Question 1

In the short run, a perfectly competitive firm will always shut down if total revenue is ____ at all positive output levels.

Accepted Answer

A)  less than total cost 
B)  less than total cost but greater than variable cost 
C)  less than total cost but greater than fixed cost 
D)  greater than fixed cost 
E)  less than variable cost 
A)  less than total cost 
B)  less than total cost but greater than variable cost 
C)  less than total cost but greater than fixed cost 
D)  greater than fixed cost 
E)  less than variable cost

Question 2

Which of the following best explains why price in competitive price-taker markets will tend to be driven to the minimum average total cost?

Accepted Answer

A)  homogeneous products. 
B)  few sellers. 
C)  firms face downward-sloping demand curves. 
D)  free entry and exit. 
A)  homogeneous products. 
B)  few sellers. 
C)  firms face downward-sloping demand curves. 
D)  free entry and exit.

Question 3

If price is above average variable cost and below average total cost, a profit-maximizing price taker should

Accepted Answer

A)  immediately shut down; failing to do so is contrary to the idea of profit maximization in a competitive market. 
B)  continue producing as long as it expects the market price to rise above average total cost in the near future. 
C)  attempt to push price upward by slowly reducing output. 
D)  cut price so more units can be sold. 
A)  immediately shut down; failing to do so is contrary to the idea of profit maximization in a competitive market. 
B)  continue producing as long as it expects the market price to rise above average total cost in the near future. 
C)  attempt to push price upward by slowly reducing output. 
D)  cut price so more units can be sold.

Question 4

If profit-seeking entrepreneurs are going to be successful, they must

Accepted Answer

A)  produce a product that the consumers value more than the resources required for its production. 
B)  produce the product more cheaply than their rivals regardless of quality. 
C)  maximize the salaries of high-level management so they will be able to attract people who will work hard. 
D)  charge a higher price than their competitors so they can make economic profits in the long run. 
A)  produce a product that the consumers value more than the resources required for its production. 
B)  produce the product more cheaply than their rivals regardless of quality. 
C)  maximize the salaries of high-level management so they will be able to attract people who will work hard. 
D)  charge a higher price than their competitors so they can make economic profits in the long run.

Question 5

Which of the following is true about union membership?

Accepted Answer

A)  Women are more highly unionized than men. 
B)  A higher percent of white workers belong to unions than do African-American workers. 
C)  The proportion of government employees belonging to a union is substantially higher than the proportion of private-sector workers who are union members. 
D)  There is little difference in incidence of unionization among occupational categories. 
A)  Women are more highly unionized than men. 
B)  A higher percent of white workers belong to unions than do African-American workers. 
C)  The proportion of government employees belonging to a union is substantially higher than the proportion of private-sector workers who are union members. 
D)  There is little difference in incidence of unionization among occupational categories.

Question 6

Which of the following is most likely to be associated with a strong union?

Accepted Answer

A)  The demand for the products produced by the unionized labor is highly elastic. 
B)  There are few good substitutes for the products produced by the unionized labor. 
C)  It is easy to substitute capital for the labor of the union members. 
D)  Union labor composes a large proportion of the total cost of the product that they help produce. 
A)  The demand for the products produced by the unionized labor is highly elastic. 
B)  There are few good substitutes for the products produced by the unionized labor. 
C)  It is easy to substitute capital for the labor of the union members. 
D)  Union labor composes a large proportion of the total cost of the product that they help produce.

Question 7

If long-run equilibrium is present in a competitive market, the typical firm in the market will be

Accepted Answer

A)  making economic losses. 
B)  making zero economic profit. 
C)  making economic profit. 
D)  making a rate of return that is higher than the rate earned in other industries. 
E)  both c and d are correct. 
A)  making economic losses. 
B)  making zero economic profit. 
C)  making economic profit. 
D)  making a rate of return that is higher than the rate earned in other industries. 
E)  both c and d are correct.

Question 8

A competitive price-taker firm would be willing to remain in the industry in the long run at zero economic profit because

Accepted Answer

A)  it would find it too difficult to exit from the industry in the long run. 
B)  accounting profit would be negative. 
C)  it is covering all costs, including the opportunity cost of capital and labor. 
D)  its sunk costs would prevent it from leaving the industry. 
A)  it would find it too difficult to exit from the industry in the long run. 
B)  accounting profit would be negative. 
C)  it is covering all costs, including the opportunity cost of capital and labor. 
D)  its sunk costs would prevent it from leaving the industry.

Question 9

If the expansion of output in an industry leads to unchanged resource prices, the industry is most likely to be

Accepted Answer

A)  a decreasing cost industry. 
B)  an increasing cost industry. 
C)  a constant cost industry. 
D)  an industry characterized by economies of scale. 
A)  a decreasing cost industry. 
B)  an increasing cost industry. 
C)  a constant cost industry. 
D)  an industry characterized by economies of scale.

Question 10

If a restaurant in a summer tourist area is highly profitable during the summer months but unable to cover even its variable costs during the winter months, the restaurant should

Accepted Answer

A)  go out of business immediately, because no firm should continue to operate if it is losing money; doing so is contrary to the idea of profit maximization. 
B)  go out of business as soon as the summer is over; losses should never be tolerated. 
C)  operate during all months of the year as long as its profits during the summer exceed its losses during the winter. 
D)  shut down during the winter, but continue operating during the summer as long as the summer profits exceed the losses (fixed costs) during the winter shutdown period. 
A)  go out of business immediately, because no firm should continue to operate if it is losing money; doing so is contrary to the idea of profit maximization. 
B)  go out of business as soon as the summer is over; losses should never be tolerated. 
C)  operate during all months of the year as long as its profits during the summer exceed its losses during the winter. 
D)  shut down during the winter, but continue operating during the summer as long as the summer profits exceed the losses (fixed costs) during the winter shutdown period.

Question 11

When an economist states that a firm is earning zero economic profit, this statement implies that the firm

Accepted Answer

A)  will be forced out of business unless market conditions change. 
B)  is doing as well as it could in any other line of business. 
C)  is earning a zero rate of return on its assets. 
D)  could earn a higher rate of return in other industries. 
A)  will be forced out of business unless market conditions change. 
B)  is doing as well as it could in any other line of business. 
C)  is earning a zero rate of return on its assets. 
D)  could earn a higher rate of return in other industries.

Question 12

Regardless of quantity in long-run equilibrium, the competitive price-taker market price cannot exceed the

Accepted Answer

A)  long-run average cost of supplying that quantity. 
B)  total variable cost of supplying that quantity. 
C)  long-run total cost of supplying that quantity. 
D)  minimum long-run marginal cost of supplying that quantity. 
A)  long-run average cost of supplying that quantity. 
B)  total variable cost of supplying that quantity. 
C)  long-run total cost of supplying that quantity. 
D)  minimum long-run marginal cost of supplying that quantity.

Question 13

Figure 9-10  
-In Figure 9-10, the movement from points A to B to C can best be explained by which of the following factors?

Accepted Answer

A)  a decrease in demand, followed by the entry of new firms and an expansion in supply in a constant cost industry. 
B)  an increase in demand, followed by the entry of new firms and an expansion in supply in an increasing cost industry. 
C)  a decrease in demand, followed by the exit of firms and a decline in supply in an increasing cost industry. 
D)  an increase in demand, followed by the exit of firms and a decline in supply in a constant cost industry. 
A)  a decrease in demand, followed by the entry of new firms and an expansion in supply in a constant cost industry. 
B)  an increase in demand, followed by the entry of new firms and an expansion in supply in an increasing cost industry. 
C)  a decrease in demand, followed by the exit of firms and a decline in supply in an increasing cost industry. 
D)  an increase in demand, followed by the exit of firms and a decline in supply in a constant cost industry.

Question 14

When firms have an incentive to exit a competitive price-taker market, their exit will

Accepted Answer

A)  lower market price. 
B)  necessarily raise the costs of firms that remain in the market. 
C)  raise profits for firms that remain in the market. 
D)  reduce demand for the product. 
A)  lower market price. 
B)  necessarily raise the costs of firms that remain in the market. 
C)  raise profits for firms that remain in the market. 
D)  reduce demand for the product.

Question 15

In competitive price-taker markets, if one firm raises its price,

Accepted Answer

A)  others will follow 
B)  that firm will increase its revenues 
C)  that firm will lose revenues because other firms will not follow 
D)  all consumers will be adversely affected 
E)  the market demand curve will shift 
A)  others will follow 
B)  that firm will increase its revenues 
C)  that firm will lose revenues because other firms will not follow 
D)  all consumers will be adversely affected 
E)  the market demand curve will shift

Question 16

A firm is currently operating where the MC of the last unit produced is $84, and the MR of this unit is $70. What would you advise this firm to do?

Accepted Answer

A)  Shut down. 
B)  Increase output. 
C)  Stay at its current output. 
D)  Decrease output. 
E)  Decrease price. 
A)  Shut down. 
B)  Increase output. 
C)  Stay at its current output. 
D)  Decrease output. 
E)  Decrease price.

Question 17

A wheat farmer sells wheat to a grain broker Chicago. Since the market for wheat is generally considered to be competitive, the wheat farmer maximizes his profit by choosing

Accepted Answer

A)  to produce the quantity at which average variable cost is minimized. 
B)  to produce the quantity at which average fixed cost is minimized. 
C)  to sell its wheat at a price where marginal cost is equal to average total cost. 
D)  the quantity at which the farm's marginal cost of production is equal to the market price. 
A)  to produce the quantity at which average variable cost is minimized. 
B)  to produce the quantity at which average fixed cost is minimized. 
C)  to sell its wheat at a price where marginal cost is equal to average total cost. 
D)  the quantity at which the farm's marginal cost of production is equal to the market price.

Question 18

Suppose that sharply lower coffee prices lead to a decrease in the demand for tea. Tea price decreases, and the tea producers experience short-run economic losses. If the tea industry is a price-taker market, after sufficient time is allowed for the market to adjust fully to the decrease in the demand for tea, one would expect the tea industry's output to

Accepted Answer

A)  increase and economic losses to persist. 
B)  decline and economic losses to persist. 
C)  decline and economic losses to disappear. 
D)  increase and economic losses to disappear 
A)  increase and economic losses to persist. 
B)  decline and economic losses to persist. 
C)  decline and economic losses to disappear. 
D)  increase and economic losses to disappear

Question 19

Figure 9-15    
-At which price and quantity is profit maximized for the competitive price-taker firm represented in Figure 9-15?

Accepted Answer

A)  $40 and 80 
B)  $8 and 70 
C)  $4 and 40 
D)  $40 and 70 
E)  $8 and zero output 
A)  $40 and 80 
B)  $8 and 70 
C)  $4 and 40 
D)  $40 and 70 
E)  $8 and zero output

Question 20

An increase in the percentage of the labor force that is unionized will cause average wages for all workers to rise because

Accepted Answer

A)  union labor is more productive. 
B)  profit levels are lowered to increase wages. 
C)  strike threats promote wage increases. 
D)  This is a trick question because greater unionization does not imply higher average wages. 
A)  union labor is more productive. 
B)  profit levels are lowered to increase wages. 
C)  strike threats promote wage increases. 
D)  This is a trick question because greater unionization does not imply higher average wages.

In the short run, a perfectly competitive firm will always shut down if total revenue is ____ at all positive output levels.

Which of the following best explains why price in competitive price-taker markets will tend to be driven to the minimum average total cost?

If price is above average variable cost and below average total cost, a profit-maximizing price taker should

If profit-seeking entrepreneurs are going to be successful, they must

Which of the following is true about union membership?

Which of the following is most likely to be associated with a strong union?

If long-run equilibrium is present in a competitive market, the typical firm in the market will be

A competitive price-taker firm would be willing to remain in the industry in the long run at zero economic profit because

If the expansion of output in an industry leads to unchanged resource prices, the industry is most likely to be

If a restaurant in a summer tourist area is highly profitable during the summer months but unable to cover even its variable costs during the winter months, the restaurant should

When an economist states that a firm is earning zero economic profit, this statement implies that the firm

Regardless of quantity in long-run equilibrium, the competitive price-taker market price cannot exceed the

Figure 9-10 -In Figure 9-10, the movement from points A to B to C can best be explained by which of the following factors?

When firms have an incentive to exit a competitive price-taker market, their exit will

In competitive price-taker markets, if one firm raises its price,

A firm is currently operating where the MC of the last unit produced is $84, and the MR of this unit is $70. What would you advise this firm to do?

A wheat farmer sells wheat to a grain broker Chicago. Since the market for wheat is generally considered to be competitive, the wheat farmer maximizes his profit by choosing

Figure 9-15 -At which price and quantity is profit maximized for the competitive price-taker firm represented in Figure 9-15?

An increase in the percentage of the labor force that is unionized will cause average wages for all workers to rise because

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

In the short run, a perfectly competitive firm will always shut down if total revenue is ____ at all positive output levels.

Which of the following best explains why price in competitive price-taker markets will tend to be driven to the minimum average total cost?

If price is above average variable cost and below average total cost, a profit-maximizing price taker should

If profit-seeking entrepreneurs are going to be successful, they must

Which of the following is true about union membership?

Which of the following is most likely to be associated with a strong union?

If long-run equilibrium is present in a competitive market, the typical firm in the market will be

A competitive price-taker firm would be willing to remain in the industry in the long run at zero economic profit because

If the expansion of output in an industry leads to unchanged resource prices, the industry is most likely to be

If a restaurant in a summer tourist area is highly profitable during the summer months but unable to cover even its variable costs during the winter months, the restaurant should

When an economist states that a firm is earning zero economic profit, this statement implies that the firm

Regardless of quantity in long-run equilibrium, the competitive price-taker market price cannot exceed the

Figure 9-10 -In Figure 9-10, the movement from points A to B to C can best be explained by which of the following factors?

When firms have an incentive to exit a competitive price-taker market, their exit will

In competitive price-taker markets, if one firm raises its price,

A firm is currently operating where the MC of the last unit produced is $84, and the MR of this unit is $70. What would you advise this firm to do?

A wheat farmer sells wheat to a grain broker Chicago. Since the market for wheat is generally considered to be competitive, the wheat farmer maximizes his profit by choosing

Figure 9-15 -At which price and quantity is profit maximized for the competitive price-taker firm represented in Figure 9-15?

An increase in the percentage of the labor force that is unionized will cause average wages for all workers to rise because

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