Question 1

Which of the following is true?

Accepted Answer

A) A price-discriminating seller will charge consumers with an elastic demand a lower price than consumers with an inelastic demand. 
B) A firm must face a horizontal demand curve for its product in order to engage in effective price discrimination in a market. 
C) Price discrimination always harms consumers and helps sellers in the short run but in the long run, consumers benefit at the expense of sellers. 
D) A seller must have a monopoly in order to gain from price discrimination. 
A) A price-discriminating seller will charge consumers with an elastic demand a lower price than consumers with an inelastic demand. 
B) A firm must face a horizontal demand curve for its product in order to engage in effective price discrimination in a market. 
C) Price discrimination always harms consumers and helps sellers in the short run but in the long run, consumers benefit at the expense of sellers. 
D) A seller must have a monopoly in order to gain from price discrimination.

Question 2

If firms in a competitive price-searcher market are incurring economic losses, which of the following scenarios would best describe the change existing firms (who are able to stay in the market) would face as the market adjusts to long-run equilibrium?

Accepted Answer

A) An increase in demand for each firm and lower prices. 
B) A decrease in demand for each firm and lower prices. 
C) An increase in demand for each firm and higher prices. 
D) A decrease in demand for each firm and higher prices. 
A) An increase in demand for each firm and lower prices. 
B) A decrease in demand for each firm and lower prices. 
C) An increase in demand for each firm and higher prices. 
D) A decrease in demand for each firm and higher prices.

Question 3

The firms in a competitive price-searcher market produce goods and services that are

Accepted Answer

A) identical to one another in quality and price. 
B) identical to one another in quality but not in price. 
C) identical to one another in price but not in quality. 
D) different from one another. 
A) identical to one another in quality and price. 
B) identical to one another in quality but not in price. 
C) identical to one another in price but not in quality. 
D) different from one another.

Question 4

Only undertaking an activity when it adds more to revenue than to cost is the decision rule a profit-maximizing firm will use when deciding upon

Accepted Answer

A) the level of output to produce. 
B) the amount of advertising to undertake. 
C) the level of product quality (for example, how many years it is designed to last). 
D) all of the above. 
A) the level of output to produce. 
B) the amount of advertising to undertake. 
C) the level of product quality (for example, how many years it is designed to last). 
D) all of the above.

Question 5

Whenever firms can freely enter and exit a market,

Accepted Answer

A) firms can never earn a profit. 
B) prices will be the same for all firms in the market. 
C) products will be identical for all firms in the market. 
D) profits and losses play an important role in determining the size of the industry. 
A) firms can never earn a profit. 
B) prices will be the same for all firms in the market. 
C) products will be identical for all firms in the market. 
D) profits and losses play an important role in determining the size of the industry.

Question 6

In a market that is contestable, but has only a few sellers, the

Accepted Answer

A) threat of new entrants will prevent prices from rising above the competitive level. 
B) producers will be able to charge prices that are high enough to produce long-run economic profits. 
C) producers will not face new competition because the barriers to entry are high. 
D) market will never be expected to come close to the competitive result. 
A) threat of new entrants will prevent prices from rising above the competitive level. 
B) producers will be able to charge prices that are high enough to produce long-run economic profits. 
C) producers will not face new competition because the barriers to entry are high. 
D) market will never be expected to come close to the competitive result.

Question 7

Which of the following must be true if a price-searcher firm is operating at the profit-maximizing output rate?

Accepted Answer

A) The marginal cost of producing the last unit is greater than the marginal revenue derived from its sale. 
B) The marginal cost of producing the last unit is no greater than the marginal revenue derived from its sale. 
C) The total cost of producing all units is no greater than the total revenue derived from the sale of the units. 
D) The total cost of producing all units is less than the total revenue derived from the sale of the units. 
A) The marginal cost of producing the last unit is greater than the marginal revenue derived from its sale. 
B) The marginal cost of producing the last unit is no greater than the marginal revenue derived from its sale. 
C) The total cost of producing all units is no greater than the total revenue derived from the sale of the units. 
D) The total cost of producing all units is less than the total revenue derived from the sale of the units.

Question 8

What type of model would be best if we wanted to analyze the market for fast food? Why?

Accepted Answer

We know that the industry produces a dif

Question 9

Economic analysis suggest that in a competitive market economy, when an entrepreneur has made a large profit,

Accepted Answer

A) consumer benefits must have been reduced by at least the amount of the profit. 
B) other producers have lost profits of the same size. 
C) economic progress for society as a whole has normally been enhanced. 
D) luck or chance, rather than productive activity, has nearly always been the largest factor. 
A) consumer benefits must have been reduced by at least the amount of the profit. 
B) other producers have lost profits of the same size. 
C) economic progress for society as a whole has normally been enhanced. 
D) luck or chance, rather than productive activity, has nearly always been the largest factor.

Question 10

What role do losses play in a competitive price-searcher market?

Accepted Answer

A) They penalize a firm for producing a differentiated product. 
B) They signal that more resources are needed in a particular market. 
C) They show firms that barriers to entry are high. 
D) They send a message that more value would be created if the resources were used to produce other goods. 
A) They penalize a firm for producing a differentiated product. 
B) They signal that more resources are needed in a particular market. 
C) They show firms that barriers to entry are high. 
D) They send a message that more value would be created if the resources were used to produce other goods.

Question 11

If a profit-maximizing restaurant is going to increase its revenues by charging senior citizens (persons age 65 and over) lower prices than other customers,

Accepted Answer

A) the demand of senior citizens for the services of the restaurant must be inelastic. 
B) senior citizens must have lower incomes than other potential customers. 
C) the demand of senior citizens for the services of the restaurant must be elastic. 
D) senior citizens must have higher incomes than other potential customers. 
E) other customers must enjoy food more than senior citizens. 
A) the demand of senior citizens for the services of the restaurant must be inelastic. 
B) senior citizens must have lower incomes than other potential customers. 
C) the demand of senior citizens for the services of the restaurant must be elastic. 
D) senior citizens must have higher incomes than other potential customers. 
E) other customers must enjoy food more than senior citizens.

Question 12

As new firms enter a competitive price-searcher market, it can be expected that

Accepted Answer

A) market price will increase. 
B) the output of existing firms will increase. 
C) profits of existing firms will increase. 
D) market demand should decrease. 
E) profits of existing firms will decrease 
A) market price will increase. 
B) the output of existing firms will increase. 
C) profits of existing firms will increase. 
D) market demand should decrease. 
E) profits of existing firms will decrease

Question 13

A major fruit juice manufacturer failed in its attempt to engage in price discrimination between students and all other consumers. What is the most likely explanation for this failure?

Accepted Answer

A) There was nothing to prevent the students from reselling the fruit juice to other consumers. 
B) The two groups of consumers have different demand elasticities for fruit juice. 
C) The cost of producing the product is relatively high. 
D) Market demand for fruit juice is inelastic. 
A) There was nothing to prevent the students from reselling the fruit juice to other consumers. 
B) The two groups of consumers have different demand elasticities for fruit juice. 
C) The cost of producing the product is relatively high. 
D) Market demand for fruit juice is inelastic.

Question 14

In a competitive price-searcher market, the marginal revenue of the firm will always be

Accepted Answer

A) a horizontal line. 
B) greater than price. 
C) less than price. 
D) equal to price. 
A) a horizontal line. 
B) greater than price. 
C) less than price. 
D) equal to price.

Question 15

If a firm in a competitive price-searcher market raises its price, it will

Accepted Answer

A) lose all of its sales. 
B) increase its sales. 
C) lose only some of its sales. 
D) have to go out of business. 
A) lose all of its sales. 
B) increase its sales. 
C) lose only some of its sales. 
D) have to go out of business.

Question 16

When entry barriers are low, firms in a competitive price-searcher market

Accepted Answer

A) can expect many new rivals to enter regardless of current profitability. 
B) can expect competing firms to enter the market if the activity is profitable. 
C) can never earn economic profit. 
D) will always be able to earn economic profit. 
A) can expect many new rivals to enter regardless of current profitability. 
B) can expect competing firms to enter the market if the activity is profitable. 
C) can never earn economic profit. 
D) will always be able to earn economic profit.

Question 17

Long-run equilibrium in a competitive price-searcher market requires that

Accepted Answer

A) the demand curve intersect the average cost curve. 
B) the demand curve be tangent to the average cost curve. 
C) price be equal to marginal cost. 
D) quantity produced be at the point where average cost is at a minimum. 
A) the demand curve intersect the average cost curve. 
B) the demand curve be tangent to the average cost curve. 
C) price be equal to marginal cost. 
D) quantity produced be at the point where average cost is at a minimum.

Question 18

Which of the following is not a characteristic of a competitive price-searcher market?

Accepted Answer

A) Each firm produces a differentiated product. 
B) The entry barriers are high. 
C) Each firm faces a downward-sloping demand curve. 
D) The number of firms in the market is large. 
A) Each firm produces a differentiated product. 
B) The entry barriers are high. 
C) Each firm faces a downward-sloping demand curve. 
D) The number of firms in the market is large.

Question 19

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 20

Airfares are generally cheaper if they include a Saturday night stay at the destination. This is because

Accepted Answer

A) hotels give the airlines kickbacks to price this way. 
B) business travelers are less likely than leisure travelers to be willing to stay Saturday night away from home, and business travelers will generally have more inelastic demand for air travel. 
C) business travelers are less likely than leisure travelers to be willing to stay Saturday night away from home, and business travelers will generally have more elastic demand for air travel. 
D) this reduces the demand for travel on Saturdays, which is a high-cost day to fly airplanes. 
A) hotels give the airlines kickbacks to price this way. 
B) business travelers are less likely than leisure travelers to be willing to stay Saturday night away from home, and business travelers will generally have more inelastic demand for air travel. 
C) business travelers are less likely than leisure travelers to be willing to stay Saturday night away from home, and business travelers will generally have more elastic demand for air travel. 
D) this reduces the demand for travel on Saturdays, which is a high-cost day to fly airplanes.

Exam 10: Price-Searcher Markets With Low Entry Barriers

Which of the following is true?

If firms in a competitive price-searcher market are incurring economic losses, which of the following scenarios would best describe the change existing firms (who are able to stay in the market) would face as the market adjusts to long-run equilibrium?

The firms in a competitive price-searcher market produce goods and services that are

Only undertaking an activity when it adds more to revenue than to cost is the decision rule a profit-maximizing firm will use when deciding upon

Whenever firms can freely enter and exit a market,

In a market that is contestable, but has only a few sellers, the

Which of the following must be true if a price-searcher firm is operating at the profit-maximizing output rate?

What type of model would be best if we wanted to analyze the market for fast food? Why?

Economic analysis suggest that in a competitive market economy, when an entrepreneur has made a large profit,

What role do losses play in a competitive price-searcher market?

If a profit-maximizing restaurant is going to increase its revenues by charging senior citizens (persons age 65 and over) lower prices than other customers,

As new firms enter a competitive price-searcher market, it can be expected that

A major fruit juice manufacturer failed in its attempt to engage in price discrimination between students and all other consumers. What is the most likely explanation for this failure?

In a competitive price-searcher market, the marginal revenue of the firm will always be

If a firm in a competitive price-searcher market raises its price, it will

When entry barriers are low, firms in a competitive price-searcher market

Long-run equilibrium in a competitive price-searcher market requires that

Which of the following is not a characteristic of a competitive price-searcher market?

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

Airfares are generally cheaper if they include a Saturday night stay at the destination. This is because

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

A: Price Takers and the Competitive Process

B: Price Takers and the Competitive Process

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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