Question 1

Which of the following is characteristic of a firm that is a competitive price searcher?

Accepted Answer

A) The firm faces an upward-sloping demand curve. 
B) The firm faces an inelastic demand curve. 
C) The firm faces a horizontal demand curve. 
D) The firm produces a differentiated product. 
A) The firm faces an upward-sloping demand curve. 
B) The firm faces an inelastic demand curve. 
C) The firm faces a horizontal demand curve. 
D) The firm produces a differentiated product.

Question 2

Entrepreneurial judgment

Accepted Answer

A) is necessary to make business decisions when no fixed decision rule can be used. 
B) is fully incorporated into modern economic models of business behavior. 
C) requires decision makers to follow carefully defined rules regarding uncertainty, discovery, and business judgment. 
D) requires government advice and regulation. 
A) is necessary to make business decisions when no fixed decision rule can be used. 
B) is fully incorporated into modern economic models of business behavior. 
C) requires decision makers to follow carefully defined rules regarding uncertainty, discovery, and business judgment. 
D) requires government advice and regulation.

Question 3

If a firm in a competitive price-searcher market finds that its marginal revenue exceeds its marginal cost at the current rate of output, it should

Accepted Answer

A) raise the price of the product and expand its output. 
B) raise the price of the product and reduce its output. 
C) lower the price of the product and expand its output. 
D) lower the price of the product and reduce its output. 
A) raise the price of the product and expand its output. 
B) raise the price of the product and reduce its output. 
C) lower the price of the product and expand its output. 
D) lower the price of the product and reduce its output.

Question 4

A competitive price-searcher market is characterized by firms

Accepted Answer

A) being able to choose their price and no barriers preventing firms from entering or leaving the market. 
B) being able to choose their price and high barriers preventing firms from entering or leaving the market. 
C) being able to accept the market price for their product and high barriers preventing firms from entering or leaving the market. 
D) having to accept the market price for their product and no barriers preventing firms from entering or leaving the market. 
A) being able to choose their price and no barriers preventing firms from entering or leaving the market. 
B) being able to choose their price and high barriers preventing firms from entering or leaving the market. 
C) being able to accept the market price for their product and high barriers preventing firms from entering or leaving the market. 
D) having to accept the market price for their product and no barriers preventing firms from entering or leaving the market.

Question 5

Firms that engage in price discrimination

Accepted Answer

A) will earn less profit than those that do not discriminate. 
B) will earn more profit than those that do not discriminate. 
C) are biased against certain buyers in the market. 
D) will always produce less output than firms that do not discriminate. 
A) will earn less profit than those that do not discriminate. 
B) will earn more profit than those that do not discriminate. 
C) are biased against certain buyers in the market. 
D) will always produce less output than firms that do not discriminate.

Question 6

Which of the following is true for a price-searcher firm?

Accepted Answer

A) Its marginal revenue curve will lie below its demand curve. 
B) Its marginal revenue curve will lie above its demand curve. 
C) Its marginal revenue curve is equal to its demand curve. 
D) Its marginal revenue curve is horizontal at the market equilibrium price. 
A) Its marginal revenue curve will lie below its demand curve. 
B) Its marginal revenue curve will lie above its demand curve. 
C) Its marginal revenue curve is equal to its demand curve. 
D) Its marginal revenue curve is horizontal at the market equilibrium price.

Question 7

As long as a market is contestable, then even if it has only a few sellers, the

Accepted Answer

A) threat of new entrants will prevent the 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 the 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 8

Suppose that a price-discriminating firm divides its market into two segments. If the firm sells its product for a price of $42 in the market segment where demand is relatively less elastic, the price in the market segment whose customers' demand is more elastic will be

Accepted Answer

A) $42 
B) greater than $42 
C) less than $42 
D) $42 plus average fixed costs 
A) $42 
B) greater than $42 
C) less than $42 
D) $42 plus average fixed costs

Question 9

Which of the following provides the strongest evidence that a firm operating in the highly competitive retail sector is failing to provide goods and services that consumers value highly relative to their cost?

Accepted Answer

A) The firm is making losses, and its sales are declining. 
B) The top-level managers of the firm are paid high salaries. 
C) The wages earned by the employees of the firm are low. 
D) The firm is a large corporation. 
E) The firm is highly profitable, and its sales have grown rapidly. 
A) The firm is making losses, and its sales are declining. 
B) The top-level managers of the firm are paid high salaries. 
C) The wages earned by the employees of the firm are low. 
D) The firm is a large corporation. 
E) The firm is highly profitable, and its sales have grown rapidly.

Question 10

Figure 10-5
  
-Given the cost and demand conditions depicted in Figure 10-5 for the competitive price-searcher firm, what is the price that the firm should charge if it wants to maximize its profit?

Accepted Answer

A) 20 
B) 30 
C) 40 
D) 50 
A) 20 
B) 30 
C) 40 
D) 50

Question 11

If a contestable market has only one seller, which of the following will keep the seller from producing inefficiently and charging a price that generates long-run economic profits?

Accepted Answer

A) government regulations 
B) low costs of entry into and exit from the market 
C) substantial economies of scale that provide a competitive advantage to large firms in such markets 
D) the threat of a government takeover of the firms in these markets 
A) government regulations 
B) low costs of entry into and exit from the market 
C) substantial economies of scale that provide a competitive advantage to large firms in such markets 
D) the threat of a government takeover of the firms in these markets

Question 12

A price searcher confronts a downward sloping demand curve because

Accepted Answer

A) products in the market are differentiated. 
B) there is no close competitor in the market. 
C) the market is essentially monopolized. 
D) the firm gains nothing if it lowers its price. 
A) products in the market are differentiated. 
B) there is no close competitor in the market. 
C) the market is essentially monopolized. 
D) the firm gains nothing if it lowers its price.

Question 13

A competitive price-searcher market is best described as

Accepted Answer

A) many firms with some control over price, and some product differentiation. 
B) many firms with no control over price, producing identical products. 
C) a few firms with some control over price, producing highly differentiated products. 
D) a few firms with no control over price, producing similar products. 
E) a single firm producing all of the output for the industry, with strong control over price. 
A) many firms with some control over price, and some product differentiation. 
B) many firms with no control over price, producing identical products. 
C) a few firms with some control over price, producing highly differentiated products. 
D) a few firms with no control over price, producing similar products. 
E) a single firm producing all of the output for the industry, with strong control over price.

Question 14

Figure 10-14
  
-Refer to Figure 10-14. This firm will maximize profits by producing a quantity of output equal to

Accepted Answer

A) I and charging a price equal to A. 
B) I and charging a price equal to C. 
C) I and charging a price equal to D. 
D) J and charging a price equal to B. 
A) I and charging a price equal to A. 
B) I and charging a price equal to C. 
C) I and charging a price equal to D. 
D) J and charging a price equal to B.

Question 15

Which of the following statements is correct?

Accepted Answer

A) Price discrimination is always more profitable than charging a single price. 
B) A price discriminator would want to charge the highest price to those customers with the most elastic demand for his product. 
C) To be successful, a price discriminator must assure that items can be resold between high- and low-price groups. 
D) To maximize profit, a price discriminator distinguishes groups with different demands and charges higher prices to those with the more inelastic demand. 
A) Price discrimination is always more profitable than charging a single price. 
B) A price discriminator would want to charge the highest price to those customers with the most elastic demand for his product. 
C) To be successful, a price discriminator must assure that items can be resold between high- and low-price groups. 
D) To maximize profit, a price discriminator distinguishes groups with different demands and charges higher prices to those with the more inelastic demand.

Question 16

In order for a firm to be able to engage in price discrimination, it must be able to

Accepted Answer

A) identify and separate groups with different price elasticities of demand. 
B) prevent resale of the product between customer groups. 
C) maximize profits at the point where average total cost is minimized. 
D) do both a and b, but not c. 
A) identify and separate groups with different price elasticities of demand. 
B) prevent resale of the product between customer groups. 
C) maximize profits at the point where average total cost is minimized. 
D) do both a and b, but not c.

Question 17

Figure 10-14
  
-Refer to Figure 10-14. The firm is currently earning an economic

Accepted Answer

A) profit equal to the area AHFC. 
B) profit equal to the area CFED. 
C) loss equal to the area AHED. 
D) loss equal to the area CFED. 
A) profit equal to the area AHFC. 
B) profit equal to the area CFED. 
C) loss equal to the area AHED. 
D) loss equal to the area CFED.

Question 18

When a profit-maximizing firm in a competitive price-searcher market is in long-run equilibrium, price equals

Accepted Answer

A) marginal cost, and profits are positive. 
B) average total cost, and profits are zero. 
C) marginal cost, and profits are zero. 
D) average total cost, and profits are positive. 
A) marginal cost, and profits are positive. 
B) average total cost, and profits are zero. 
C) marginal cost, and profits are zero. 
D) average total cost, and profits are positive.

Question 19

If a market is contestable, the market will be characterized by

Accepted Answer

A) minimum-cost production methods and a competitive (normal) profit rate. 
B) high barriers to entry and a small number of suppliers. 
C) prices in excess of production costs and mergers leading to monopoly. 
D) a large number of suppliers offering a homogeneous product. 
A) minimum-cost production methods and a competitive (normal) profit rate. 
B) high barriers to entry and a small number of suppliers. 
C) prices in excess of production costs and mergers leading to monopoly. 
D) a large number of suppliers offering a homogeneous product.

Question 20

When a competitive price-searcher market is in long-run equilibrium, the firms in the market will earn

Accepted Answer

A) substantial economic profits. 
B) zero economic profits. 
C) significant economic losses. 
D) an above-normal accounting rate of return. 
A) substantial economic profits. 
B) zero economic profits. 
C) significant economic losses. 
D) an above-normal accounting rate of return.

Exam 10: Price-Searcher Markets With Low Entry Barriers

Which of the following is characteristic of a firm that is a competitive price searcher?

Entrepreneurial judgment

If a firm in a competitive price-searcher market finds that its marginal revenue exceeds its marginal cost at the current rate of output, it should

A competitive price-searcher market is characterized by firms

Firms that engage in price discrimination

Which of the following is true for a price-searcher firm?

As long as a market is contestable, then even if it has only a few sellers, the

Suppose that a price-discriminating firm divides its market into two segments. If the firm sells its product for a price of $42 in the market segment where demand is relatively less elastic, the price in the market segment whose customers' demand is more elastic will be

Which of the following provides the strongest evidence that a firm operating in the highly competitive retail sector is failing to provide goods and services that consumers value highly relative to their cost?

Figure 10-5 -Given the cost and demand conditions depicted in Figure 10-5 for the competitive price-searcher firm, what is the price that the firm should charge if it wants to maximize its profit?

If a contestable market has only one seller, which of the following will keep the seller from producing inefficiently and charging a price that generates long-run economic profits?

A price searcher confronts a downward sloping demand curve because

A competitive price-searcher market is best described as

Figure 10-14 -Refer to Figure 10-14. This firm will maximize profits by producing a quantity of output equal to

Which of the following statements is correct?

In order for a firm to be able to engage in price discrimination, it must be able to

Figure 10-14 -Refer to Figure 10-14. The firm is currently earning an economic

When a profit-maximizing firm in a competitive price-searcher market is in long-run equilibrium, price equals

If a market is contestable, the market will be characterized by

When a competitive price-searcher market is in long-run equilibrium, the firms in the market will earn

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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