Question 1

Figure 9-14 
Consider Figure 9-14. At which quantity will this firm maximize profit?

Accepted Answer

A)  point a 
B)  point b 
C)  point c 
D)  point d 
E)  point e

Question 2

The exit of existing firms from a competitive market will

Accepted Answer

A)  increase market supply and increase market prices. 
B)  increase market supply and decrease market prices. 
C)  decrease market supply and increase market prices. 
D)  decrease market supply and decrease market prices.

Question 3

Suppose the minimum average total cost (ATC) of a firm competing in a competitive price-taker market was $1.00 per unit and that the firm's minimum average variable cost (AVC) was $.80 per unit. If the market price was $.75 per unit, a profit-seeking firm would

Accepted Answer

A)  shut down immediately. 
B)  produce where MR = MC in the short run. 
C)  shut down in the long run but remain in business in the short run. 
D)  do both b and c.

Question 4

The main difference between a firm that is a price searcher and a firm that is a price taker is that a

Accepted Answer

A)  price searcher produces products that are identical to its competitors' products. 
B)  price taker can decide what price to charge for its product. 
C)  price searcher cannot decide what price to charge for its product. 
D)  price searcher will still be able to sell some of its product if it increases its price.

Question 5

When a law is passed that requires businesses to obtain permission from government officials in order to enter a market, this is an example of

Accepted Answer

A)  price-control legislation. 
B)  a barrier to entry 
C)  antitrust legislation. 
D)  the invisible hand principle.

Question 6

Suppose the demand for large (and therefore high-gasoline consumption) cars decreases sharply during an energy crisis. The most likely market adjustment would be

Accepted Answer

A)  a sharp rise in the price of large cars in the short run as people rush to purchase these vehicles before producers cut back on manufacturing them. 
B)  a moderate increase in short-run prices, followed by a larger long-run price increase as the supply of large cars is depleted. 
C)  lower short-run prices, which will lead to an expansion in the number of large cars sold. 
D)  a decrease in the price of large cars in the short run, leading to a reduction in output, which will moderate the price decline in the long run.

Question 7

A price-taker firm is currently producing 50 units of output at an average total cost of $3 per unit. If the market price is $7, then the firm's total economic profit is

Accepted Answer

A)  $4. 
B)  $150. 
C)  $200. 
D)  $350.

Question 8

Which of the following is the best example of a business firm operating in a competitive price-taker market?

Accepted Answer

A)  a Midwest farmer producing beef cattle 
B)  a Laundromat located a few blocks from a major university 
C)  a pizza parlor located in a major metropolitan area 
D)  a small brewery supplying a local brand of beer 
E)  Wal-Mart, a large retailer that competes in many markets

Question 9

In the short run, a profit-maximizing firm in a price-taker market will definitely stop production if

Accepted Answer

A)  economic profit is zero. 
B)  price falls below average total cost. 
C)  price is less than average variable cost. 
D)  it cannot completely cover its fixed costs.

Question 10

Which of the following is the best example of a business firm operating in a competitive price-taker market?

Accepted Answer

A)  TGIFriday's, a restaurant chain that operates in numerous locations 
B)  a bookstore located a few blocks from a major university 
C)  Ford Motor company, a major manufacturer of automobiles that operates in numerous markets throughout the world 
D)  an Indiana hog farmer that raises pigs

Question 11

If a decrease in the demand for corn leads to economic losses for corn farmers,

Accepted Answer

A)  some existing corn farmers will exit the industry. 
B)  the price of corn will remain low in the long run due to the economic losses. 
C)  the suppliers of corn will suffer long-run economic losses. 
D)  all of the above are correct.

Question 12

"Competitive price-taker markets" and "purely competitive markets" are

Accepted Answer

A)  similar, but competition is stronger in the latter. 
B)  similar, but products are differentiated in the former. 
C)  merely alternative names for the same concept. 
D)  terms used to designate markets in which the firms confront a downward sloping demand curve.

Question 13

Suppose the total cost for various levels of output for a competitive price-taker firm are given in the table below:

If the market price is $8, how many units should the firm produce to maximize profit?

Accepted Answer

A)  5 
B)  6 
C)  7 
D)  8

Question 14

Fun Time Inc. uses the same property and equipment to provide skiing services for six months during the winter and mountain roller boarding for six months during the summer. Monthly revenue and cost figures during the summer and winter months for Fun Time are shown below. Fun Time's $1,000 monthly fixed costs will be incurred as long as it remains in business.

Which of the following should Fun Time do if it wants to maximize its annual profit?

Accepted Answer

A)  operate in both the winter and summer 
B)  operate in the summer, but shut down during the winter 
C)  operate in the winter, but shut down during the summer 
D)  go out of business immediately

Question 15

If the market price in a price-taking industry was currently above the average total cost of production for firms in the industry,

Accepted Answer

A)  firms in the industry would earn short-run economic profits that would be offset by long-run economic losses. 
B)  new firms would enter the industry, which would drive price down to the average total cost of production in the long run. 
C)  firms in the industry would earn positive economic profits in the long run. 
D)  most firms in the industry would shut down in the long run.

Question 16

Which of the following conditions will be present when a price-taker market is in long-run equilibrium?

Accepted Answer

A)  Price will exceed marginal revenue. 
B)  Firms will earn economic profit. 
C)  Marginal revenue will exceed marginal cost. 
D)  Average total cost will be at a minimum.

Question 17

Amy runs a business in a market where all firms are price takers. Bill suggests that she lower her price to attract even more business. Should Amy follow Bill's suggestion, or should she even consider raising her price?

Accepted Answer

The answer of Amy runs a business in a market...

Question 18

If a price-taker industry is in long-run equilibrium, the market price in the industry will be just sufficient to cover the firm's average

Accepted Answer

A)  total costs. 
B)  fixed costs. 
C)  variable costs. 
D)  variable costs plus a 10 percent accounting profit.

Question 19

Which of the following is true?

Accepted Answer

A)  When firms in a price-taker market are earning zero economic profit, they will shut down. 
B)  When firms in a price-taker market are earning positive economic profits, new firms will enter the industry causing the market price to fall until the firms in the industry are earning only zero economic profit. 
C)  When firms in a price-taker market are earning economic losses, some firms will exit the industry causing the market price to rise until the remaining firms are earning zero economic profit. 
D)  Both b and c are true.

Question 20

When a firm in a price-taker industry is in long-run equilibrium, the market price equals

Accepted Answer

A)  marginal cost but may be greater or less than average total cost. 
B)  both average total cost and marginal cost. 
C)  average total cost but may be greater or less than marginal cost. 
D)  marginal revenue but may be greater or less than both average total cost and marginal cost.

Exam 9: Price Takers and the Competitive Process

Figure 9-14 Consider Figure 9-14. At which quantity will this firm maximize profit?

The exit of existing firms from a competitive market will

Suppose the minimum average total cost (ATC) of a firm competing in a competitive price-taker market was $1.00 per unit and that the firm's minimum average variable cost (AVC) was $.80 per unit. If the market price was $.75 per unit, a profit-seeking firm would

The main difference between a firm that is a price searcher and a firm that is a price taker is that a

When a law is passed that requires businesses to obtain permission from government officials in order to enter a market, this is an example of

Suppose the demand for large (and therefore high-gasoline consumption) cars decreases sharply during an energy crisis. The most likely market adjustment would be

A price-taker firm is currently producing 50 units of output at an average total cost of $3 per unit. If the market price is $7, then the firm's total economic profit is

Which of the following is the best example of a business firm operating in a competitive price-taker market?

In the short run, a profit-maximizing firm in a price-taker market will definitely stop production if

Which of the following is the best example of a business firm operating in a competitive price-taker market?

If a decrease in the demand for corn leads to economic losses for corn farmers,

"Competitive price-taker markets" and "purely competitive markets" are

Suppose the total cost for various levels of output for a competitive price-taker firm are given in the table below: If the market price is $8, how many units should the firm produce to maximize profit?

If the market price in a price-taking industry was currently above the average total cost of production for firms in the industry,

Which of the following conditions will be present when a price-taker market is in long-run equilibrium?

Amy runs a business in a market where all firms are price takers. Bill suggests that she lower her price to attract even more business. Should Amy follow Bill's suggestion, or should she even consider raising her price?

If a price-taker industry is in long-run equilibrium, the market price in the industry will be just sufficient to cover the firm's average

Which of the following is true?

When a firm in a price-taker industry is in long-run equilibrium, the market price equals