Question 1

When economic losses are present in a market, firms will tend to

Accepted Answer

A) exit from the market. 
B) raise their prices until the break-even point is reached. 
C) lower their prices, regardless of cost, so they can capture more of the market. 
D) increase output. 
A) exit from the market. 
B) raise their prices until the break-even point is reached. 
C) lower their prices, regardless of cost, so they can capture more of the market. 
D) increase output.

Question 2

When a firm is a price searcher, its marginal revenue is

Accepted Answer

A) equal to price because the firm's demand curve is perfectly elastic. 
B) equal to price if, and only if, the firm is maximizing profits. 
C) less than price when the firm is maximizing profits. 
D) equal to average total cost at the long-run equilibrium output rate. 
A) equal to price because the firm's demand curve is perfectly elastic. 
B) equal to price if, and only if, the firm is maximizing profits. 
C) less than price when the firm is maximizing profits. 
D) equal to average total cost at the long-run equilibrium output rate.

Question 3

When a firm exits a competitive price-searcher market, the individual demand curves faced by all remaining firms in that market will

Accepted Answer

A) shift in a direction that is unpredictable without further information. 
B) shift to the right. 
C) shift to the left. 
D) remain unchanged. It is the supply curve that will shift. 
A) shift in a direction that is unpredictable without further information. 
B) shift to the right. 
C) shift to the left. 
D) remain unchanged. It is the supply curve that will shift.

Question 4

Figure 10-8
  
-Figure 10-8 presents the demand, marginal revenue, and cost curves for a typical firm in a market. This figure illustrates

Accepted Answer

A) short-run equilibrium in a competitive price-taker market. 
B) long-run equilibrium in a competitive price-taker market. 
C) short-run equilibrium in a competitive price-searcher market. 
D) long-run equilibrium in a competitive price-searcher market. 
A) short-run equilibrium in a competitive price-taker market. 
B) long-run equilibrium in a competitive price-taker market. 
C) short-run equilibrium in a competitive price-searcher market. 
D) long-run equilibrium in a competitive price-searcher market.

Question 5

Which of the following variables is left out of the simple economic model of the firm?

Accepted Answer

A) the marginal cost of production 
B) consumer tastes and preferences 
C) the fact that many firms actually earn profits 
D) the entrepreneurial decision-making process 
A) the marginal cost of production 
B) consumer tastes and preferences 
C) the fact that many firms actually earn profits 
D) the entrepreneurial decision-making process

Question 6

Suppose that competitive price-searcher firms are earning positive profits. In the transition from this initial situation to a long-run equilibrium,

Accepted Answer

A) the number of firms in the market decreases. 
B) each existing firm experiences a decrease in demand for its product. 
C) each existing firm experiences a rightward shift of its marginal revenue curve. 
D) each existing firm experiences an upward shift in its average total cost curve. 
A) the number of firms in the market decreases. 
B) each existing firm experiences a decrease in demand for its product. 
C) each existing firm experiences a rightward shift of its marginal revenue curve. 
D) each existing firm experiences an upward shift in its average total cost curve.

Question 7

Figure 10-6
  
-Given that the short-run cost and demand conditions shown in Figure 10-6 for the competitive price-searcher firm are representative for all firms in the industry, what will happen in this industry in the long run?

Accepted Answer

A) The firm will make long-run economic profits. 
B) The firm will face competition from new entrants into the industry, causing this firm's demand to decline until zero economic profits are restored. 
C) The firm will see some of its competitors exit from the industry, causing this firm's demand to increase until zero economic profits are restored. 
D) This industry is in long-run equilibrium and will not experience any new entry or exit of firms. 
A) The firm will make long-run economic profits. 
B) The firm will face competition from new entrants into the industry, causing this firm's demand to decline until zero economic profits are restored. 
C) The firm will see some of its competitors exit from the industry, causing this firm's demand to increase until zero economic profits are restored. 
D) This industry is in long-run equilibrium and will not experience any new entry or exit of firms.

Question 8

In order to be successful in a competitive market economy, an entrepreneur must

Accepted Answer

A) provide buyers at least as much satisfaction per dollar spent as the buyer could get elsewhere. 
B) supply consumers with goods and services valued less highly than the resources necessary to produce them. 
C) take resources from other producers, thus reallocating wealth but not creating new wealth. 
D) gain government grants and subsidies. 
A) provide buyers at least as much satisfaction per dollar spent as the buyer could get elsewhere. 
B) supply consumers with goods and services valued less highly than the resources necessary to produce them. 
C) take resources from other producers, thus reallocating wealth but not creating new wealth. 
D) gain government grants and subsidies.

Question 9

Which of the following is a necessary condition for price discrimination to be profitable?

Accepted Answer

A) All consumers must have an identical demand for the product. 
B) Groups of consumers with different demand elasticities must be easily distinguishable. 
C) The market demand for the product must be highly elastic. 
D) It must be possible for buyers to resell the product at a low cost. 
A) All consumers must have an identical demand for the product. 
B) Groups of consumers with different demand elasticities must be easily distinguishable. 
C) The market demand for the product must be highly elastic. 
D) It must be possible for buyers to resell the product at a low cost.

Question 10

Figure 10-1
  
-Given the cost and demand conditions in Figure 10-1, what price should this competitive price-searcher firm charge in order to maximize profits?

Accepted Answer

A) P₁ 
B) P₂ 
C) P₃ 
D) P₄ 
A) P₁ 
B) P₂ 
C) P₃ 
D) P₄

Question 11

Suppose a price-searcher firm faces the following demand curve data for its product.  
What is the firm's marginal revenue from selling the sixth unit?

Accepted Answer

A) $4 
B) $9 
C) $10 
D) $54 
A) $4 
B) $9 
C) $10 
D) $54

Question 12

The practice of price discrimination has which of the following effects?

Accepted Answer

A) Groups with the higher elasticity of demand will pay higher prices. 
B) Groups with the lower elasticity of demand will pay higher prices. 
C) With price discrimination, total output and allocative efficiency will fall. 
D) Groups will pay identical prices that are exactly equal to the firm's marginal cost. 
A) Groups with the higher elasticity of demand will pay higher prices. 
B) Groups with the lower elasticity of demand will pay higher prices. 
C) With price discrimination, total output and allocative efficiency will fall. 
D) Groups will pay identical prices that are exactly equal to the firm's marginal cost.

Question 13

(I) The entrepreneurial discovery and development of improved products and production processes is a central element of economic progress. (II) Traditional economic models of the firm accurately capture the role of the entrepreneur.

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 14

An important difference between the situation faced by a profit-maximizing competitive price-searcher firm in the short run and the situation faced by that same firm in the long run is that in the short run,

Accepted Answer

A) price may exceed marginal revenue, but in the long run, price will equal marginal revenue. 
B) price may exceed marginal cost, but in the long run, price will equal marginal cost. 
C) price may exceed average total cost, but in the long run, price will equal average total cost. 
D) there are many firms in the market, but in the long run, there are only a few firms in the market. 
A) price may exceed marginal revenue, but in the long run, price will equal marginal revenue. 
B) price may exceed marginal cost, but in the long run, price will equal marginal cost. 
C) price may exceed average total cost, but in the long run, price will equal average total cost. 
D) there are many firms in the market, but in the long run, there are only a few firms in the market.

Question 15

If a price-searcher firm can sell nine units at a price of $20, or it can sell ten units at a price of $17, what is the marginal revenue of the tenth unit?

Accepted Answer

A) -$10 
B) $10 
C) $17 
D) $20 
A) -$10 
B) $10 
C) $17 
D) $20

Question 16

If the firms in a competitive price-searcher market are suffering short-run losses, which of the following will occur in the long run?

Accepted Answer

A) New firms will enter the industry. 
B) Customers of firms that leave the industry will switch to remaining firms. 
C) Firms that remain in the industry will face reduced demand. 
D) Firms will continue to incur losses. 
A) New firms will enter the industry. 
B) Customers of firms that leave the industry will switch to remaining firms. 
C) Firms that remain in the industry will face reduced demand. 
D) Firms will continue to incur losses.

Question 17

Which of the following conditions is most essential if a firm is going to earn long-run economic profits?

Accepted Answer

A) an inelastic market demand for the product 
B) a small number of firms, even though competitors are free to enter the industry 
C) a differentiated product 
D) restrictions that limit the entry of potential competitors into the industry 
A) an inelastic market demand for the product 
B) a small number of firms, even though competitors are free to enter the industry 
C) a differentiated product 
D) restrictions that limit the entry of potential competitors into the industry

Question 18

In the long run, a competitive price-searcher firm will

Accepted Answer

A) produce a greater variety of goods than do firms in other market structures 
B) produce a greater output level than would a perfectly competitive firm 
C) produce where price equals average total cost 
D) earn an economic profit 
E) suffer a loss because of its advertising budget 
A) produce a greater variety of goods than do firms in other market structures 
B) produce a greater output level than would a perfectly competitive firm 
C) produce where price equals average total cost 
D) earn an economic profit 
E) suffer a loss because of its advertising budget

Question 19

In long-run equilibrium, output is expanded to the minimum long-run average total cost by

Accepted Answer

A) price takers but not by competitive price searchers. 
B) competitive price searchers but not by price takers. 
C) both competitive price searchers and price takers. 
D) neither price takers nor competitive price searchers. 
A) price takers but not by competitive price searchers. 
B) competitive price searchers but not by price takers. 
C) both competitive price searchers and price takers. 
D) neither price takers nor competitive price searchers.

Question 20

Suppose that competitive price-searcher firms are experiencing losses. In the transition from this initial situation to a long-run equilibrium,

Accepted Answer

A) the number of firms in the market decreases. 
B) each existing firm experiences a decrease in demand for its product. 
C) each firm experiences an upward shift to its marginal cost and average total cost curves. 
D) each existing firm's average total cost falls to bring economic profit back to zero. 
A) the number of firms in the market decreases. 
B) each existing firm experiences a decrease in demand for its product. 
C) each firm experiences an upward shift to its marginal cost and average total cost curves. 
D) each existing firm's average total cost falls to bring economic profit back to zero.

Exam 10: Price-Searcher Markets With Low Entry Barriers

When economic losses are present in a market, firms will tend to

When a firm is a price searcher, its marginal revenue is

When a firm exits a competitive price-searcher market, the individual demand curves faced by all remaining firms in that market will

Figure 10-8 -Figure 10-8 presents the demand, marginal revenue, and cost curves for a typical firm in a market. This figure illustrates

Which of the following variables is left out of the simple economic model of the firm?

Suppose that competitive price-searcher firms are earning positive profits. In the transition from this initial situation to a long-run equilibrium,

Figure 10-6 -Given that the short-run cost and demand conditions shown in Figure 10-6 for the competitive price-searcher firm are representative for all firms in the industry, what will happen in this industry in the long run?

In order to be successful in a competitive market economy, an entrepreneur must

Which of the following is a necessary condition for price discrimination to be profitable?

Figure 10-1 -Given the cost and demand conditions in Figure 10-1, what price should this competitive price-searcher firm charge in order to maximize profits?

Suppose a price-searcher firm faces the following demand curve data for its product. What is the firm's marginal revenue from selling the sixth unit?

The practice of price discrimination has which of the following effects?

(I) The entrepreneurial discovery and development of improved products and production processes is a central element of economic progress. (II) Traditional economic models of the firm accurately capture the role of the entrepreneur.

An important difference between the situation faced by a profit-maximizing competitive price-searcher firm in the short run and the situation faced by that same firm in the long run is that in the short run,

If a price-searcher firm can sell nine units at a price of $20, or it can sell ten units at a price of $17, what is the marginal revenue of the tenth unit?

If the firms in a competitive price-searcher market are suffering short-run losses, which of the following will occur in the long run?

Which of the following conditions is most essential if a firm is going to earn long-run economic profits?

In the long run, a competitive price-searcher firm will

In long-run equilibrium, output is expanded to the minimum long-run average total cost by

Suppose that competitive price-searcher firms are experiencing losses. In the transition from this initial situation to a 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

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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