Question 1

In the price-taker model, what impact does the individual firm have on the price of its product?

Accepted Answer

A) The firm must accept the price determined in the market if it is going to sell its product. 
B) The firm may raise or lower its price to a small extent, but sales revenues will tend to be the same regardless of price. 
C) The firm may raise its price and, thereby, increase its revenues. 
D) The firm may raise or lower its price to a considerable extent, but sales revenues will tend to be the same regardless of price. 
A) The firm must accept the price determined in the market if it is going to sell its product. 
B) The firm may raise or lower its price to a small extent, but sales revenues will tend to be the same regardless of price. 
C) The firm may raise its price and, thereby, increase its revenues. 
D) The firm may raise or lower its price to a considerable extent, but sales revenues will tend to be the same regardless of price.

Question 2

If a firm in a price-taker market is earning zero economic profit, it

Accepted Answer

A) will shut down in the long run but not the short run. 
B) will also be earning zero accounting profit. 
C) is doing as well as typical firms in other markets. 
D) will shut down in the short run. 
A) will shut down in the long run but not the short run. 
B) will also be earning zero accounting profit. 
C) is doing as well as typical firms in other markets. 
D) will shut down in the short run.

Question 3

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 4

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 5

A firm is currently operating where the MC of the last unit produced is $84, and the MR of this unit is $70. What would you advise this firm to do?

Accepted Answer

A) Shut down. 
B) Increase output. 
C) Stay at its current output. 
D) Decrease output. 
E) Decrease price. 
A) Shut down. 
B) Increase output. 
C) Stay at its current output. 
D) Decrease output. 
E) Decrease price.

Question 6

Which of the following is always true in competitive price-taker markets?

Accepted Answer

A) There are more sellers than buyers. 
B) Barriers to entry into the market are low. 
C) The products of firms in the industry are differentiated. 
D) The firms never earn economic profit. 
A) There are more sellers than buyers. 
B) Barriers to entry into the market are low. 
C) The products of firms in the industry are differentiated. 
D) The firms never earn economic profit.

Question 7

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 8

If an amusement park that is highly profitable during the summer months is unable to cover its variable costs during the winter months, it should

Accepted Answer

A) raise its prices during the winter months. 
B) lower its prices during the summer months. 
C) operate during the summer but shut down during the winter months. 
D) operate during all months of the year as long as its profits during the summer exceed its losses during the winter. 
A) raise its prices during the winter months. 
B) lower its prices during the summer months. 
C) operate during the summer but shut down during the winter months. 
D) operate during all months of the year as long as its profits during the summer exceed its losses during the winter.

Question 9

Refer to Scenario 9-1. At Q = 999, the firm's profit amounts to

Accepted Answer

A) $993. 
B) $997. 
C) $1,003. 
D) $1,007. 
A) $993. 
B) $997. 
C) $1,003. 
D) $1,007.

Question 10

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

Question 11

Which of the following best explains why a firm in a competitive price-taker market must take the price determined in the market?

Accepted Answer

A) The short-run average total costs of firms that are price takers will be constant. 
B) If a price taker increased its price, consumers would buy from other suppliers. 
C) Firms in a price-taker market will have to advertise in order to increase sales. 
D) There are no good substitutes for the product supplied by a firm that is a price taker. 
A) The short-run average total costs of firms that are price takers will be constant. 
B) If a price taker increased its price, consumers would buy from other suppliers. 
C) Firms in a price-taker market will have to advertise in order to increase sales. 
D) There are no good substitutes for the product supplied by a firm that is a price taker.

Question 12

A competitive price-taker market in long-run equilibrium is described as efficient because firms

Accepted Answer

A) produce at the low point on their average cost curve. 
B) produce where marginal cost yields a profit. 
C) earn no more than the cost of capital. 
D) are not profitable. 
A) produce at the low point on their average cost curve. 
B) produce where marginal cost yields a profit. 
C) earn no more than the cost of capital. 
D) are not profitable.

Question 13

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 14

In a constant cost industry,

Accepted Answer

A) a natural monopoly is likely to occur. 
B) total cost is the same, no matter how much a firm produces. 
C) the long-run supply curve will be perfectly elastic. 
D) entry of new firms in the industry will lead to a reduction in the cost of inputs. 
A) a natural monopoly is likely to occur. 
B) total cost is the same, no matter how much a firm produces. 
C) the long-run supply curve will be perfectly elastic. 
D) entry of new firms in the industry will lead to a reduction in the cost of inputs.

Question 15

A price-taker market tends toward a state of long-run equilibrium in which firms earn only a normal rate of return (zero economic profits) because

Accepted Answer

A) firms will keep their prices low under fear of government regulation. 
B) with firms able to enter and leave the industry freely, competition will drive prices down to the level of production costs. 
C) by definition, production costs always rise to equal the market price. 
D) mismanagement on the part of owners generally results in the firms not equating marginal revenue and marginal cost. 
A) firms will keep their prices low under fear of government regulation. 
B) with firms able to enter and leave the industry freely, competition will drive prices down to the level of production costs. 
C) by definition, production costs always rise to equal the market price. 
D) mismanagement on the part of owners generally results in the firms not equating marginal revenue and marginal cost.

Question 16

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 17

When the marginal cost of a price-taker firm is more than the market price of its product, the firm should

Accepted Answer

A) expand output. 
B) reduce output. 
C) maintain output. 
D) charge more than the market price. 
A) expand output. 
B) reduce output. 
C) maintain output. 
D) charge more than the market price.

Question 18

When entry barriers into a market are low, firms will tend to earn zero economic profit in the long run because

Accepted Answer

A) low entry barriers lead to rising costs. 
B) profit-seeking entrepreneurs will not enter a market when entry barriers are low. 
C) short-run profit attracts additional suppliers and drives down the market price. 
D) consumers will refuse to pay more than the cost of producing a good once they find out the producer's per-unit costs. 
A) low entry barriers lead to rising costs. 
B) profit-seeking entrepreneurs will not enter a market when entry barriers are low. 
C) short-run profit attracts additional suppliers and drives down the market price. 
D) consumers will refuse to pay more than the cost of producing a good once they find out the producer's per-unit costs.

Question 19

Harry Smith sells wheat in a price-taker market. With regard to Smith's price and output choices, which of the following is true?

Accepted Answer

A) Smith will constantly attempt to increase the price of his product so he can increase his total revenue. 
B) Since the price of his product is dictated by the market, Smith will not have an incentive to control per-unit cost. 
C) Since the price of his product is dictated by the market, Smith has no production decisions to make. 
D) It would be senseless for Smith to try to increase sales by lowering the price of his product. 
A) Smith will constantly attempt to increase the price of his product so he can increase his total revenue. 
B) Since the price of his product is dictated by the market, Smith will not have an incentive to control per-unit cost. 
C) Since the price of his product is dictated by the market, Smith has no production decisions to make. 
D) It would be senseless for Smith to try to increase sales by lowering the price of his product.

Question 20

The schedule of total costs for a chair-manufacturing firm is presented in the table below. If the market price of chairs is $100, which of the output levels should this price-taker firm produce in order to maximize profit?

Accepted Answer

A) 10 
B) 20 
C) 30 
D) 40 
A) 10 
B) 20 
C) 30 
D) 40

Exam 9: A: Price Takers and the Competitive Process

In the price-taker model, what impact does the individual firm have on the price of its product?

If a firm in a price-taker market is earning zero economic profit, it

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,

A firm is currently operating where the MC of the last unit produced is $84, and the MR of this unit is $70. What would you advise this firm to do?

Which of the following is always true in competitive price-taker markets?

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?

If an amusement park that is highly profitable during the summer months is unable to cover its variable costs during the winter months, it should

Refer to Scenario 9-1. At Q = 999, the firm's profit amounts to

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

Which of the following best explains why a firm in a competitive price-taker market must take the price determined in the market?

A competitive price-taker market in long-run equilibrium is described as efficient because firms

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

In a constant cost industry,

A price-taker market tends toward a state of long-run equilibrium in which firms earn only a normal rate of return (zero economic profits) because

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

When the marginal cost of a price-taker firm is more than the market price of its product, the firm should

When entry barriers into a market are low, firms will tend to earn zero economic profit in the long run because

Harry Smith sells wheat in a price-taker market. With regard to Smith's price and output choices, which of the following is true?

The schedule of total costs for a chair-manufacturing firm is presented in the table below. If the market price of chairs is $100, which of the output levels should this price-taker firm produce in order to maximize profit?

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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