Question 1

Why do airlines often charge students and vacationers a lower price than business travelers?

Accepted Answer

A) It is cheaper to provide airline service to students and vacationers than to business travelers. 
B) The demand of business travelers is generally more elastic than the demand of students and vacationers. 
C) The demand of students and vacationers is generally more elastic than the demand of business travelers. 
D) Airlines prefer to deal with students and vacationers rather than business travelers. 
A) It is cheaper to provide airline service to students and vacationers than to business travelers. 
B) The demand of business travelers is generally more elastic than the demand of students and vacationers. 
C) The demand of students and vacationers is generally more elastic than the demand of business travelers. 
D) Airlines prefer to deal with students and vacationers rather than business travelers.

Question 2

When Cabbage Patch Dolls were introduced,they were extremely popular at Christmas,and most stores sold out.By the next year,there were plenty still available at Christmas.What happened?

Accepted Answer

We might conclude that the manufacturer

Question 3

Which of the following is the major reason why most economists are reluctant to charge price searcher markets with allocative inefficiency?

Accepted Answer

A) Consumers value the wider variety of quality and styles in competitive price-searcher markets. 
B) Advertising costs are typically so small that they are irrelevant. 
C) Competitive price searchers always operate that the lowest point on their average total cost curve. 
D) Competitive price searchers charge a price equal to marginal cost. 
A) Consumers value the wider variety of quality and styles in competitive price-searcher markets. 
B) Advertising costs are typically so small that they are irrelevant. 
C) Competitive price searchers always operate that the lowest point on their average total cost curve. 
D) Competitive price searchers charge a price equal to marginal cost.

Question 4

A picture frame company operates in a competitive price-searcher market.Its short-run equilibrium price is $80 and its ATC is $65.It sells 100 picture frames a week.From this we can conclude

Accepted Answer

A) this firm is making a normal profit. 
B) other picture frame companies will want to exit the market. 
C) there are no other picture frame companies in the area. 
D) economic profits are $1,500. 
E) total profits are being maximized. 
A) this firm is making a normal profit. 
B) other picture frame companies will want to exit the market. 
C) there are no other picture frame companies in the area. 
D) economic profits are $1,500. 
E) total profits are being maximized.

Question 5

Figure 10-4
  
-What is the maximum economic profit this firm depicted in Figure 10-4 will be able to earn?

Accepted Answer

A) $200 loss 
B) zero profit 
C) $250 profit 
D) $700 profit 
A) $200 loss 
B) zero profit 
C) $250 profit 
D) $700 profit

Question 6

In both price-taker and competitive price-searcher markets,the long-run market price of a good will be equal to the

Accepted Answer

A) average total cost of producing the good. 
B) average variable cost of producing the good. 
C) average fixed cost of producing the good plus a normal return on that cost. 
D) marginal revenue derived from the sale of an additional unit of the good. 
A) average total cost of producing the good. 
B) average variable cost of producing the good. 
C) average fixed cost of producing the good plus a normal return on that cost. 
D) marginal revenue derived from the sale of an additional unit of the good.

Question 7

Figure 10-2
  
-What price should a competitive price-searcher firm with the cost and demand conditions depicted in Figure 10-2 charge if it wants to maximize its profit?

Accepted Answer

A) $5 
B) $7 
C) $8 
D) $10 
A) $5 
B) $7 
C) $8 
D) $10

Question 8

In competitive price-searcher markets,short-run economic profits will lead to

Accepted Answer

A) long-run economic profits. 
B) the exit of firms from the market and the eventual restoration of zero long-run economic profits. 
C) the entry of additional firms into the market and the eventual restoration of zero long-run economic profits. 
D) the entry of additional firms into the market,which increases the demand for the product of each firm in the market. 
A) long-run economic profits. 
B) the exit of firms from the market and the eventual restoration of zero long-run economic profits. 
C) the entry of additional firms into the market and the eventual restoration of zero long-run economic profits. 
D) the entry of additional firms into the market,which increases the demand for the product of each firm in the market.

Question 9

Even when there are only a few firms in a market,the market can still be competitive as long as barriers to entry are low.Markets of this type are called

Accepted Answer

A) monopolistic markets. 
B) price-taker markets. 
C) contestable markets. 
D) convertible markets. 
A) monopolistic markets. 
B) price-taker markets. 
C) contestable markets. 
D) convertible markets.

Question 10

To gain from price discrimination,price searchers

Accepted Answer

A) must charge a higher price to those with a more inelastic demand. 
B) must be pure monopolists. 
C) must have small economies of scale 
D) must have access to widely available natural resources. 
A) must charge a higher price to those with a more inelastic demand. 
B) must be pure monopolists. 
C) must have small economies of scale 
D) must have access to widely available natural resources.

Question 11

Neither price takers nor competitive price searchers will be able to earn long-run economic profit because

Accepted Answer

A) with low entry barriers,the entry and exit of firms result in prices that are equal to per-unit costs in the long run. 
B) competition from new firms will result in higher prices in the market,which offset any economic losses they earn. 
C) in both markets,firms charge a price equal to marginal cost. 
D) in both markets,firms produce products that are identical to the products produced by their competitors. 
A) with low entry barriers,the entry and exit of firms result in prices that are equal to per-unit costs in the long run. 
B) competition from new firms will result in higher prices in the market,which offset any economic losses they earn. 
C) in both markets,firms charge a price equal to marginal cost. 
D) in both markets,firms produce products that are identical to the products produced by their competitors.

Question 12

Even though firms in competitive price-searcher markets do not produce at minimum ATC,competitive price-searcher markets may still be consistent with economic efficiency because

Accepted Answer

A) strict government regulations force the firms in these markets to keep their costs low. 
B) they provide consumers with a greater diversity of products. 
C) they encourage more advertising in both price-searcher and price-taker markets. 
D) special legal protections for price searchers make it possible for them to more efficiently use resources. 
A) strict government regulations force the firms in these markets to keep their costs low. 
B) they provide consumers with a greater diversity of products. 
C) they encourage more advertising in both price-searcher and price-taker markets. 
D) special legal protections for price searchers make it possible for them to more efficiently use resources.

Question 13

If marginal cost exceeds marginal revenue,a profit-maximizing firm should

Accepted Answer

A) expand output until marginal cost equals marginal revenue. 
B) expand output until marginal revenue equals price. 
C) reduce output until marginal cost equals marginal revenue. 
D) reduce output until price equals average total cost. 
A) expand output until marginal cost equals marginal revenue. 
B) expand output until marginal revenue equals price. 
C) reduce output until marginal cost equals marginal revenue. 
D) reduce output until price equals average total cost.

Question 14

In long-run equilibrium,output is expanded to the minimum long-run average total cost by

Accepted Answer

A) price takers but not by competitive price searchers. 
B) competitive price searchers but not by price takers. 
C) both competitive price searchers and price takers. 
D) neither price takers nor competitive price searchers. 
A) price takers but not by competitive price searchers. 
B) competitive price searchers but not by price takers. 
C) both competitive price searchers and price takers. 
D) neither price takers nor competitive price searchers.

Question 15

The marginal revenue curve lies below the demand curve for a competitive price searcher because

Accepted Answer

A) in order for a competitive price searcher to sell an extra unit,it must cut the price on all units.The lowered price offsets the additional revenue from the extra unit sold,so the marginal revenue is lower than the price. 
B) in order for a competitive price searcher to sell an extra unit,it must increase its advertising.The cost of advertising offsets the extra revenue generated by the extra sales,so the marginal revenue is lower than the price. 
C) whenever a competitive price searcher discovers a profit-maximizing pricing policy,the economic profit it generates attracts new competitors into the industry,driving marginal revenue below the price. 
D) none of the above apply.The marginal revenue curve is the demand curve for a competitive price searcher. 
A) in order for a competitive price searcher to sell an extra unit,it must cut the price on all units.The lowered price offsets the additional revenue from the extra unit sold,so the marginal revenue is lower than the price. 
B) in order for a competitive price searcher to sell an extra unit,it must increase its advertising.The cost of advertising offsets the extra revenue generated by the extra sales,so the marginal revenue is lower than the price. 
C) whenever a competitive price searcher discovers a profit-maximizing pricing policy,the economic profit it generates attracts new competitors into the industry,driving marginal revenue below the price. 
D) none of the above apply.The marginal revenue curve is the demand curve for a competitive price searcher.

Question 16

Many small U.S.cities are served by only one or two airlines.If a price increase in these markets allows other airlines to quickly and easily enter the market and compete,economists would call these markets

Accepted Answer

A) contestable markets. 
B) high entry markets. 
C) conventional markets. 
D) monopolistic markets. 
A) contestable markets. 
B) high entry markets. 
C) conventional markets. 
D) monopolistic markets.

Question 17

If firms in a competitive price-searcher market are currently experiencing economic profits,then over time,

Accepted Answer

A) new firms will enter the market,and the current firms will experience a decrease in demand for their products until zero economic profit is again restored. 
B) new firms will enter the market,and the current firms will experience an increase in demand for their products until zero economic profit is again restored. 
C) some existing firms will exit the market,and the remaining firms will experience an increase in demand for their products until zero economic profit is again restored. 
D) some existing firms will exit the market,and the remaining firms will experience a decrease in demand for their products until zero economic profit is again restored. 
A) new firms will enter the market,and the current firms will experience a decrease in demand for their products until zero economic profit is again restored. 
B) new firms will enter the market,and the current firms will experience an increase in demand for their products until zero economic profit is again restored. 
C) some existing firms will exit the market,and the remaining firms will experience an increase in demand for their products until zero economic profit is again restored. 
D) some existing firms will exit the market,and the remaining firms will experience a decrease in demand for their products until zero economic profit is again restored.

Question 18

(I)The entrepreneurial discovery and development of improved products and production processes is a central element of economic progress.
(II)Traditional economic models of the firm accurately capture the role of the entrepreneur.

Accepted Answer

A) I is true;II is false. 
B) I is false;II is true. 
C) Both I and II are true. 
D) Both I and II are false. 
A) I is true;II is false. 
B) I is false;II is true. 
C) Both I and II are true. 
D) Both I and II are false.

Question 19

When a competitive price-searcher market is in long-run equilibrium,the firms in the market will earn

Accepted Answer

A) substantial economic profits. 
B) zero economic profits. 
C) significant economic losses. 
D) an above-normal accounting rate of return. 
A) substantial economic profits. 
B) zero economic profits. 
C) significant economic losses. 
D) an above-normal accounting rate of return.

Question 20

A market in which the costs of entry and exit are low is called a

Accepted Answer

A) regulated market. 
B) monopoly market. 
C) market with high barriers to entry. 
D) contestable market. 
A) regulated market. 
B) monopoly market. 
C) market with high barriers to entry. 
D) contestable market.

Exam 23: Price-Searcher Markets With Low Entry Barriers

Why do airlines often charge students and vacationers a lower price than business travelers?

When Cabbage Patch Dolls were introduced,they were extremely popular at Christmas,and most stores sold out.By the next year,there were plenty still available at Christmas.What happened?

Which of the following is the major reason why most economists are reluctant to charge price searcher markets with allocative inefficiency?

A picture frame company operates in a competitive price-searcher market.Its short-run equilibrium price is $80 and its ATC is $65.It sells 100 picture frames a week.From this we can conclude

Figure 10-4 -What is the maximum economic profit this firm depicted in Figure 10-4 will be able to earn?

In both price-taker and competitive price-searcher markets,the long-run market price of a good will be equal to the

Figure 10-2 -What price should a competitive price-searcher firm with the cost and demand conditions depicted in Figure 10-2 charge if it wants to maximize its profit?

In competitive price-searcher markets,short-run economic profits will lead to

Even when there are only a few firms in a market,the market can still be competitive as long as barriers to entry are low.Markets of this type are called

To gain from price discrimination,price searchers

Neither price takers nor competitive price searchers will be able to earn long-run economic profit because

Even though firms in competitive price-searcher markets do not produce at minimum ATC,competitive price-searcher markets may still be consistent with economic efficiency because

If marginal cost exceeds marginal revenue,a profit-maximizing firm should

In long-run equilibrium,output is expanded to the minimum long-run average total cost by

The marginal revenue curve lies below the demand curve for a competitive price searcher because

Many small U.S.cities are served by only one or two airlines.If a price increase in these markets allows other airlines to quickly and easily enter the market and compete,economists would call these markets

If firms in a competitive price-searcher market are currently experiencing economic profits,then over time,

(I)The entrepreneurial discovery and development of improved products and production processes is a central element of economic progress. (II)Traditional economic models of the firm accurately capture the role of the entrepreneur.

When a competitive price-searcher market is in long-run equilibrium,the firms in the market will earn

A market in which the costs of entry and exit are low is called a

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

Aprice Takers and the Competitive Process

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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