Question 1

Which of the following is true when long-run equilibrium conditions are present in price-taker and competitive price-searcher markets?

Accepted Answer

A) MR = ATC in both price-taker and competitive price-searcher markets. 
B) P = ATC in price-taker markets; P = MC in competitive price-searcher markets. 
C) P = MC in both price-taker and competitive price-searcher markets. 
D) P = ATC in both price-taker and competitive price-searcher markets. 
A) MR = ATC in both price-taker and competitive price-searcher markets. 
B) P = ATC in price-taker markets; P = MC in competitive price-searcher markets. 
C) P = MC in both price-taker and competitive price-searcher markets. 
D) P = ATC in both price-taker and competitive price-searcher markets.

Question 2

Figure 10-3
  
-What price should a competitive price searcher firm with the cost and demand conditions depicted in Figure 10-3 charge if it wants to maximize its profit?

Accepted Answer

A) $6 
B) $8 
C) $10 
D) $12 
A) $6 
B) $8 
C) $10 
D) $12

Question 3

Which of the following is a term that is sometimes used to describe markets with low entry barriers and firms that are price searchers?

Accepted Answer

A) pure competition 
B) monopoly 
C) monopolistic competition 
D) oligopoly 
A) pure competition 
B) monopoly 
C) monopolistic competition 
D) oligopoly

Question 4

Which of the following businesses is most likely to be able to increase its total revenues by employing price discrimination?

Accepted Answer

A) an automobile dealership 
B) a retail furniture store 
C) a grocery store chain like Publix or Kroger 
D) a college or university 
A) an automobile dealership 
B) a retail furniture store 
C) a grocery store chain like Publix or Kroger 
D) a college or university

Question 5

Figure 10-5
  
-Given the cost and demand conditions shown in Figure 10-5 for the competitive price-searcher firm, what is the level of output it should produce to maximize its profit?

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
A) 1 
B) 2 
C) 3 
D) 4

Question 6

In competitive price-searcher markets, short-run economic profits will lead to

Accepted Answer

A) long-run economic profits. 
B) the exit of firms from the market and the eventual restoration of zero long-run economic profits. 
C) the entry of additional firms into the market and the eventual restoration of zero long-run economic profits. 
D) the entry of additional firms into the market, which increases the demand for the product of each firm in the market. 
A) long-run economic profits. 
B) the exit of firms from the market and the eventual restoration of zero long-run economic profits. 
C) the entry of additional firms into the market and the eventual restoration of zero long-run economic profits. 
D) the entry of additional firms into the market, which increases the demand for the product of each firm in the market.

Question 7

If a new entrant (or an established firm) wants to leave a contestable market,

Accepted Answer

A) all, or nearly all of, the invested capital values can be recovered. 
B) another firm will always enter to take its place. 
C) it must accept large losses in its capital investment, so it is unlikely to exit. 
D) its leaving will be contested by regulators in the market who seek to prevent exit. 
A) all, or nearly all of, the invested capital values can be recovered. 
B) another firm will always enter to take its place. 
C) it must accept large losses in its capital investment, so it is unlikely to exit. 
D) its leaving will be contested by regulators in the market who seek to prevent exit.

Question 8

In the real world, business decisions must be made through insight, trial, and error, without perfect knowledge about demand and costs. Will the profit-maximizing prices and levels of output from the simple economic models still be good guides to real outcomes?

Accepted Answer

A) No, because the simple economic models ignore the opportunity cost of resources. 
B) No, because even entrepreneurs who are able to find the profit-maximizing prices and level of output will be unable to compete with other entrepreneurs who charge higher prices. 
C) Yes, because they can hire economists who have sufficient knowledge of costs and demand conditions. 
D) Yes, because the entrepreneurs who are best able to find the profit-maximizing prices and output levels will survive and expand, driving others out of competitive markets. 
A) No, because the simple economic models ignore the opportunity cost of resources. 
B) No, because even entrepreneurs who are able to find the profit-maximizing prices and level of output will be unable to compete with other entrepreneurs who charge higher prices. 
C) Yes, because they can hire economists who have sufficient knowledge of costs and demand conditions. 
D) Yes, because the entrepreneurs who are best able to find the profit-maximizing prices and output levels will survive and expand, driving others out of competitive markets.

Question 9

The fact that barriers to entry are low in competitive price-searcher markets means that if current firms are making economic losses,

Accepted Answer

A) these losses will remain in the long run because firms will not exit the market. 
B) some current firms will exit the market, causing the demand curves that face the remaining firms to increase. 
C) new firms will enter the market, causing the demand curves that face the existing firms to decrease. 
D) new firms will enter the market, causing no change in the demand curves that face the existing firms in the market. 
A) these losses will remain in the long run because firms will not exit the market. 
B) some current firms will exit the market, causing the demand curves that face the remaining firms to increase. 
C) new firms will enter the market, causing the demand curves that face the existing firms to decrease. 
D) new firms will enter the market, causing no change in the demand curves that face the existing firms in the market.

Question 10

Even when there are only a few firms in a market, the market can still be competitive as long as barriers to entry are low. Markets of this type are called

Accepted Answer

A) monopolistic markets. 
B) price-taker markets. 
C) contestable markets. 
D) convertible markets. 
A) monopolistic markets. 
B) price-taker markets. 
C) contestable markets. 
D) convertible markets.

Question 11

Which of the following is a true statement about the difference between a price-taker firm and a competitive price-searcher firm in the long run?

Accepted Answer

A) Both will sell their products at a price equal to average total cost, but only the price taker will produce at minimum average total cost. 
B) Both will sell their products at a price equal to average total cost, but only the competitive price searcher will produce at minimum average total cost. 
C) Only the price taker will sell its product at a price equal to average total cost. 
D) Only the competitive price searcher will sell its product at a price equal to average total cost. 
A) Both will sell their products at a price equal to average total cost, but only the price taker will produce at minimum average total cost. 
B) Both will sell their products at a price equal to average total cost, but only the competitive price searcher will produce at minimum average total cost. 
C) Only the price taker will sell its product at a price equal to average total cost. 
D) Only the competitive price searcher will sell its product at a price equal to average total cost.

Question 12

Many small U.S. cities are served by only one or two airlines. If a price increase in these markets allows other airlines to quickly and easily enter the market and compete, economists would call these markets

Accepted Answer

A) contestable markets. 
B) high entry markets. 
C) conventional markets. 
D) monopolistic markets. 
A) contestable markets. 
B) high entry markets. 
C) conventional markets. 
D) monopolistic markets.

Question 13

A firm in a competitive price-searcher market faces

Accepted Answer

A) a horizontal demand curve at the market equilibrium price. 
B) a horizontal demand curve at every price. 
C) an upward-sloping demand curve. 
D) a downward-sloping demand curve. 
A) a horizontal demand curve at the market equilibrium price. 
B) a horizontal demand curve at every price. 
C) an upward-sloping demand curve. 
D) a downward-sloping demand curve.

Question 14

Which of the following characteristics is true for a competitive price searcher but not for a price taker?

Accepted Answer

A) The firm earns zero profits in the long run. 
B) The firm has an incentive to operate efficiently. 
C) A reduction in market demand will lead to short-run losses. 
D) Price is above marginal cost in long-run equilibrium. 
A) The firm earns zero profits in the long run. 
B) The firm has an incentive to operate efficiently. 
C) A reduction in market demand will lead to short-run losses. 
D) Price is above marginal cost in long-run equilibrium.

Question 15

The strategy underlying price discrimination is to

Accepted Answer

A) charge higher prices to customers who have better access to substitutes. 
B) charge everyone the same price but limit the quantity they are allowed to buy. 
C) increase total revenue by charging higher prices to those with the most inelastic demand for the product and lower prices to those with the most elastic demand. 
D) reduce per-unit cost to the firm by charging higher prices to those with the most inelastic demand and lower prices to those with the most elastic demand. 
A) charge higher prices to customers who have better access to substitutes. 
B) charge everyone the same price but limit the quantity they are allowed to buy. 
C) increase total revenue by charging higher prices to those with the most inelastic demand for the product and lower prices to those with the most elastic demand. 
D) reduce per-unit cost to the firm by charging higher prices to those with the most inelastic demand and lower prices to those with the most elastic demand.

Question 16

Assume a competitive price-searcher firm is earning an economic profit. The marginal revenue from selling an additional unit is $30 and the marginal cost of producing that additional unit is $23. The firm should

Accepted Answer

A) change neither its price nor its output level 
B) reduce its price and increase its output level 
C) increase its price and reduce its output level 
D) reduce both its price and its output level 
E) increase both its price and its output level 
A) change neither its price nor its output level 
B) reduce its price and increase its output level 
C) increase its price and reduce its output level 
D) reduce both its price and its output level 
E) increase both its price and its output level

Question 17

In a competitive price-searcher market, the firms will

Accepted Answer

A) be able to choose their price, and the entry barriers into the market will be low. 
B) be able to choose their price, and the entry barriers into the market will be high. 
C) have to accept the market price for their product, and the entry barriers into the market will be low. 
D) have to accept the market price for their product, and the entry barriers into the market will be high. 
A) be able to choose their price, and the entry barriers into the market will be low. 
B) be able to choose their price, and the entry barriers into the market will be high. 
C) have to accept the market price for their product, and the entry barriers into the market will be low. 
D) have to accept the market price for their product, and the entry barriers into the market will be high.

Question 18

Figure 10-2
  
-What price should a competitive price-searcher firm with the cost and demand conditions depicted in Figure 10-2 charge if it wants to maximize its profit?

Accepted Answer

A) $5 
B) $7 
C) $8 
D) $10 
A) $5 
B) $7 
C) $8 
D) $10

Question 19

If firms in a competitive price-searcher market are currently earning economic losses, then in the long run,

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 20

Because barriers to entry are low in competitive price-searcher markets, in the long run, a firm's price will be equal to

Accepted Answer

A) marginal revenue. 
B) average total cost. 
C) average variable cost. 
D) average fixed cost. 
A) marginal revenue. 
B) average total cost. 
C) average variable cost. 
D) average fixed cost.

Exam 10: Price-Searcher Markets With Low Entry Barriers

Which of the following is true when long-run equilibrium conditions are present in price-taker and competitive price-searcher markets?

Figure 10-3 -What price should a competitive price searcher firm with the cost and demand conditions depicted in Figure 10-3 charge if it wants to maximize its profit?

Which of the following is a term that is sometimes used to describe markets with low entry barriers and firms that are price searchers?

Which of the following businesses is most likely to be able to increase its total revenues by employing price discrimination?

Figure 10-5 -Given the cost and demand conditions shown in Figure 10-5 for the competitive price-searcher firm, what is the level of output it should produce to maximize its profit?

In competitive price-searcher markets, short-run economic profits will lead to

If a new entrant (or an established firm) wants to leave a contestable market,

In the real world, business decisions must be made through insight, trial, and error, without perfect knowledge about demand and costs. Will the profit-maximizing prices and levels of output from the simple economic models still be good guides to real outcomes?

The fact that barriers to entry are low in competitive price-searcher markets means that if current firms are making economic losses,

Even when there are only a few firms in a market, the market can still be competitive as long as barriers to entry are low. Markets of this type are called

Which of the following is a true statement about the difference between a price-taker firm and a competitive price-searcher firm in the long run?

Many small U.S. cities are served by only one or two airlines. If a price increase in these markets allows other airlines to quickly and easily enter the market and compete, economists would call these markets

A firm in a competitive price-searcher market faces

Which of the following characteristics is true for a competitive price searcher but not for a price taker?

The strategy underlying price discrimination is to

Assume a competitive price-searcher firm is earning an economic profit. The marginal revenue from selling an additional unit is $30 and the marginal cost of producing that additional unit is $23. The firm should

In a competitive price-searcher market, the firms will

Figure 10-2 -What price should a competitive price-searcher firm with the cost and demand conditions depicted in Figure 10-2 charge if it wants to maximize its profit?

If firms in a competitive price-searcher market are currently earning economic losses, then in the long run,

Because barriers to entry are low in competitive price-searcher markets, in the long run, a firm's price will be equal to

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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