Question 1

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.

Question 2

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.

Question 3

A market will tend to be more competitive when

Accepted Answer

A)  there are a small number of firms in the market. 
B)  similar products are available from alternative sellers. 
C)  entry barriers into the market are high. 
D)  governments require firms to meet strict regulatory standards.

Question 4

When a firm is a price searcher, its marginal revenue is

Accepted Answer

A)  equal to price because the firm's demand curve is perfectly elastic. 
B)  equal to price if, and only if, the firm is maximizing profits. 
C)  less than price when the firm is maximizing profits. 
D)  equal to average total cost at the long-run equilibrium output rate.

Question 5

Figure 10-6 
Given that the short-run cost and demand conditions shown in Figure 10-6 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 see some of its competitors exit from the industry, causing this firm's demand to increase until zero economic profits are restored. 
D)  This industry is in long-run equilibrium and will not experience any new entry or exit of firms.

Question 6

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.

Question 7

Niceville, Ohio, only has two dentists, while the surrounding communities have many more on a per capita basis. The demand for dental services is such that these two dentists could agree to raise their prices (they play golf together every Saturday) and earn economic profit. Instead, they choose to price competitively and earn what other dentists earn. What might explain this?

Accepted Answer

The answer of Niceville, Ohio, only has two dentists, while...

Question 8

Price discrimination occurs when

Accepted Answer

A)  firms maximize their profit by setting price equal to marginal cost. 
B)  a seller charges different prices to different consumers for the same product or service. 
C)  a seller charges the same price to consumers for a different product or service. 
D)  a seller charges different prices to consumers, discriminating by race or gender of the consumer.

Question 9

If Dell Computer finds that its marginal cost exceeds its marginal revenue on a model of laptop, then to maximize profit, it will

Accepted Answer

A)  increase output if it is a price searcher, but this may not be proper if it is a price taker. 
B)  increase output if it is a price taker, but this may not be proper if it is a price searcher. 
C)  decrease output, regardless of whether it is a price taker or a price searcher. 
D)  increase output, regardless of whether it is a price taker or a price searcher.

Question 10

If a firm in a competitive price-searcher market raises its price, it will

Accepted Answer

A)  lose all of its sales. 
B)  increase its sales. 
C)  lose only some of its sales. 
D)  have to go out of business.

Question 11

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

Accepted Answer

A)  The top-level managers of the firm are paid high salaries. 
B)  The firm is on the verge of bankruptcy. 
C)  The firm is a large corporation. 
D)  The firm is highly profitable, and its sales have grown rapidly.

Question 12

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.

Question 13

Which of the following is a necessary condition for price discrimination to be profitable?

Accepted Answer

A)  All consumers must have identical preferences. 
B)  It must be easy to distinguish consumer groups with differing responses to higher prices. 
C)  The seller must face a horizontal demand curve for its product in at least one part of the market. 
D)  Both b and c are correct.

Question 14

Airlines generally charge travelers willing to stay over Saturday night lower fares because

Accepted Answer

A)  these travelers have lower incomes, and therefore, the airlines would like to help them. 
B)  it cost less to transport travelers willing to stay over a Saturday night. 
C)  the demand of these travelers is elastic, and therefore, the lower fares generate more revenue. 
D)  the demand of these travelers is inelastic, and therefore, the lower fares generate more revenue for the airlines.

Question 15

Economic analysis suggest that in a competitive market economy, when an entrepreneur has made a large profit,

Accepted Answer

A)  consumer benefits must have been reduced by at least the amount of the profit. 
B)  other producers have lost profits of the same size. 
C)  economic progress for society as a whole has normally been enhanced. 
D)  luck or chance, rather than productive activity, has nearly always been the largest factor.

Question 16

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.

Question 17

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

Question 18

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.

Question 19

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.

Question 20

When economic losses are present in a market, firms will tend to

Accepted Answer

A)  exit from the market. 
B)  raise their prices until the break-even point is reached. 
C)  lower their prices, regardless of cost, so they can capture more of the market. 
D)  increase output.

Exam 10: Price-Searcher Markets With Low Entry Barriers