Question 1

If a price searcher is producing at a level of output such that its marginal cost is $5 and its marginal revenue is $3, the firm should

Accepted Answer

A) increase output in order to reduce per-unit costs. 
B) decrease the price of its product and expand output. 
C) increase price and reduce its rate of output. 
D) reduce both price and output. 
A) increase output in order to reduce per-unit costs. 
B) decrease the price of its product and expand output. 
C) increase price and reduce its rate of output. 
D) reduce both price and output.

Question 2

When an entrepreneur introduces a new improved product that is highly valued relative to cost

Accepted Answer

A) consumers will be worse off. 
B) the demand for the products that are good substitutes for the new product will increase. 
C) some of the existing products will become obsolete and businesses producing those products will fail. 
D) total employment will decline if there are business failures. 
A) consumers will be worse off. 
B) the demand for the products that are good substitutes for the new product will increase. 
C) some of the existing products will become obsolete and businesses producing those products will fail. 
D) total employment will decline if there are business failures.

Question 3

In the real world, when there is no decision rule that can be applied using only information that is freely available, which of the following is most needed?

Accepted Answer

A) government direction 
B) entrepreneurial judgment 
C) protection from competition 
D) team production 
A) government direction 
B) entrepreneurial judgment 
C) protection from competition 
D) team production

Question 4

Price discrimination refers to a system of pricing

Accepted Answer

A) based on buyer income rather than buyer demand conditions, so the poor pay more than the rich. 
B) that is always more profitable than simple "single-price" pricing. 
C) that forces customers who require more service to pay higher prices. 
D) where consumer groups with a more elastic demand for the product are charged lower prices. 
A) based on buyer income rather than buyer demand conditions, so the poor pay more than the rich. 
B) that is always more profitable than simple "single-price" pricing. 
C) that forces customers who require more service to pay higher prices. 
D) where consumer groups with a more elastic demand for the product are charged lower prices.

Question 5

If firms in a competitive price-searcher market are currently experiencing economic profits, then over time,

Accepted Answer

A) new firms will enter the market, and the current firms will experience a decrease in demand for their products until zero economic profit is again restored. 
B) new firms will enter the market, and the current firms will experience an increase in demand for their products until zero economic profit is again restored. 
C) some existing firms will exit the market, and the remaining firms will experience an increase in demand for their products until zero economic profit is again restored. 
D) some existing firms will exit the market, and the remaining firms will experience a decrease in demand for their products until zero economic profit is again restored. 
A) new firms will enter the market, and the current firms will experience a decrease in demand for their products until zero economic profit is again restored. 
B) new firms will enter the market, and the current firms will experience an increase in demand for their products until zero economic profit is again restored. 
C) some existing firms will exit the market, and the remaining firms will experience an increase in demand for their products until zero economic profit is again restored. 
D) some existing firms will exit the market, and the remaining firms will experience a decrease in demand for their products until zero economic profit is again restored.

Question 6

Figure 10-5
  
-Given that the short-run cost and demand conditions shown in Figure 10-5 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 face competition from new entrants into the industry, but since lower prices will increase total sales, profit will stay the same as that shown in the figure. 
D) 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. 
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 face competition from new entrants into the industry, but since lower prices will increase total sales, profit will stay the same as that shown in the figure. 
D) 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.

Question 7

Figure 10-7
  
-Given the cost and demand conditions shown in Figure 10-7 for the competitive price-searcher firm, what price should it charge, and what quantity should it produce in order to maximize profit?

Accepted Answer

A) It should produce 10 units and charge a price of $5 per unit. 
B) It should produce 10 units and charge a price of $8 per unit. 
C) It should produce 10 units and charge a price of $10 per unit. 
D) It should produce 18 units and charge a price of $7 per unit. 
A) It should produce 10 units and charge a price of $5 per unit. 
B) It should produce 10 units and charge a price of $8 per unit. 
C) It should produce 10 units and charge a price of $10 per unit. 
D) It should produce 18 units and charge a price of $7 per unit.

Question 8

Which of the following is a major difference between a competitive price searcher and a price taker?

Accepted Answer

A) Price takers need to compete through advertising because they cannot choose their own price, whereas competitive price searchers compete primarily through their pricing policies. 
B) Price takers are exposed to competition because of low barriers to entry, whereas competitive price searchers are somewhat immune from competition due to relatively high barriers to entry. 
C) Price takers can never earn economic profits, whereas competitive price searchers can earn economic profits in the short run. 
D) Price takers produce identical goods, whereas competitive price searchers produce goods that are differentiated from the goods produced by their competitors. 
A) Price takers need to compete through advertising because they cannot choose their own price, whereas competitive price searchers compete primarily through their pricing policies. 
B) Price takers are exposed to competition because of low barriers to entry, whereas competitive price searchers are somewhat immune from competition due to relatively high barriers to entry. 
C) Price takers can never earn economic profits, whereas competitive price searchers can earn economic profits in the short run. 
D) Price takers produce identical goods, whereas competitive price searchers produce goods that are differentiated from the goods produced by their competitors.

Question 9

Suppose housing construction is a price-searcher market with low barriers to entry. Which of the following will be true for this market?

Accepted Answer

A) The output of the housing construction firms will be produced inefficiently. 
B) Consumers would be better off if there were fewer firms and less variety in the housing market. 
C) If firms produced larger quantities but less variety, they could reduce the per-unit costs. 
D) Consumers do not have to pay for variety in the housing construction market. 
A) The output of the housing construction firms will be produced inefficiently. 
B) Consumers would be better off if there were fewer firms and less variety in the housing market. 
C) If firms produced larger quantities but less variety, they could reduce the per-unit costs. 
D) Consumers do not have to pay for variety in the housing construction market.

Question 10

A competitive price-searcher firm is currently producing 10 units of output. At this level of output the firm is charging a price equal to $10, has marginal revenue equal to $6, has marginal cost equal to $6, and has average total cost equal to $12. From this information we can conclude that

Accepted Answer

A) the firm is currently maximizing its profit. 
B) the profits of the firm are positive. 
C) firms are likely to enter this market in the long run. 
D) the firm would earn more profit by expanding output 
A) the firm is currently maximizing its profit. 
B) the profits of the firm are positive. 
C) firms are likely to enter this market in the long run. 
D) the firm would earn more profit by expanding output

Question 11

A firm in a competitive price-searcher market can raise its price without losing all of its customers. This is a result of

Accepted Answer

A) low entry barriers. 
B) a perfectly elastic market demand. 
C) the small number of firms in the market. 
D) product differentiation. 
A) low entry barriers. 
B) a perfectly elastic market demand. 
C) the small number of firms in the market. 
D) product differentiation.

Question 12

Compared to the outcome when the firms are price takers, competitive price-searcher markets will result in

Accepted Answer

A) a wider variety of products and higher prices. 
B) less product variety and higher prices. 
C) a wider variety of products and lower prices. 
D) less product variety and lower prices. 
A) a wider variety of products and higher prices. 
B) less product variety and higher prices. 
C) a wider variety of products and lower prices. 
D) less product variety and lower prices.

Question 13

Figure 10-12

-Refer to Figure 10-12. Panel (b) is consistent with a firm in a competitive price-searcher market that is

Accepted Answer

A) not in long-run equilibrium. 
B) in long-run equilibrium. 
C) producing its efficient scale of output. 
D) earning a positive economic profit. 
A) not in long-run equilibrium. 
B) in long-run equilibrium. 
C) producing its efficient scale of output. 
D) earning a positive economic profit.

Question 14

If economic profits were present in a competitive price-searcher industry,

Accepted Answer

A) production inefficiency would develop, causing costs to increase until the profits had been eliminated. 
B) firms would operate in the short run, but they would be forced out of business in the long run as competition eliminated the economic profit. 
C) competition from new entrants would occur until the economic profits had been eliminated. 
D) the firms would eventually find these profits offset by long-run economic losses. 
A) production inefficiency would develop, causing costs to increase until the profits had been eliminated. 
B) firms would operate in the short run, but they would be forced out of business in the long run as competition eliminated the economic profit. 
C) competition from new entrants would occur until the economic profits had been eliminated. 
D) the firms would eventually find these profits offset by long-run economic losses.

Question 15

Figure 10-2
  
-If the cost and demand conditions of this competitive price-searcher firm depicted in Figure 10-2 are representative of the market, what will happen in the future?

Accepted Answer

A) 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 demand facing this firm will decline. 
D) The firms in this industry probably will collude in order to increase their profitability. 
A) 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 demand facing this firm will decline. 
D) The firms in this industry probably will collude in order to increase their profitability.

Question 16

A market in which the costs of entry and exit are low is called a

Accepted Answer

A) regulated market. 
B) monopoly market. 
C) market with high barriers to entry. 
D) contestable market. 
A) regulated market. 
B) monopoly market. 
C) market with high barriers to entry. 
D) contestable market.

Question 17

Figure 10-9
  
-What is the maximum economic profit this firm depicted in Figure 10-9 will be able to earn?

Accepted Answer

A) zero profit 
B) $200 profit 
C) $400 profit 
D) $600 profit 
A) zero profit 
B) $200 profit 
C) $400 profit 
D) $600 profit

Question 18

Figure 10-13
  
-Refer to Figure 10-13. The firm is currently earning an economic

Accepted Answer

A) profit equal to the area CKGA. 
B) profit equal to the area DJGA. 
C) loss equal to the area CKGA. 
D) loss equal to the area DJGA. 
A) profit equal to the area CKGA. 
B) profit equal to the area DJGA. 
C) loss equal to the area CKGA. 
D) loss equal to the area DJGA.

Question 19

If the firms in a competitive price-searcher market are earning zero economic profit, this indicates that the

Accepted Answer

A) market is not in long-run equilibrium. 
B) firms are earning the normal rate of return. 
C) firms are performing worse than the firms in other markets. 
D) firms are performing better than firms in other markets. 
A) market is not in long-run equilibrium. 
B) firms are earning the normal rate of return. 
C) firms are performing worse than the firms in other markets. 
D) firms are performing better than firms in other markets.

Question 20

A competitive price-searcher market is characterized by firms

Accepted Answer

A) being able to choose their price and by low barriers preventing firms from entering or leaving the market. 
B) being able to choose their price and by high barriers preventing firms from entering or leaving the market. 
C) having to accept the market price for their product and by high barriers preventing firms from entering or leaving the market. 
D) having to accept the market price for their product and by low barriers preventing firms from entering or leaving the market. 
A) being able to choose their price and by low barriers preventing firms from entering or leaving the market. 
B) being able to choose their price and by high barriers preventing firms from entering or leaving the market. 
C) having to accept the market price for their product and by high barriers preventing firms from entering or leaving the market. 
D) having to accept the market price for their product and by low barriers preventing firms from entering or leaving the market.

Exam 10: Price-Searcher Markets With Low Entry Barriers

If a price searcher is producing at a level of output such that its marginal cost is $5 and its marginal revenue is $3, the firm should

When an entrepreneur introduces a new improved product that is highly valued relative to cost

In the real world, when there is no decision rule that can be applied using only information that is freely available, which of the following is most needed?

Price discrimination refers to a system of pricing

If firms in a competitive price-searcher market are currently experiencing economic profits, then over time,

Figure 10-5 -Given that the short-run cost and demand conditions shown in Figure 10-5 for the competitive price-searcher firm are representative for all firms in the industry, what will happen in this industry in the long run?

Figure 10-7 -Given the cost and demand conditions shown in Figure 10-7 for the competitive price-searcher firm, what price should it charge, and what quantity should it produce in order to maximize profit?

Which of the following is a major difference between a competitive price searcher and a price taker?

Suppose housing construction is a price-searcher market with low barriers to entry. Which of the following will be true for this market?

A competitive price-searcher firm is currently producing 10 units of output. At this level of output the firm is charging a price equal to $10, has marginal revenue equal to $6, has marginal cost equal to $6, and has average total cost equal to $12. From this information we can conclude that

A firm in a competitive price-searcher market can raise its price without losing all of its customers. This is a result of

Compared to the outcome when the firms are price takers, competitive price-searcher markets will result in

Figure 10-12 -Refer to Figure 10-12. Panel (b) is consistent with a firm in a competitive price-searcher market that is

If economic profits were present in a competitive price-searcher industry,

Figure 10-2 -If the cost and demand conditions of this competitive price-searcher firm depicted in Figure 10-2 are representative of the market, what will happen in the future?

A market in which the costs of entry and exit are low is called a

Figure 10-9 -What is the maximum economic profit this firm depicted in Figure 10-9 will be able to earn?

Figure 10-13 -Refer to Figure 10-13. The firm is currently earning an economic

If the firms in a competitive price-searcher market are earning zero economic profit, this indicates that the

A competitive price-searcher market is characterized by firms

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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