the marginal cost curve determines the price for which the firm should sell its product. 
B) among the various cost curves,the marginal cost curve is the only one that slopes upward. 
C) the marginal cost curve determines the quantity of output the firm is willing to supply at alternative prices. 
D) the firm is aware that marginal revenue must exceed marginal cost in order for profit to be maximized. 
A) the position of the marginal cost curve determines the price for which the firm should sell its product. 
B) among the various cost curves,the marginal cost curve is the only one that slopes upward. 
C) the marginal cost curve determines the quantity of output the firm is willing to supply at alternative prices. 
D) the firm is aware that marginal revenue must exceed marginal cost in order for profit to be maximized.

Question 18

When we say that a firm is a price taker,we are indicating that the

Accepted Answer

A) firm takes the price established in the market then tries to increase that price through advertising. 
B) firm can change output levels without having any significant effect on price. 
C) demand curve faced by the firm is perfectly inelastic. 
D) firm will have to take a lower price if it wants to increase the number of units that it sells. 
A) firm takes the price established in the market then tries to increase that price through advertising. 
B) firm can change output levels without having any significant effect on price. 
C) demand curve faced by the firm is perfectly inelastic. 
D) firm will have to take a lower price if it wants to increase the number of units that it sells.

Question 19

Other things constant,if wheat production is a price-taker industry,a decrease in the price of fertilizer used to grow wheat will

Accepted Answer

A) increase the supply of wheat. 
B) increase the demand for wheat. 
C) decrease the supply of wheat. 
D) do both a and b. 
A) increase the supply of wheat. 
B) increase the demand for wheat. 
C) decrease the supply of wheat. 
D) do both a and b.

Question 20

Fun Time Inc.uses the same property and equipment to provide skiing services for six months during the winter and mountain roller boarding for six months during the summer.Monthly revenue and cost figures during the summer and winter months for Fun Time are shown below.Fun Time's $1,000 monthly fixed costs will be incurred as long as it remains in business.
 
Which of the following should Fun Time do if it wants to maximize its annual profit?

Accepted Answer

A) operate in both the winter and summer 
B) operate in the summer,but shut down during the winter 
C) operate in the winter,but shut down during the summer 
D) go out of business immediately 
A) operate in both the winter and summer 
B) operate in the summer,but shut down during the winter 
C) operate in the winter,but shut down during the summer 
D) go out of business immediately

Exam 22: Aprice Takers and the Competitive Process

Which of the following is true for a constant cost industry?

When the conditions in a competitive price-taker market are such that the firms are consistently unable to cover their production costs,

Historically,most economists have referred to markets where firms are price takers as

The schedule of total cost for a firm in a price-taker market is given in the table.If the market price for this product is $50,which of the following output levels should this firm produce if it wants to maximize its profit?

Suppose a typical firm in a particular industry is making positive economic profits.These economic profits

In a competitive market,profit can be considered a reward to businesses that

When firms have an incentive to exit a competitive price-taker market,their exit will

When market conditions in a price-taker market are such that firms cannot cover their production costs,

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

When a law is passed that requires businesses to obtain permission from government officials in order to enter a market,this is an example of

When price is greater than marginal cost for a firm in a competitive market,

The following table gives the average total cost of production for various levels of output for a competitive price-taker firm If the firm's fixed cost of production is $3 and the market price is $10,how many units should the firm produce to maximize its profit?

The dynamic process of competition

If a competitive price-taker firm is currently producing a level of output at which marginal cost exceeds marginal revenue,then

In a competitive price-taker market,the actions of any single buyer or seller will

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

A competitive price-taker firm's marginal cost curve is regarded as its supply curve because

When we say that a firm is a price taker,we are indicating that the

Other things constant,if wheat production is a price-taker industry,a decrease in the price of fertilizer used to grow wheat will

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

Filters