Question 1

Figure 10-2
  
-What is the maximum economic profit this firm depicted in Figure 10-2 will be able to earn?

Accepted Answer

A) zero 
B) $20 
C) $30 
D) $100 
A) zero 
B) $20 
C) $30 
D) $100

Question 2

Which of the following statements best describes the price, output, and profit conditions of competitive price-searcher markets?

Accepted Answer

A) Price will equal marginal cost at the profit-maximizing level of output; profits will be positive in the long-run. 
B) Price will always equal average variable cost in the short run and either profits or losses may result in the long run. 
C) Marginal revenue will equal marginal cost at the short run, profit-maximizing level of output; in the long run, economic profit will be zero. 
D) Marginal revenue will equal average total cost in the short run; long-run economic profits will be zero. 
A) Price will equal marginal cost at the profit-maximizing level of output; profits will be positive in the long-run. 
B) Price will always equal average variable cost in the short run and either profits or losses may result in the long run. 
C) Marginal revenue will equal marginal cost at the short run, profit-maximizing level of output; in the long run, economic profit will be zero. 
D) Marginal revenue will equal average total cost in the short run; long-run economic profits will be zero.

Question 3

Evaluate the following statement: "Competitive price-searcher markets are inefficient relative to purely competitive markets since prices are higher and firms don't produce an output rate that minimizes average total cost. As a result, government action should be undertaken to remedy this situation."

Accepted Answer

Competitive price-searcher markets do ha

Question 4

If a price-searcher firm can sell 4 units at a price of $6 or it can sell 5 units at a price of $5, the marginal revenue from the fifth unit is

Accepted Answer

A) $1. 
B) $5. 
C) $6. 
D) $25. 
A) $1. 
B) $5. 
C) $6. 
D) $25.

Question 5

Cecilia's Café is in a competitive price-searcher market. Cecilia's is currently producing where average total cost is at its minimum, and Cecilia's is earning a positive economic profit. In the long run we would expect Cecilia's output to

Accepted Answer

A) decrease and average total cost to be higher. 
B) decrease and average total cost to be lower. 
C) remain unchanged as Cecilia's is doing the best it can. 
D) increase and average total costs to be lower. 
A) decrease and average total cost to be higher. 
B) decrease and average total cost to be lower. 
C) remain unchanged as Cecilia's is doing the best it can. 
D) increase and average total costs to be lower.

Question 6

Which of the following is a true statement?

Accepted Answer

A) A price-taker firm can sell additional units of output without having to lower its price, while a price-searcher firm must lower its price in order to sell additional units. 
B) A price-searcher firm can sell additional units of output without having to lower its price, while a price-taker firm must lower its price in order to sell additional units. 
C) Both price searchers and price takers can sell additional units of output without having to lower their price. 
D) Both price searchers and price takers must lower their price in order to sell additional units of output. 
A) A price-taker firm can sell additional units of output without having to lower its price, while a price-searcher firm must lower its price in order to sell additional units. 
B) A price-searcher firm can sell additional units of output without having to lower its price, while a price-taker firm must lower its price in order to sell additional units. 
C) Both price searchers and price takers can sell additional units of output without having to lower their price. 
D) Both price searchers and price takers must lower their price in order to sell additional units of output.

Question 7

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

Accepted Answer

A) earn economic profit. 
B) operate at an output level that minimizes long-run average total cost. 
C) charge a price that is equal to average total cost. 
D) operate at an output level where price is equal to marginal cost. 
A) earn economic profit. 
B) operate at an output level that minimizes long-run average total cost. 
C) charge a price that is equal to average total cost. 
D) operate at an output level where price is equal to marginal cost.

Question 8

Tombstones are produced in a competitive price-searcher market. One producer, Rolling Stones, sells 20 tombstones a week at a price of $500 each. Its average total cost is $600. From this information, we can conclude

Accepted Answer

A) new tombstone firms will want to enter. 
B) this producer is losing $2,000 a week. 
C) this producer is making an economic profit of $400. 
D) this producer is setting MR = MC. 
E) this producer should increase production. 
A) new tombstone firms will want to enter. 
B) this producer is losing $2,000 a week. 
C) this producer is making an economic profit of $400. 
D) this producer is setting MR = MC. 
E) this producer should increase production.

Question 9

A contestable market is a market

Accepted Answer

A) that is highly contested by two, and only two, rival firms. 
B) in which the costs of entry and exit are low. 
C) characterized by high profitability and government regulation. 
D) characterized by a large number of firms; in essence, the term means the same thing as pure competition. 
A) that is highly contested by two, and only two, rival firms. 
B) in which the costs of entry and exit are low. 
C) characterized by high profitability and government regulation. 
D) characterized by a large number of firms; in essence, the term means the same thing as pure competition.

Question 10

The table below presents the expected cost and demand schedules confronting Handy John, a chair manufacturer. Given this information, what will be the profit (or loss) of Handy John at the profit-maximizing price?

Accepted Answer

A) $200 loss 
B) $200 profit 
C) $150 profit 
D) $500 profit 
A) $200 loss 
B) $200 profit 
C) $150 profit 
D) $500 profit

Question 11

Sellers in competitive price-searcher markets

Accepted Answer

A) face competition both from existing firms and potential new entrants. 
B) face competition from existing firms but not from potential new entrants. 
C) face competition only from potential new entrants and only in the long run. 
D) can compete only by product quality since product prices are set by market forces. 
A) face competition both from existing firms and potential new entrants. 
B) face competition from existing firms but not from potential new entrants. 
C) face competition only from potential new entrants and only in the long run. 
D) can compete only by product quality since product prices are set by market forces.

Question 12

Monopolistic competition is a term referring to markets characterized by

Accepted Answer

A) price-taker firms. 
B) price-searcher firms in markets with low barriers to entry. 
C) price-searcher firms in markets with high barriers to entry. 
D) oligopoly, a small number of sellers. 
A) price-taker firms. 
B) price-searcher firms in markets with low barriers to entry. 
C) price-searcher firms in markets with high barriers to entry. 
D) oligopoly, a small number of sellers.

Question 13

If firms in competitive price-searcher markets are earning economic losses, what effect will the exit of existing firms have?

Accepted Answer

A) Demand for the product of each firm will be reduced until the losses are eliminated. 
B) Demand for the product of each firm will increase until all firms earn zero profit. 
C) Demand for the product of each firm will increase until price is greater than average total cost. 
D) Demand for the product of each firm will fall until price equals marginal cost. 
A) Demand for the product of each firm will be reduced until the losses are eliminated. 
B) Demand for the product of each firm will increase until all firms earn zero profit. 
C) Demand for the product of each firm will increase until price is greater than average total cost. 
D) Demand for the product of each firm will fall until price equals marginal cost.

Question 14

Figure 10-4
  
-If the cost and demand conditions of this competitive price-searcher firm depicted in Figure 10-4 are representative of the market, what will happen in the future?

Accepted Answer

A) Some firms will go out of business, and the market price will rise. 
B) The current market price will tend to persist into the future. 
C) New firms will enter the market, and the market price will decline. 
D) The firms in this industry will probably collude in order to increase their profitability. 
A) Some firms will go out of business, and the market price will rise. 
B) The current market price will tend to persist into the future. 
C) New firms will enter the market, and the market price will decline. 
D) The firms in this industry will probably collude in order to increase their profitability.

Question 15

Figure 10-14
  
-Refer to Figure 10-14. In the long run, we would expect

Accepted Answer

A) more firms to enter this industry until zero economic profits are restored. 
B) firms to exit this industry until zero economic profits are restored. 
C) the number of firms to remain constant and existing firms will continue to suffer economic losses in the long run. 
D) the number of firms to remain constant and existing firms will continue to earn economic profits in the long run. 
A) more firms to enter this industry until zero economic profits are restored. 
B) firms to exit this industry until zero economic profits are restored. 
C) the number of firms to remain constant and existing firms will continue to suffer economic losses in the long run. 
D) the number of firms to remain constant and existing firms will continue to earn economic profits in the long run.

Question 16

The free entry and exit of firms in a competitive price-searcher market guarantees that

Accepted Answer

A) both economic profits and economic losses can persist in the long run. 
B) both economic profits and economic losses disappear in the long run. 
C) economic profits, but not economic losses, can persist in the long run. 
D) economic losses, but not economic profits, can persist in the long run. 
A) both economic profits and economic losses can persist in the long run. 
B) both economic profits and economic losses disappear in the long run. 
C) economic profits, but not economic losses, can persist in the long run. 
D) economic losses, but not economic profits, can persist in the long run.

Question 17

If a government wanted to increase the prosperity of a nation, it could best serve this goal by

Accepted Answer

A) protecting domestic industries from international trade, thus encouraging domestic growth. 
B) regulating the way in which firms can operate. 
C) reducing barriers that restrict the ability of potential competitors to enter markets. 
D) subsidizing firms that are in danger of going out of business. 
A) protecting domestic industries from international trade, thus encouraging domestic growth. 
B) regulating the way in which firms can operate. 
C) reducing barriers that restrict the ability of potential competitors to enter markets. 
D) subsidizing firms that are in danger of going out of business.

Question 18

Figure 10-10
  
-What is the approximate maximum economic profit this firm depicted in Figure 10-10 will be able to earn per month?

Accepted Answer

A) zero profit 
B) $50,000 profit 
C) $200,000 profit 
D) $400,000 profit 
A) zero profit 
B) $50,000 profit 
C) $200,000 profit 
D) $400,000 profit

Question 19

Competitive price-searcher markets are common in

Accepted Answer

A) retail selling. 
B) farming. 
C) basic manufacturing. 
D) electric power generation. 
A) retail selling. 
B) farming. 
C) basic manufacturing. 
D) electric power generation.

Question 20

Which of the following is the major reason why most economists are reluctant to charge price searcher markets with allocative inefficiency?

Accepted Answer

A) Consumers value the wider variety of quality and styles in competitive price-searcher markets. 
B) Advertising costs are typically so small that they are irrelevant. 
C) Competitive price searchers always operate that the lowest point on their average total cost curve. 
D) Competitive price searchers charge a price equal to marginal cost. 
A) Consumers value the wider variety of quality and styles in competitive price-searcher markets. 
B) Advertising costs are typically so small that they are irrelevant. 
C) Competitive price searchers always operate that the lowest point on their average total cost curve. 
D) Competitive price searchers charge a price equal to marginal cost.

Exam 10: Price-Searcher Markets With Low Entry Barriers

Figure 10-2 -What is the maximum economic profit this firm depicted in Figure 10-2 will be able to earn?

Which of the following statements best describes the price, output, and profit conditions of competitive price-searcher markets?

If a price-searcher firm can sell 4 units at a price of $6 or it can sell 5 units at a price of $5, the marginal revenue from the fifth unit is

Cecilia's Café is in a competitive price-searcher market. Cecilia's is currently producing where average total cost is at its minimum, and Cecilia's is earning a positive economic profit. In the long run we would expect Cecilia's output to

Which of the following is a true statement?

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

Tombstones are produced in a competitive price-searcher market. One producer, Rolling Stones, sells 20 tombstones a week at a price of $500 each. Its average total cost is $600. From this information, we can conclude

A contestable market is a market

The table below presents the expected cost and demand schedules confronting Handy John, a chair manufacturer. Given this information, what will be the profit (or loss) of Handy John at the profit-maximizing price?

Sellers in competitive price-searcher markets

Monopolistic competition is a term referring to markets characterized by

If firms in competitive price-searcher markets are earning economic losses, what effect will the exit of existing firms have?

Figure 10-4 -If the cost and demand conditions of this competitive price-searcher firm depicted in Figure 10-4 are representative of the market, what will happen in the future?

Figure 10-14 -Refer to Figure 10-14. In the long run, we would expect

The free entry and exit of firms in a competitive price-searcher market guarantees that

If a government wanted to increase the prosperity of a nation, it could best serve this goal by

Figure 10-10 -What is the approximate maximum economic profit this firm depicted in Figure 10-10 will be able to earn per month?

Competitive price-searcher markets are common in

Which of the following is the major reason why most economists are reluctant to charge price searcher markets with allocative inefficiency?

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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