Question 1

A firm that must sell its output at a market-determined price is called a

Accepted Answer

A) price-taker firm. 
B) price-searcher firm. 
C) price-setter firm. 
D) price-maker firm. 
A) price-taker firm. 
B) price-searcher firm. 
C) price-setter firm. 
D) price-maker firm.

Question 2

Which of the following statements best reflects the production decision of a profit-maximizing firm in a competitive price-taker market when price falls below the minimum of average variable cost?

Accepted Answer

A) The firm will continue to produce to attempt to pay fixed costs. 
B) The firm will stop production to minimize its losses. 
C) The firm will stop production as soon as it is able to pay its sunk costs. 
D) The firm will continue to produce in the short run but will likely exit the market in the long run. 
A) The firm will continue to produce to attempt to pay fixed costs. 
B) The firm will stop production to minimize its losses. 
C) The firm will stop production as soon as it is able to pay its sunk costs. 
D) The firm will continue to produce in the short run but will likely exit the market in the long run.

Question 3

At a firm's profit-maximizing level of output, its price is $200 and its short-run average total cost is $225. The firm

Accepted Answer

A) has a profit of $25 per unit of output. 
B) should shut down if its short-run average fixed cost is less than $25. 
C) has a loss of $100 per unit of output. 
D) should shut down if its short-run average variable cost exceeds $25. 
A) has a profit of $25 per unit of output. 
B) should shut down if its short-run average fixed cost is less than $25. 
C) has a loss of $100 per unit of output. 
D) should shut down if its short-run average variable cost exceeds $25.

Question 4

Which of the following is a characteristic of a competitive price-taker market?

Accepted Answer

A) Profit maximizing firms in the market will expand output until price equals average variable cost. 
B) The market demand curve for the product is a horizontal line. 
C) There are many firms in the market, each producing a small share of total market output. 
D) The product produced by each of the firms is differentiated. 
A) Profit maximizing firms in the market will expand output until price equals average variable cost. 
B) The market demand curve for the product is a horizontal line. 
C) There are many firms in the market, each producing a small share of total market output. 
D) The product produced by each of the firms is differentiated.

Question 5

When new firms enter a competitive price-taker market,

Accepted Answer

A) economic profits of existing firms will continue to be zero. 
B) entering firms will earn zero economic profit upon entry into the market. 
C) existing firms may see their costs rise as more firms compete for limited resources. 
D) prices will rise as existing firms raise prices to keep new firms out of the market. 
A) economic profits of existing firms will continue to be zero. 
B) entering firms will earn zero economic profit upon entry into the market. 
C) existing firms may see their costs rise as more firms compete for limited resources. 
D) prices will rise as existing firms raise prices to keep new firms out of the market.

Question 6

If a decrease in the demand for corn leads to economic losses for corn farmers,

Accepted Answer

A) some existing corn farmers will exit the industry. 
B) the price of corn will remain low in the long run due to the economic losses. 
C) the suppliers of corn will suffer long-run economic losses. 
D) all of the above are correct. 
A) some existing corn farmers will exit the industry. 
B) the price of corn will remain low in the long run due to the economic losses. 
C) the suppliers of corn will suffer long-run economic losses. 
D) all of the above are correct.

Question 7

If a firm is losing money, this implies that

Accepted Answer

A) consumers do not understand the value of the product. 
B) the value of the resources used to make the product is being reduced. 
C) the firm must go out of business immediately. 
D) this product cannot be produced profitably in the long run. 
A) consumers do not understand the value of the product. 
B) the value of the resources used to make the product is being reduced. 
C) the firm must go out of business immediately. 
D) this product cannot be produced profitably in the long run.

Question 8

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 9

If the demand for a product increases in an increasing cost industry, as the market adjusts in the long run,

Accepted Answer

A) price will rise. 
B) the firm's per-unit costs will increase. 
C) the firm's per-unit costs will fall. 
D) the market price will return to its initial position. 
A) price will rise. 
B) the firm's per-unit costs will increase. 
C) the firm's per-unit costs will fall. 
D) the market price will return to its initial position.

Question 10

Firms that are price takers

Accepted Answer

A) are small relative to the total market. 
B) produce products that are different than their competitors. 
C) can sell only a portion of their output at the market price. 
D) have downward-sloping demand curves. 
A) are small relative to the total market. 
B) produce products that are different than their competitors. 
C) can sell only a portion of their output at the market price. 
D) have downward-sloping demand curves.

Question 11

If there is an increase in market demand in a competitive price-taker market, then in the short run

Accepted Answer

A) there will be no change in the demand curves faced by individual firms in the market. 
B) the demand curves for firms will shift downward. 
C) the demand curves for firms will become more elastic. 
D) profits will rise. 
A) there will be no change in the demand curves faced by individual firms in the market. 
B) the demand curves for firms will shift downward. 
C) the demand curves for firms will become more elastic. 
D) profits will rise.

Question 12

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 13

There are 1,000 identical firms in a price-taker industry. In the short run, total revenues of each firm exceed total costs. What will happen in the long run?

Accepted Answer

A) Nothing, because each firm is already maximizing its profits. 
B) Many firms will enter the market and each firm will eventually operate at a loss. 
C) Additional firms will enter the market, and price will be driven down to where each firm will be making just enough to stay in business. 
D) Additional firms will enter the market, but the price will remain the same because the existing firms will not allow price to decrease. 
A) Nothing, because each firm is already maximizing its profits. 
B) Many firms will enter the market and each firm will eventually operate at a loss. 
C) Additional firms will enter the market, and price will be driven down to where each firm will be making just enough to stay in business. 
D) Additional firms will enter the market, but the price will remain the same because the existing firms will not allow price to decrease.

Question 14

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 15

The long-run supply curve is

Accepted Answer

A) a horizontal line for a constant-cost industry. 
B) upward sloping for a decreasing-cost industry. 
C) downward sloping for an increasing-cost industry. 
D) all of the above. 
A) a horizontal line for a constant-cost industry. 
B) upward sloping for a decreasing-cost industry. 
C) downward sloping for an increasing-cost industry. 
D) all of the above.

Question 16

Figure 9-10
  
-In Figure 9-10, the movement from points A to B to C can best be explained by which of the following factors?

Accepted Answer

A) a decrease in demand, followed by the entry of new firms and an expansion in supply in a constant cost industry. 
B) an increase in demand, followed by the entry of new firms and an expansion in supply in an increasing cost industry. 
C) a decrease in demand, followed by the exit of firms and a decline in supply in an increasing cost industry. 
D) an increase in demand, followed by the exit of firms and a decline in supply in a constant cost industry. 
A) a decrease in demand, followed by the entry of new firms and an expansion in supply in a constant cost industry. 
B) an increase in demand, followed by the entry of new firms and an expansion in supply in an increasing cost industry. 
C) a decrease in demand, followed by the exit of firms and a decline in supply in an increasing cost industry. 
D) an increase in demand, followed by the exit of firms and a decline in supply in a constant cost industry.

Question 17

The schedule of total costs for a table-manufacturing company is presented in the table below. The firm sells its product in a price-taker market at $120 per table. What is the maximum monthly profit (or minimum loss) that the firm will be able to earn?

Accepted Answer

A) $15 loss 
B) zero 
C) $5 profit 
D) $10 profit 
A) $15 loss 
B) zero 
C) $5 profit 
D) $10 profit

Question 18

Figure 9-19
  
-Refer to Figure 9-19. At the profit-maximizing level of output, the firm will earn an economic

Accepted Answer

A) profit of AHEB. 
B) loss of AGDC. 
C) loss of AHEB. 
D) loss of AIFB. 
A) profit of AHEB. 
B) loss of AGDC. 
C) loss of AHEB. 
D) loss of AIFB.

Question 19

Several producers in industry A developed an improved technology that reduces the quantity of resources used to produce a given output. Which of the following would be expected?

Accepted Answer

A) The per-unit costs of production of the firms adopting the technology would increase. 
B) In the short run, economic profits would be earned by the earliest firms adopting the technology. 
C) Product price would immediately fall to the minimum average total cost of the firms quickly adopting the technology, thus retarding the rate at which firms enter the industry. 
D) Producers who adopt the technology will have short-run economic losses. 
A) The per-unit costs of production of the firms adopting the technology would increase. 
B) In the short run, economic profits would be earned by the earliest firms adopting the technology. 
C) Product price would immediately fall to the minimum average total cost of the firms quickly adopting the technology, thus retarding the rate at which firms enter the industry. 
D) Producers who adopt the technology will have short-run economic losses.

Question 20

Which of the following conditions will be present when a price-taker market is in long-run equilibrium?

Accepted Answer

A) Price will exceed marginal revenue. 
B) Firms will earn economic profit. 
C) Marginal revenue will exceed marginal cost. 
D) Average total cost will be at a minimum. 
A) Price will exceed marginal revenue. 
B) Firms will earn economic profit. 
C) Marginal revenue will exceed marginal cost. 
D) Average total cost will be at a minimum.

Exam 9: A: Price Takers and the Competitive Process

A firm that must sell its output at a market-determined price is called a

Which of the following statements best reflects the production decision of a profit-maximizing firm in a competitive price-taker market when price falls below the minimum of average variable cost?

At a firm's profit-maximizing level of output, its price is $200 and its short-run average total cost is $225. The firm

Which of the following is a characteristic of a competitive price-taker market?

When new firms enter a competitive price-taker market,

If a decrease in the demand for corn leads to economic losses for corn farmers,

If a firm is losing money, this implies that

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

If the demand for a product increases in an increasing cost industry, as the market adjusts in the long run,

Firms that are price takers

If there is an increase in market demand in a competitive price-taker market, then in the short run

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

There are 1,000 identical firms in a price-taker industry. In the short run, total revenues of each firm exceed total costs. What will happen in the long run?

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

The long-run supply curve is

Figure 9-10 -In Figure 9-10, the movement from points A to B to C can best be explained by which of the following factors?

The schedule of total costs for a table-manufacturing company is presented in the table below. The firm sells its product in a price-taker market at $120 per table. What is the maximum monthly profit (or minimum loss) that the firm will be able to earn?

Figure 9-19 -Refer to Figure 9-19. At the profit-maximizing level of output, the firm will earn an economic

Several producers in industry A developed an improved technology that reduces the quantity of resources used to produce a given output. Which of the following would be expected?

Which of the following conditions will be present when a price-taker market is in long-run equilibrium?

The Economic Approach

A: Some Tools of the Economist

B: Some Tools of the Economist

A: Supply, Demand, and the Market Process

B: Supply, Demand, and the Market Process

A: Supply and Demand: Applications and Extensions

B: Supply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Consumer Choice and Elasticity

A: Costs and the Supply of Goods

B: Costs and the Supply of Goods

B: Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

A: Price-Searcher Markets With High Entry Barriers

B: Price-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

Appendix: Government Spending and Taxation

Appendix: the Economics of Social Security

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

Appendix: Great Debates in Economics: Keynes Versus Hayek

Appendix: the Crisis of 2008: Causes and Lessons for the Future

Appendix: Lessons From the Great Depression

Appendix: the Economics of Healthcare

Appendix:education: Problems and Performance

Appendix: Earnings Differences Between Men and Women

Appendix: the Question of Resource Exhaustion

Appendix: Do Labor Unions Increase the Wages of Workers

Appendix: Difficult Environmental Cases and the Role of Government

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