Question 1

Harry Smith sells wheat in a price-taker market. With regard to Smith's price and output choices, which of the following is true?

Accepted Answer

A)  Smith will constantly attempt to increase the price of his product so he can increase his total revenue. 
B)  Since the price of his product is dictated by the market, Smith will not have an incentive to control per-unit cost. 
C)  Since the price of his product is dictated by the market, Smith has no production decisions to make. 
D)  It would be senseless for Smith to try to increase sales by lowering the price of his product. 
A)  Smith will constantly attempt to increase the price of his product so he can increase his total revenue. 
B)  Since the price of his product is dictated by the market, Smith will not have an incentive to control per-unit cost. 
C)  Since the price of his product is dictated by the market, Smith has no production decisions to make. 
D)  It would be senseless for Smith to try to increase sales by lowering the price of his product.

Question 2

When the demand for a product falls, why do costs of production go down in an increasing cost industry?

Accepted Answer

When the demand falls, surplus resources

Question 3

In some industries, like insurance, both small and very large firms coexist and compete quite effectively in the market. This indicates that the long-run average total cost curve in these industries

Accepted Answer

A)  is "U" shaped. 
B)  is downward sloping over all levels of output. 
C)  exhibits constant returns to scale over a wide range of output. 
D)  exhibits diseconomies of scale beginning at a low rate of output. 
A)  is "U" shaped. 
B)  is downward sloping over all levels of output. 
C)  exhibits constant returns to scale over a wide range of output. 
D)  exhibits diseconomies of scale beginning at a low rate of output.

Question 4

The motivating force behind an increase in supply in a long-run adjustment to equilibrium is

Accepted Answer

A)  lower prices. 
B)  economic profits that are present in the short run. 
C)  higher profit expectations among owners of firms in the industry, triggered by increased prices. 
D)  normal profits witnessed by individuals outside the industry that trigger entry. 
E)  the decreases in average cost that can be obtained through economies of scale. 
A)  lower prices. 
B)  economic profits that are present in the short run. 
C)  higher profit expectations among owners of firms in the industry, triggered by increased prices. 
D)  normal profits witnessed by individuals outside the industry that trigger entry. 
E)  the decreases in average cost that can be obtained through economies of scale.

Question 5

The schedule of total costs for a chair-manufacturing firm is presented in the table below. If the market price of chairs is $100, which output should this price-taker firm produce to maximize profit?

Accepted Answer

A)  200 
B)  300 
C)  400 
D)  500 
A)  200 
B)  300 
C)  400 
D)  500

Question 6

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

Question 7

For a firm in a price-taker market, the firm's demand curve is

Accepted Answer

A)  a horizontal line at the market price that is equal to the firm's marginal revenue curve. 
B)  an upward-sloping line that is equal to the firm's marginal cost above AVC. 
C)  a downward-sloping line that lies below the firm's marginal revenue curve. 
D)  undefined because it cannot determine the price it charges for its output. 
A)  a horizontal line at the market price that is equal to the firm's marginal revenue curve. 
B)  an upward-sloping line that is equal to the firm's marginal cost above AVC. 
C)  a downward-sloping line that lies below the firm's marginal revenue curve. 
D)  undefined because it cannot determine the price it charges for its output.

Question 8

Which of the following is a primary difference between price searchers and price takers?

Accepted Answer

A)  Price searchers maximize profits, but price takers do not. 
B)  Price searchers have to cut their price to sell additional output, but price takers do not. 
C)  The market demand for goods produced by price searchers is downward sloping, while the market demand for goods produced by price takers is horizontal. 
D)  Profit-maximizing price searchers will expand output to the quantity where marginal revenue equals marginal cost, but price takers will not. 
A)  Price searchers maximize profits, but price takers do not. 
B)  Price searchers have to cut their price to sell additional output, but price takers do not. 
C)  The market demand for goods produced by price searchers is downward sloping, while the market demand for goods produced by price takers is horizontal. 
D)  Profit-maximizing price searchers will expand output to the quantity where marginal revenue equals marginal cost, but price takers will not.

Question 9

If a firm in a price-taker market is earning zero economic profit, it

Accepted Answer

A)  will shut down in the long run but not the short run. 
B)  will also be earning zero accounting profit. 
C)  is doing as well as typical firms in other markets. 
D)  will shut down in the short run. 
A)  will shut down in the long run but not the short run. 
B)  will also be earning zero accounting profit. 
C)  is doing as well as typical firms in other markets. 
D)  will shut down in the short run.

Question 10

Competitive price-taker markets are characterized by

Accepted Answer

A)  firms that all produce the same product. 
B)  a small number of firms in the market. 
C)  firms that are large relative to the size of the market. 
D)  widespread use of advertising as a competitive weapon. 
A)  firms that all produce the same product. 
B)  a small number of firms in the market. 
C)  firms that are large relative to the size of the market. 
D)  widespread use of advertising as a competitive weapon.

Question 11

If a profit-maximizing firm shuts down in the short run, it must be true that before the shutdown, at all positive output levels,

Accepted Answer

A)  average total cost was less than average variable cost 
B)  fixed cost was greater than total revenue 
C)  variable cost was greater than total revenue 
D)  profit was zero 
E)  total cost plus total revenue was less than profit 
A)  average total cost was less than average variable cost 
B)  fixed cost was greater than total revenue 
C)  variable cost was greater than total revenue 
D)  profit was zero 
E)  total cost plus total revenue was less than profit

Question 12

Figure 9-16  
If the price-taker firm in Figure 9-16 is currently producing 6 units, then to maximize profit in the short run, it should

Accepted Answer

A)  keep producing 6 units 
B)  increase production to 12 units 
C)  increase production to 14 units 
D)  increase production to 8 units 
E)  shut down 
A)  keep producing 6 units 
B)  increase production to 12 units 
C)  increase production to 14 units 
D)  increase production to 8 units 
E)  shut down

Question 13

In the competitive price-taker model, individual firms exert no effect on the market price. Therefore, the firm's marginal revenue curve is

Accepted Answer

A)  indeterminate. 
B)  an upward-sloping curve. 
C)  a downward-sloping curve. 
D)  the same as the firm's demand curve. 
A)  indeterminate. 
B)  an upward-sloping curve. 
C)  a downward-sloping curve. 
D)  the same as the firm's demand curve.

Question 14

Claude's Copper Clappers sells clappers for $40 each in a competitive price-taker market. At its present rate of output, Claude's marginal cost is $39, average variable cost is $25, and average total cost is $45. To improve his profit/loss situation, Claude should

Accepted Answer

A)  increase output 
B)  reduce output but not to zero 
C)  maintain the present rate of output 
D)  shut down 
E)  raise the price 
A)  increase output 
B)  reduce output but not to zero 
C)  maintain the present rate of output 
D)  shut down 
E)  raise the price

Question 15

Use the table of expected cost and revenue data for the Tuckers Tomato Farm below to answer the following question(s). The Tuckers produce tomatoes in a greenhouse and sell them wholesale in a competitive price-taker market.
Table 9-1
  Refer to Table 9-1. If the Tuckers are profit maximizers, how many tomatoes should they produce when the market price is $500 per ton?

Accepted Answer

A)  6 
B)  7 
C)  8 
D)  9 
A)  6 
B)  7 
C)  8 
D)  9

Question 16

FYI Sanitation is currently eight months into a year-long lease contract on a garbage truck at a cost that averages $500 per month. Other variable costs (fuel, workers, etc.) for operating the truck amount to $300 per month. If the monthly revenue from operating the truck is $400, and these conditions are expected to continue into the future, to maximize its profit, FYI Sanitation should

Accepted Answer

A)  stop operating the truck immediately and not renew the lease for next year. 
B)  continue operating the truck indefinitely. 
C)  continue operating the truck until the lease expires, then not renew the lease for next year. 
D)  stop operating the truck now but renew the lease and begin operating the truck again next year. 
A)  stop operating the truck immediately and not renew the lease for next year. 
B)  continue operating the truck indefinitely. 
C)  continue operating the truck until the lease expires, then not renew the lease for next year. 
D)  stop operating the truck now but renew the lease and begin operating the truck again next year.

Question 17

When a firm is operating in a price-taker market, marginal revenue will always equal

Accepted Answer

A)  average total cost. 
B)  one minus the elasticity of the market demand curve. 
C)  total revenue. 
D)  price. 
A)  average total cost. 
B)  one minus the elasticity of the market demand curve. 
C)  total revenue. 
D)  price.

Question 18

A firm in competitive price-taker market is maximizing profit at Q = 3,000. Then its fixed cost increases. The profit-maximizing output is now

Accepted Answer

A)  greater than 3,000 and profit decreases 
B)  less than 3,000 and profit decreases 
C)  greater than 3,000 and profit is unchanged 
D)  equal to 3,000 and profit decreases 
E)  equal to 3,000 and profit increases 
A)  greater than 3,000 and profit decreases 
B)  less than 3,000 and profit decreases 
C)  greater than 3,000 and profit is unchanged 
D)  equal to 3,000 and profit decreases 
E)  equal to 3,000 and profit increases

Question 19

The owners of a firm are earning economic profit if

Accepted Answer

A)  return on their capital is lower than the opportunity cost of employing that capital in their industry. 
B)  their total revenues exceed the monetary payments to labor and other resources in the long run after all plant size adjustments are made. 
C)  price exceeds average variable costs at the shutdown point. 
D)  they are earning a return on their capital that is higher than what can generally be earned in other markets. 
A)  return on their capital is lower than the opportunity cost of employing that capital in their industry. 
B)  their total revenues exceed the monetary payments to labor and other resources in the long run after all plant size adjustments are made. 
C)  price exceeds average variable costs at the shutdown point. 
D)  they are earning a return on their capital that is higher than what can generally be earned in other markets.

Question 20

Scenario 9-1 Assume a certain competitive price-taker firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit.
Refer to Scenario 9-1. To maximize its profit, the firm should

Accepted Answer

A)  increase its output. 
B)  continue to produce 1,000 units. 
C)  decrease its output, but continue to produce. 
D)  shut down. 
A)  increase its output. 
B)  continue to produce 1,000 units. 
C)  decrease its output, but continue to produce. 
D)  shut down.

Harry Smith sells wheat in a price-taker market. With regard to Smith's price and output choices, which of the following is true?

When the demand for a product falls, why do costs of production go down in an increasing cost industry?

In some industries, like insurance, both small and very large firms coexist and compete quite effectively in the market. This indicates that the long-run average total cost curve in these industries

The motivating force behind an increase in supply in a long-run adjustment to equilibrium is

The schedule of total costs for a chair-manufacturing firm is presented in the table below. If the market price of chairs is $100, which output should this price-taker firm produce to maximize profit?

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

For a firm in a price-taker market, the firm's demand curve is

Which of the following is a primary difference between price searchers and price takers?

If a firm in a price-taker market is earning zero economic profit, it

Competitive price-taker markets are characterized by

If a profit-maximizing firm shuts down in the short run, it must be true that before the shutdown, at all positive output levels,

Figure 9-16 If the price-taker firm in Figure 9-16 is currently producing 6 units, then to maximize profit in the short run, it should

In the competitive price-taker model, individual firms exert no effect on the market price. Therefore, the firm's marginal revenue curve is

Claude's Copper Clappers sells clappers for $40 each in a competitive price-taker market. At its present rate of output, Claude's marginal cost is $39, average variable cost is $25, and average total cost is $45. To improve his profit/loss situation, Claude should

When a firm is operating in a price-taker market, marginal revenue will always equal

A firm in competitive price-taker market is maximizing profit at Q = 3,000. Then its fixed cost increases. The profit-maximizing output is now

The owners of a firm are earning economic profit if

Scenario 9-1 Assume a certain competitive price-taker firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit. Refer to Scenario 9-1. To maximize its profit, the firm should

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

Applying the Basics: Special Topics in Economics

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Exam 9: Price Takers and the Competitive Process

Harry Smith sells wheat in a price-taker market. With regard to Smith's price and output choices, which of the following is true?

When the demand for a product falls, why do costs of production go down in an increasing cost industry?

In some industries, like insurance, both small and very large firms coexist and compete quite effectively in the market. This indicates that the long-run average total cost curve in these industries

The motivating force behind an increase in supply in a long-run adjustment to equilibrium is

The schedule of total costs for a chair-manufacturing firm is presented in the table below. If the market price of chairs is $100, which output should this price-taker firm produce to maximize profit?

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

For a firm in a price-taker market, the firm's demand curve is

Which of the following is a primary difference between price searchers and price takers?

If a firm in a price-taker market is earning zero economic profit, it

Competitive price-taker markets are characterized by

If a profit-maximizing firm shuts down in the short run, it must be true that before the shutdown, at all positive output levels,

Figure 9-16 If the price-taker firm in Figure 9-16 is currently producing 6 units, then to maximize profit in the short run, it should

In the competitive price-taker model, individual firms exert no effect on the market price. Therefore, the firm's marginal revenue curve is

Claude's Copper Clappers sells clappers for $40 each in a competitive price-taker market. At its present rate of output, Claude's marginal cost is $39, average variable cost is $25, and average total cost is $45. To improve his profit/loss situation, Claude should

When a firm is operating in a price-taker market, marginal revenue will always equal

A firm in competitive price-taker market is maximizing profit at Q = 3,000. Then its fixed cost increases. The profit-maximizing output is now

The owners of a firm are earning economic profit if

Scenario 9-1 Assume a certain competitive price-taker firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit. Refer to Scenario 9-1. To maximize its profit, the firm should

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

Applying the Basics: Special Topics in Economics

Filters