Question 1

Table 9-1
  
-Refer to Table 9-1. If the Tuckers are profit maximizers, how many tomatoes should they produce when the market price is $500 per ton?

Accepted Answer

A) 6 
B) 7 
C) 8 
D) 9 
A) 6 
B) 7 
C) 8 
D) 9

Question 2

Figure 9-13
  
-Refer to Figure 9-13. When price rises from P₃ to P₄, the firm finds that

Accepted Answer

A) fixed costs are lower at a production level of Q₄. 
B) it can earn a positive profit by increasing production to Q₄. 
C) profit is still maximized at a production level of Q₃. 
D) average revenue exceeds marginal revenue at a production level of Q₄. 
A) fixed costs are lower at a production level of Q₄. 
B) it can earn a positive profit by increasing production to Q₄. 
C) profit is still maximized at a production level of Q₃. 
D) average revenue exceeds marginal revenue at a production level of Q₄.

Question 3

Within the framework of the price-taker model, a price taker will always produce a quantity of output that

Accepted Answer

A) minimizes the per-unit cost of production. 
B) is expected to provide the largest possible total revenue. 
C) maximizes total revenue minus total cost. 
D) brings average total cost and price into equality. 
A) minimizes the per-unit cost of production. 
B) is expected to provide the largest possible total revenue. 
C) maximizes total revenue minus total cost. 
D) brings average total cost and price into equality.

Question 4

In the long run, in a price-taker market, the price of a good is determined primarily by the

Accepted Answer

A) average total cost of producing it. 
B) decision of buyers in determining how much they are willing to pay for the good. 
C) elasticity of supply. 
D) number of firms in the industry. 
A) average total cost of producing it. 
B) decision of buyers in determining how much they are willing to pay for the good. 
C) elasticity of supply. 
D) number of firms in the industry.

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

For a certain firm, the 100th unit of output that the firm produces has marginal revenue equal to $10 and a marginal cost of $7. It follows that

Accepted Answer

A) the production of the 100th unit of output increases the firm's profit by $3. 
B) the production of the 100th unit of output increases the firm's average total cost by $7. 
C) the firm's profit-maximizing level of output is less than 100 units. 
D) the production of the 110th unit of output must increase the firm's profit by less than $3. 
A) the production of the 100th unit of output increases the firm's profit by $3. 
B) the production of the 100th unit of output increases the firm's average total cost by $7. 
C) the firm's profit-maximizing level of output is less than 100 units. 
D) the production of the 110th unit of output must increase the firm's profit by less than $3.

Question 7

In the short run, a perfectly competitive firm will always shut down if total revenue is ____ at all positive output levels.

Accepted Answer

A) less than total cost 
B) less than total cost but greater than variable cost 
C) less than total cost but greater than fixed cost 
D) greater than fixed cost 
E) less than variable cost 
A) less than total cost 
B) less than total cost but greater than variable cost 
C) less than total cost but greater than fixed cost 
D) greater than fixed cost 
E) less than variable cost

Question 8

Figure 9-4
  
-At the market price of $6 in Figure 9-4, indicate the firm's total revenue and total cost at its profit-maximizing level of output.

Accepted Answer

A) total revenue, $30 million; total cost, $22.5 million (approx.) 
B) total revenue, $30 million; total cost, $30 million 
C) total revenue, $40 million; total cost, $30 million 
D) total revenue, $48 million; total cost, $38 million (approx.) 
A) total revenue, $30 million; total cost, $22.5 million (approx.) 
B) total revenue, $30 million; total cost, $30 million 
C) total revenue, $40 million; total cost, $30 million 
D) total revenue, $48 million; total cost, $38 million (approx.)

Question 9

Consider a firm operating in a competitive price-taker market. The firm is producing 40 units of output, has an average cost of production equal to $5, and is earning $240 economic profit in the short run. What is the current market price?

Accepted Answer

A) $9 
B) $10 
C) $11 
D) $12 
A) $9 
B) $10 
C) $11 
D) $12

Question 10

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 11

A firm in a price-taker market

Accepted Answer

A) must take the price that is determined in the market. 
B) must reduce its price if it wants to sell a larger quantity. 
C) must be large relative to the total market. 
D) can exert a major influence on the market price. 
A) must take the price that is determined in the market. 
B) must reduce its price if it wants to sell a larger quantity. 
C) must be large relative to the total market. 
D) can exert a major influence on the market price.

Question 12

As market price increases, in the short run, a profit-maximizing firm in a price-taker market will expand output along its

Accepted Answer

A) marginal cost curve. 
B) average total cost curve. 
C) average variable cost curve. 
D) market demand curve. 
A) marginal cost curve. 
B) average total cost curve. 
C) average variable cost curve. 
D) market demand curve.

Question 13

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 14

The Wheeler Wheat Farm sells wheat to a grain broker in Seattle, Washington. Since the market for wheat is generally considered to be competitive, the Wheeler Wheat Farm maximizes its profit by choosing

Accepted Answer

A) to produce the quantity at which average variable cost is minimized. 
B) to produce the quantity at which average fixed cost is minimized. 
C) to sell its wheat at a price where marginal cost is equal to average total cost. 
D) the quantity at which the farm's marginal cost of production is equal to the market price. 
A) to produce the quantity at which average variable cost is minimized. 
B) to produce the quantity at which average fixed cost is minimized. 
C) to sell its wheat at a price where marginal cost is equal to average total cost. 
D) the quantity at which the farm's marginal cost of production is equal to the market price.

Question 15

Profit-maximizing firms enter a competitive market when, for existing firms in that market,

Accepted Answer

A) total revenue exceeds fixed costs. 
B) total revenue exceeds total variable costs. 
C) average total cost exceeds average revenue. 
D) price exceeds average total cost. 
A) total revenue exceeds fixed costs. 
B) total revenue exceeds total variable costs. 
C) average total cost exceeds average revenue. 
D) price exceeds average total cost.

Question 16

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which

Accepted Answer

A) total revenue is equal to variable cost. 
B) total revenue is equal to fixed cost. 
C) total revenue is equal to total cost. 
D) profit is maximized. 
A) total revenue is equal to variable cost. 
B) total revenue is equal to fixed cost. 
C) total revenue is equal to total cost. 
D) profit is maximized.

Question 17

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 18

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

Accepted Answer

A) Nothing, because each firm is already maximizing its profits. 
B) 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 (cover its variable costs). 
C) Additional firms will enter the market, but the price will remain the same because the existing firms will not allow it to decrease. 
D) Firms will exit the market, and the product price will rise. 
A) Nothing, because each firm is already maximizing its profits. 
B) 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 (cover its variable costs). 
C) Additional firms will enter the market, but the price will remain the same because the existing firms will not allow it to decrease. 
D) Firms will exit the market, and the product price will rise.

Question 19

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 20

In short-run equilibrium, a competitive price-taker firm

Accepted Answer

A) may earn a profit or a loss. 
B) always earns a profit. 
C) never earns a profit. 
D) earns a profit only if the firm has no fixed cost. 
A) may earn a profit or a loss. 
B) always earns a profit. 
C) never earns a profit. 
D) earns a profit only if the firm has no fixed cost.

Exam 9: A: Price Takers and the Competitive Process

Table 9-1 -Refer to Table 9-1. If the Tuckers are profit maximizers, how many tomatoes should they produce when the market price is $500 per ton?

Figure 9-13 -Refer to Figure 9-13. When price rises from P₃ to P₄, the firm finds that

Within the framework of the price-taker model, a price taker will always produce a quantity of output that

In the long run, in a price-taker market, the price of a good is determined primarily by the

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

For a certain firm, the 100th unit of output that the firm produces has marginal revenue equal to $10 and a marginal cost of $7. It follows that

In the short run, a perfectly competitive firm will always shut down if total revenue is ____ at all positive output levels.

Figure 9-4 -At the market price of $6 in Figure 9-4, indicate the firm's total revenue and total cost at its profit-maximizing level of output.

Consider a firm operating in a competitive price-taker market. The firm is producing 40 units of output, has an average cost of production equal to $5, and is earning $240 economic profit in the short run. What is the current market price?

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

A firm in a price-taker market

As market price increases, in the short run, a profit-maximizing firm in a price-taker market will expand output along its

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

The Wheeler Wheat Farm sells wheat to a grain broker in Seattle, Washington. Since the market for wheat is generally considered to be competitive, the Wheeler Wheat Farm maximizes its profit by choosing

Profit-maximizing firms enter a competitive market when, for existing firms in that market,

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which

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

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

In a price-taker market, profits are

In short-run equilibrium, a competitive price-taker firm

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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