Question 1

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

Accepted Answer

A) TGIFriday's, a restaurant chain that operates in numerous locations 
B) a bookstore located a few blocks from a major university 
C) Ford Motor company, a major manufacturer of automobiles that operates in numerous markets throughout the world 
D) an Indiana hog farmer that raises pigs 
A) TGIFriday's, a restaurant chain that operates in numerous locations 
B) a bookstore located a few blocks from a major university 
C) Ford Motor company, a major manufacturer of automobiles that operates in numerous markets throughout the world 
D) an Indiana hog farmer that raises pigs

Question 2

In a price-taker market,

Accepted Answer

A) all firms in the market charge different prices depending upon their respective costs of production. 
B) there are generally a small number of very large firms. 
C) the firms all produce identical products. 
D) firms will usually make economic losses in the long run. 
A) all firms in the market charge different prices depending upon their respective costs of production. 
B) there are generally a small number of very large firms. 
C) the firms all produce identical products. 
D) firms will usually make economic losses in the long run.

Question 3

When consumer demand for a good produced in a price-taker market decreases,

Accepted Answer

A) firms in the industry will continue to produce at the same output levels as before. 
B) total market output will generally rise, but each individual firm will reduce its output. 
C) the market price of the good will rise, causing additional resources to flow into the industry in the long run. 
D) some firms will shut down in the long run, making their resources available for the production of other goods. 
A) firms in the industry will continue to produce at the same output levels as before. 
B) total market output will generally rise, but each individual firm will reduce its output. 
C) the market price of the good will rise, causing additional resources to flow into the industry in the long run. 
D) some firms will shut down in the long run, making their resources available for the production of other goods.

Question 4

Figure 9-9
  
-When the market price is $60 in Figure 9-9, the firm's maximum daily profit will be approximately

Accepted Answer

A) zero. 
B) $100. 
C) $900. 
D) $1,200. 
A) zero. 
B) $100. 
C) $900. 
D) $1,200.

Question 5

Suppose the equilibrium price in a competitive price-taker market is $10 and a firm in the industry charges $9. Which of the following is true?

Accepted Answer

A) The firm will not be able to sell any output. 
B) The firm will sell less output than its competitors. 
C) The firm will make more profit than it could at the $10 price. 
D) The firm will make less profit than it could at the $10 price. 
A) The firm will not be able to sell any output. 
B) The firm will sell less output than its competitors. 
C) The firm will make more profit than it could at the $10 price. 
D) The firm will make less profit than it could at the $10 price.

Question 6

(I) A firm's short-run supply curve is equal to its average variable cost curve above marginal revenue. (II) The short-run supply curve for a price-taker market is the horizontal sum of the supply curves of all firms in the industry.

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 7

As the period for firms to expand output is lengthened, the elasticity of the market supply curve will

Accepted Answer

A) approach zero. 
B) increase. 
C) decrease. 
D) remain the same since time does not affect the elasticity of market supply. 
A) approach zero. 
B) increase. 
C) decrease. 
D) remain the same since time does not affect the elasticity of market supply.

Question 8

Which of the following statements is correct?

Accepted Answer

A) In order to maximize profits in the short run, a price taker should always produce at the output level where marginal cost is equal to price. 
B) In long-run equilibrium, a price taker will produce at an output level where average total cost is at its minimum. 
C) A price taker will remain open in the short run, even if it is earning an economic loss, so long as price is sufficient to cover average variable cost. 
D) All of the above are true. 
A) In order to maximize profits in the short run, a price taker should always produce at the output level where marginal cost is equal to price. 
B) In long-run equilibrium, a price taker will produce at an output level where average total cost is at its minimum. 
C) A price taker will remain open in the short run, even if it is earning an economic loss, so long as price is sufficient to cover average variable cost. 
D) All of the above are true.

Question 9

Suppose product price is $24; MR = MC at Q = 200; AFC = $6; AVC = $16. What do you advise this competitive price-taker firm to do?

Accepted Answer

A) Increase output. 
B) Decrease output. 
C) Shut down operations. 
D) Stay at the current output; the firm is earning a profit of $400. 
E) Stay at the current output even though the firm is losing $200. 
A) Increase output. 
B) Decrease output. 
C) Shut down operations. 
D) Stay at the current output; the firm is earning a profit of $400. 
E) Stay at the current output even though the firm is losing $200.

Question 10

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 profit?

Accepted Answer

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

Question 11

The supply curve of a price-taker firm in the short run is the

Accepted Answer

A) firm's average variable cost curve. 
B) portion of the firm's average total cost curve that lies above average variable cost curve. 
C) portion of the firm's marginal cost curve that lies above average variable cost curve. 
D) firm's marginal revenue curve. 
A) firm's average variable cost curve. 
B) portion of the firm's average total cost curve that lies above average variable cost curve. 
C) portion of the firm's marginal cost curve that lies above average variable cost curve. 
D) firm's marginal revenue curve.

Question 12

Figure 9-3
  
-Figure 9-3 depicts the cost curves of a firm in a price-taker industry. At what output would the firm's per-unit cost be at a minimum?

Accepted Answer

A) 100 
B) 125 
C) 150 
D) an output greater than 150 
A) 100 
B) 125 
C) 150 
D) an output greater than 150

Question 13

Firms that can choose what price they will charge for their product and can increase the number of units sold by reducing price are called

Accepted Answer

A) price searchers. 
B) price leaders. 
C) purely competitive. 
D) price takers. 
A) price searchers. 
B) price leaders. 
C) purely competitive. 
D) price takers.

Question 14

A profit-maximizing entrepreneur will produce and sell an additional unit of output as long as

Accepted Answer

A) it lowers the firm's unit costs. 
B) it lowers the firm's marginal cost. 
C) it adds more to revenue than it adds to cost. 
D) there is additional plant capacity to produce. 
A) it lowers the firm's unit costs. 
B) it lowers the firm's marginal cost. 
C) it adds more to revenue than it adds to cost. 
D) there is additional plant capacity to produce.

Question 15

The main difference between a firm that is a price searcher and a firm that is a price taker is that a

Accepted Answer

A) price searcher produces products that are identical to its competitors' products. 
B) price taker can decide what price to charge for its product. 
C) price searcher cannot decide what price to charge for its product. 
D) price searcher will still be able to sell some of its product if it increases its price. 
A) price searcher produces products that are identical to its competitors' products. 
B) price taker can decide what price to charge for its product. 
C) price searcher cannot decide what price to charge for its product. 
D) price searcher will still be able to sell some of its product if it increases its price.

Question 16

"I have been making furniture for 27 years. I have never heard of either marginal cost or marginal revenue. Fancy economic theories mean nothing to me. I just know how to do well in business. Whenever I can sell something for more than it cost me to produce it, I make it, and whenever I can't sell it for enough to cover my cost, I don't. That's how I stay in business and earn income for my family. Common sense and watching the market are good enough for me." For producers like this, economic models

Accepted Answer

A) accurately describe their behavior and allow predictions to be made as to how they will respond to changes in market conditions. 
B) indicate nothing about the behavior of such producers. 
C) will generally only apply if the person has a college education. 
D) do not apply because the producers do not understand the terminology. 
A) accurately describe their behavior and allow predictions to be made as to how they will respond to changes in market conditions. 
B) indicate nothing about the behavior of such producers. 
C) will generally only apply if the person has a college education. 
D) do not apply because the producers do not understand the terminology.

Question 17

A profit-maximizing firm will continue to expand output

Accepted Answer

A) as long as the revenues from the production and sale of an additional unit exceeds the average costs of the unit. 
B) until the average cost of producing the good or service is at a minimum. 
C) as long as the revenues from the production and sale of an additional unit exceeds the marginal cost of the unit. 
D) until the marginal cost of producing a good or service is at a minimum. 
A) as long as the revenues from the production and sale of an additional unit exceeds the average costs of the unit. 
B) until the average cost of producing the good or service is at a minimum. 
C) as long as the revenues from the production and sale of an additional unit exceeds the marginal cost of the unit. 
D) until the marginal cost of producing a good or service is at a minimum.

Question 18

In competitive price-taker markets, firms

Accepted Answer

A) can sell all of their output at the market price. 
B) produce differentiated products. 
C) can influence the market price by altering their output level. 
D) are large relative to the total market. 
A) can sell all of their output at the market price. 
B) produce differentiated products. 
C) can influence the market price by altering their output level. 
D) are large relative to the total market.

Question 19

If marginal revenue exceeds marginal cost, a price-taker firm should

Accepted Answer

A) expand output. 
B) reduce output. 
C) lower its price. 
D) do both a and c. 
A) expand output. 
B) reduce output. 
C) lower its price. 
D) do both a and c.

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 9: A: Price Takers and the Competitive Process

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

In a price-taker market,

When consumer demand for a good produced in a price-taker market decreases,

Figure 9-9 -When the market price is $60 in Figure 9-9, the firm's maximum daily profit will be approximately

Suppose the equilibrium price in a competitive price-taker market is $10 and a firm in the industry charges $9. Which of the following is true?

(I) A firm's short-run supply curve is equal to its average variable cost curve above marginal revenue. (II) The short-run supply curve for a price-taker market is the horizontal sum of the supply curves of all firms in the industry.

As the period for firms to expand output is lengthened, the elasticity of the market supply curve will

Which of the following statements is correct?

Suppose product price is $24; MR = MC at Q = 200; AFC = $6; AVC = $16. What do you advise this competitive price-taker firm to do?

The supply curve of a price-taker firm in the short run is the

Figure 9-3 -Figure 9-3 depicts the cost curves of a firm in a price-taker industry. At what output would the firm's per-unit cost be at a minimum?

Firms that can choose what price they will charge for their product and can increase the number of units sold by reducing price are called

A profit-maximizing entrepreneur will produce and sell an additional unit of output as long as

The main difference between a firm that is a price searcher and a firm that is a price taker is that a

A profit-maximizing firm will continue to expand output

In competitive price-taker markets, firms

If marginal revenue exceeds marginal cost, a price-taker firm should

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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