Question 1

Which of the following is always true in competitive price-taker markets?

Accepted Answer

A)  There are more sellers than buyers. 
B)  Barriers to entry into the market are low. 
C)  The products of firms in the industry are differentiated. 
D)  The firms never earn economic profit. 
A)  There are more sellers than buyers. 
B)  Barriers to entry into the market are low. 
C)  The products of firms in the industry are differentiated. 
D)  The firms never earn economic profit.

Question 2

If the demand for a product increases in an increasing cost industry, as the market adjusts in the long run,

Accepted Answer

A)  price will rise. 
B)  the firm's per-unit costs will increase. 
C)  the firm's per-unit costs will fall. 
D)  the market price will return to its initial position. 
A)  price will rise. 
B)  the firm's per-unit costs will increase. 
C)  the firm's per-unit costs will fall. 
D)  the market price will return to its initial position.

Question 3

If a firm operates in a competitive industry and its unionized labor force is successful in bargaining for a wage increase, where is the firm likely to get the money to pay the higher wages?

Accepted Answer

If it is a competitive industry, the own

Question 4

Figure 9-17  
-Which of the following statements about the competitive price-taker firm represented in Figure 9-17 is false?

Accepted Answer

A)  Short-run losses are minimized at output level q* because MR = MC there. 
B)  The firm should shut down in the short run. 
C)  If the firm shuts down in the short run, it will suffer a loss equal to the amount of its fixed cost. 
D)  If the firm operates in the short run, it will suffer a loss greater than the amount of its fixed cost. 
E)  If the firm operates in the short run, it will suffer a loss equal to the amount of its fixed cost plus the uncovered portion of its variable cost. 
A)  Short-run losses are minimized at output level q* because MR = MC there. 
B)  The firm should shut down in the short run. 
C)  If the firm shuts down in the short run, it will suffer a loss equal to the amount of its fixed cost. 
D)  If the firm operates in the short run, it will suffer a loss greater than the amount of its fixed cost. 
E)  If the firm operates in the short run, it will suffer a loss equal to the amount of its fixed cost plus the uncovered portion of its variable cost.

Question 5

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. 
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 6

Competition as a dynamic process implies that individual firms in a market

Accepted Answer

A)  seek to utilize a variety of techniques, such as product, style, and convenience of location, to win the dollar vote of consumers, but they never use price to compete. 
B)  use price competition as well as other forms of competition to gain the dollar votes of consumers. 
C)  produce a homogeneous product. 
D)  cooperate, attempting to establish a price and output structure so each firm can survive and continue to serve the consumer. 
A)  seek to utilize a variety of techniques, such as product, style, and convenience of location, to win the dollar vote of consumers, but they never use price to compete. 
B)  use price competition as well as other forms of competition to gain the dollar votes of consumers. 
C)  produce a homogeneous product. 
D)  cooperate, attempting to establish a price and output structure so each firm can survive and continue to serve the consumer.

Question 7

Use the figure to answer the following question(s).
Figure 9-3  
-Figure 9-3 depicts the cost curves of a firm in a price-taker industry. At what output would the firm's per-unit cost be at a minimum?

Accepted Answer

A)  100 
B)  125 
C)  150 
D)  an output greater than 150 
A)  100 
B)  125 
C)  150 
D)  an output greater than 150

Question 8

How does competition from nonunion firms and foreign producers affect the ability of a union to increase the wages of its members?

Accepted Answer

A)  Such competition reduces the ability of a union to achieve wage increases. 
B)  Such competition does not affect the ability of a union to achieve wage increases. 
C)  Such competition will increase the strength of a union if it produces a product sold in the domestic market but reduce the strength of the union if it produces an export product. 
D)  The effect of this type of competition will be entirely dependent on the elasticity of demand for labor in the domestic market. 
A)  Such competition reduces the ability of a union to achieve wage increases. 
B)  Such competition does not affect the ability of a union to achieve wage increases. 
C)  Such competition will increase the strength of a union if it produces a product sold in the domestic market but reduce the strength of the union if it produces an export product. 
D)  The effect of this type of competition will be entirely dependent on the elasticity of demand for labor in the domestic market.

Question 9

When profits occur in a competitive market, this indicates that

Accepted Answer

A)  consumers value the goods more than the resources used to produce them. 
B)  producers value the goods more than the resources used to produce them. 
C)  producers value the goods more than consumers value the goods. 
D)  consumers value the goods less than the resources used to produce them. 
A)  consumers value the goods more than the resources used to produce them. 
B)  producers value the goods more than the resources used to produce them. 
C)  producers value the goods more than consumers value the goods. 
D)  consumers value the goods less than the resources used to produce them.

Question 10

If a product is manufactured under conditions of constant cost, an increase in the demand for the product will increase

Accepted Answer

A)  both equilibrium quantity and equilibrium price in the long run. 
B)  equilibrium price, but equilibrium quantity will be unchanged in the long run. 
C)  equilibrium price but reduce equilibrium quantity in the long run. 
D)  equilibrium quantity, but equilibrium price will be unchanged in the long run. 
A)  both equilibrium quantity and equilibrium price in the long run. 
B)  equilibrium price, but equilibrium quantity will be unchanged in the long run. 
C)  equilibrium price but reduce equilibrium quantity in the long run. 
D)  equilibrium quantity, but equilibrium price will be unchanged in the long run.

Question 11

When a union successfully raises the wages of its members, it will also

Accepted Answer

A)  increase total productivity, which will generally increase in proportion to the wage rate. 
B)  encourage employers to purchase more of the union labor. 
C)  increase the share of income allocated to labor as opposed to capital. 
D)  increase the employer's incentive to find substitutes for union labor. 
A)  increase total productivity, which will generally increase in proportion to the wage rate. 
B)  encourage employers to purchase more of the union labor. 
C)  increase the share of income allocated to labor as opposed to capital. 
D)  increase the employer's incentive to find substitutes for union labor.

Question 12

When firms in a price-taker market are temporarily able to charge prices that exceed their production costs,

Accepted Answer

A)  the firms will earn long-run economic profit. 
B)  additional firms will be attracted into the market until price falls to the level of per-unit production cost. 
C)  the firms will earn short-run economic profits that will be offset by long-run economic losses. 
D)  the existing firms must be colluding or rigging the market, otherwise, they would be unable to charge such high prices. 
A)  the firms will earn long-run economic profit. 
B)  additional firms will be attracted into the market until price falls to the level of per-unit production cost. 
C)  the firms will earn short-run economic profits that will be offset by long-run economic losses. 
D)  the existing firms must be colluding or rigging the market, otherwise, they would be unable to charge such high prices.

Question 13

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. 
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 14

The graph below depicts the cost structure for a firm in a competitive market.
Figure 9-13  
-Refer to Figure 9-13. When price falls from P3 to P1, the firm finds that

Accepted Answer

A)  fixed cost is higher at a production level of Q1 than it is at Q3. 
B)  it should produce Q1 units of output. 
C)  it should produce Q3 units of output. 
D)  it should shut down immediately. 
A)  fixed cost is higher at a production level of Q1 than it is at Q3. 
B)  it should produce Q1 units of output. 
C)  it should produce Q3 units of output. 
D)  it should shut down immediately.

Question 15

Use the figure to answer the following question(s).
Figure 9-6  
-The average total cost (ATC) and marginal costs (MC) of a firm producing in a price-taker industry are depicted in Figure 9-6. If the current market price of the firm's product is $15, what output should this firm produce?

Accepted Answer

A)  10 
B)  15 
C)  20 
D)  25 
A)  10 
B)  15 
C)  20 
D)  25

Question 16

When new firms have an incentive to enter a competitive price-taker market, their entry will

Accepted Answer

A)  increase the price of the product. 
B)  drive down profits of existing firms in the market. 
C)  shift the market supply curve to the left. 
D)  increase demand for the product. 
A)  increase the price of the product. 
B)  drive down profits of existing firms in the market. 
C)  shift the market supply curve to the left. 
D)  increase demand for the product.

Question 17

If the demand for pizza falls, pizza suppliers will suffer economic losses, and some firms will leave the industry. Why is this considered good? Shouldn't we feel sorry for these business owners?

Accepted Answer

As humans, we can certainly feel sorry f

Question 18

Several producers in industry A developed an improved technology that reduces the quantity of resources used to produce a given output. Which of the following would be expected?

Accepted Answer

A)  The per-unit costs of production of the firms adopting the technology would increase. 
B)  In the short run, economic profits would be earned by the earliest firms adopting the technology. 
C)  Product price would immediately fall to the minimum average total cost of the firms quickly adopting the technology, thus retarding the rate at which firms enter the industry. 
D)  Producers who adopt the technology will have short-run economic losses. 
A)  The per-unit costs of production of the firms adopting the technology would increase. 
B)  In the short run, economic profits would be earned by the earliest firms adopting the technology. 
C)  Product price would immediately fall to the minimum average total cost of the firms quickly adopting the technology, thus retarding the rate at which firms enter the industry. 
D)  Producers who adopt the technology will have short-run economic losses.

Question 19

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

If Amy lowers her price, this will reduc

Question 20

In competitive price-taker markets, firms

Accepted Answer

A)  can sell all of their output at the market price. 
B)  produce differentiated products. 
C)  can influence the market price by altering their output level. 
D)  are large relative to the total market. 
A)  can sell all of their output at the market price. 
B)  produce differentiated products. 
C)  can influence the market price by altering their output level. 
D)  are large relative to the total market.

Which of the following is always true in competitive price-taker markets?

If the demand for a product increases in an increasing cost industry, as the market adjusts in the long run,

If a firm operates in a competitive industry and its unionized labor force is successful in bargaining for a wage increase, where is the firm likely to get the money to pay the higher wages?

Figure 9-17 -Which of the following statements about the competitive price-taker firm represented in Figure 9-17 is false?

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

Competition as a dynamic process implies that individual firms in a market

Use the figure to answer the following question(s). Figure 9-3 -Figure 9-3 depicts the cost curves of a firm in a price-taker industry. At what output would the firm's per-unit cost be at a minimum?

How does competition from nonunion firms and foreign producers affect the ability of a union to increase the wages of its members?

When profits occur in a competitive market, this indicates that

If a product is manufactured under conditions of constant cost, an increase in the demand for the product will increase

When a union successfully raises the wages of its members, it will also

When firms in a price-taker market are temporarily able to charge prices that exceed their production costs,

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

The graph below depicts the cost structure for a firm in a competitive market. Figure 9-13 -Refer to Figure 9-13. When price falls from P₃ to P₁, the firm finds that

Use the figure to answer the following question(s). Figure 9-6 -The average total cost (ATC) and marginal costs (MC) of a firm producing in a price-taker industry are depicted in Figure 9-6. If the current market price of the firm's product is $15, what output should this firm produce?

When new firms have an incentive to enter a competitive price-taker market, their entry will

If the demand for pizza falls, pizza suppliers will suffer economic losses, and some firms will leave the industry. Why is this considered good? Shouldn't we feel sorry for these business owners?

Several producers in industry A developed an improved technology that reduces the quantity of resources used to produce a given output. Which of the following would be expected?

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?

In competitive price-taker markets, firms

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Consumer Choice and Elasticity

Costs and the Supply of Goods

Price-Searcher Markets With Low Entry Barriers

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

Gaining From International Trade

Filters

Exam 9: Price Takers and the Competitive Process

Which of the following is always true in competitive price-taker markets?

If the demand for a product increases in an increasing cost industry, as the market adjusts in the long run,

If a firm operates in a competitive industry and its unionized labor force is successful in bargaining for a wage increase, where is the firm likely to get the money to pay the higher wages?

Figure 9-17 -Which of the following statements about the competitive price-taker firm represented in Figure 9-17 is false?

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

Competition as a dynamic process implies that individual firms in a market

Use the figure to answer the following question(s). Figure 9-3 -Figure 9-3 depicts the cost curves of a firm in a price-taker industry. At what output would the firm's per-unit cost be at a minimum?

How does competition from nonunion firms and foreign producers affect the ability of a union to increase the wages of its members?

When profits occur in a competitive market, this indicates that

If a product is manufactured under conditions of constant cost, an increase in the demand for the product will increase

When a union successfully raises the wages of its members, it will also

When firms in a price-taker market are temporarily able to charge prices that exceed their production costs,

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

The graph below depicts the cost structure for a firm in a competitive market. Figure 9-13 -Refer to Figure 9-13. When price falls from P3 to P1, the firm finds that

Use the figure to answer the following question(s). Figure 9-6 -The average total cost (ATC) and marginal costs (MC) of a firm producing in a price-taker industry are depicted in Figure 9-6. If the current market price of the firm's product is $15, what output should this firm produce?

When new firms have an incentive to enter a competitive price-taker market, their entry will

If the demand for pizza falls, pizza suppliers will suffer economic losses, and some firms will leave the industry. Why is this considered good? Shouldn't we feel sorry for these business owners?

Several producers in industry A developed an improved technology that reduces the quantity of resources used to produce a given output. Which of the following would be expected?

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?

In competitive price-taker markets, firms

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Consumer Choice and Elasticity

Costs and the Supply of Goods

Price-Searcher Markets With Low Entry Barriers

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

Gaining From International Trade

Filters

The graph below depicts the cost structure for a firm in a competitive market. Figure 9-13 -Refer to Figure 9-13. When price falls from P₃ to P₁, the firm finds that