Question 1

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 
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 2

Use the figure to answer the following question(s).
Figure 9-5
 
The cost conditions for a profit-maximizing firm operating in a price-taker market are indicated in Figure 9-5. If the market price was $3, what output should the firm produce, and what would be the firm's maximum profit?

Accepted Answer

A)  output, 3; maximum profit, $3 loss 
B)  output, 5; maximum profit, zero 
C)  output, 5; maximum profit, $5 
D)  output, 6; maximum profit, $6 
A)  output, 3; maximum profit, $3 loss 
B)  output, 5; maximum profit, zero 
C)  output, 5; maximum profit, $5 
D)  output, 6; maximum profit, $6

Question 3

The figure depicts a firm in a price-taker market. Use this figure to answer the following question(s).
Figure 9-18
 
Refer to Figure 9-18. At the profit-maximizing level of output, the firm will earn an economic (Hint: Areas in the exhibit are referenced by the four letters on the corners of the respective area.)

Accepted Answer

A)  profit of AHEC. 
B)  profit of BIFC. 
C)  loss of AHEC. 
D)  loss of BIFC. 
A)  profit of AHEC. 
B)  profit of BIFC. 
C)  loss of AHEC. 
D)  loss of BIFC.

Question 4

The following table gives the average total cost of production for various levels of output for a competitive price-taker firm
  If the firm's fixed cost of production is $3 and the market price is $10, how many units should the firm produce to maximize its profit?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Question 5

A price-taker firm will tend to expand its output so long as its

Accepted Answer

A)  marginal revenue is positive. 
B)  marginal revenue is greater than the market price. 
C)  marginal revenue is less than the market price. 
D)  marginal cost is less than the market price. 
A)  marginal revenue is positive. 
B)  marginal revenue is greater than the market price. 
C)  marginal revenue is less than the market price. 
D)  marginal cost is less than the market price.

Question 6

Suppose a typical firm in a particular industry is making positive economic profits. These economic profits

Accepted Answer

A)  reflect a waste of society's scarce resources and reflect inefficient production. 
B)  signal owners of factors of production to move their resources out of that industry. 
C)  imply that accounting costs are greater than economic costs in this industry. 
D)  signal owners of factors of production to move resources into this industry. 
A)  reflect a waste of society's scarce resources and reflect inefficient production. 
B)  signal owners of factors of production to move their resources out of that industry. 
C)  imply that accounting costs are greater than economic costs in this industry. 
D)  signal owners of factors of production to move resources into this industry.

Question 7

Use the figure to answer the following question(s).
Figure 9-6
 
When the market price in Figure 9-6 is $20, the firm's maximum profit will be approximately

Accepted Answer

A)  zero. 
B)  $3. 
C)  $60. 
D)  $400. 
A)  zero. 
B)  $3. 
C)  $60. 
D)  $400.

Question 8

The supply curve of a price-taker firm in the short run is the

Accepted Answer

A)  firm's average variable cost curve. 
B)  portion of the firm's average total cost curve that lies above average variable cost curve. 
C)  portion of the firm's marginal cost curve that lies above average variable cost curve. 
D)  firm's marginal revenue curve. 
A)  firm's average variable cost curve. 
B)  portion of the firm's average total cost curve that lies above average variable cost curve. 
C)  portion of the firm's marginal cost curve that lies above average variable cost curve. 
D)  firm's marginal revenue curve.

Question 9

The competitive price-taker model is usually used to illustrate the competitive process. If firms cannot choose their price, where is the competition?

Accepted Answer

This is a good question. The firms do no

Question 10

Which of the following is a characteristic of a competitive price-taker market?

Accepted Answer

A)  Profit maximizing firms in the market will expand output until price equals average variable cost. 
B)  The market demand curve for the product is a horizontal line. 
C)  There are many firms in the market, each producing a small share of total market output. 
D)  The product produced by each of the firms is differentiated. 
A)  Profit maximizing firms in the market will expand output until price equals average variable cost. 
B)  The market demand curve for the product is a horizontal line. 
C)  There are many firms in the market, each producing a small share of total market output. 
D)  The product produced by each of the firms is differentiated.

Question 11

Which of the following best describes the series of events shown in the figure? The original conditions prior to the change are shown by D 0 and S 0 (point A), and S LR is the market long-run supply curve.

Accepted Answer

A)  an increase in demand and an expansion in the number of firms in an increasing cost industry 
B)  an increase in demand and an expansion in the number of firms in a decreasing cost industry 
C)  an increase in demand and an expansion in the number of firms in a constant cost industry 
D)  none of the above 
A)  an increase in demand and an expansion in the number of firms in an increasing cost industry 
B)  an increase in demand and an expansion in the number of firms in a decreasing cost industry 
C)  an increase in demand and an expansion in the number of firms in a constant cost industry 
D)  none of the above

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

Historically, most economists have referred to markets where firms are price takers as

Accepted Answer

A)  purely competitive markets. 
B)  monopoly markets. 
C)  open-door markets. 
D)  price-searcher markets. 
A)  purely competitive markets. 
B)  monopoly markets. 
C)  open-door markets. 
D)  price-searcher markets.

Question 14

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. At Q = 1,000, the firm's profit amounts to

Accepted Answer

A)  − $200. 
B)  $1,000. 
C)  $3,000. 
D)  $4,000. 
A)  − $200. 
B)  $1,000. 
C)  $3,000. 
D)  $4,000.

Question 15

Use the figure to answer the following question(s).
Figure 9-7
 
The average total cost ( ATC ) and marginal costs ( MC ) of a firm producing in a price-taker industry are depicted in Figure 9-7. If the current market price of the firm's product is $3, what output should this firm produce per week?

Accepted Answer

A)  5,000 
B)  7,500 
C)  10,000 
D)  12,500 
A)  5,000 
B)  7,500 
C)  10,000 
D)  12,500

Question 16

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 17

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 18

Which of the following statements is correct?

Accepted Answer

A)  In order to maximize profits in the short run, a price taker should always produce at the output level where marginal cost is equal to price. 
B)  In long-run equilibrium, a price taker will produce at an output level where average total cost is at its minimum. 
C)  A price taker will remain open in the short run, even if it is earning an economic loss, so long as price is sufficient to cover average variable cost. 
D)  All of the above are true. 
A)  In order to maximize profits in the short run, a price taker should always produce at the output level where marginal cost is equal to price. 
B)  In long-run equilibrium, a price taker will produce at an output level where average total cost is at its minimum. 
C)  A price taker will remain open in the short run, even if it is earning an economic loss, so long as price is sufficient to cover average variable cost. 
D)  All of the above are true.

Question 19

Consider a firm operating in a competitive price-taker market. The firm is producing 40 units of output, has an average cost of production equal to $5, and is earning $240 economic profit in the short run. What is the current market price?

Accepted Answer

A)  $9 
B)  $10 
C)  $11 
D)  $12 
A)  $9 
B)  $10 
C)  $11 
D)  $12

Question 20

(I) A firm's short-run supply curve is equal to its average variable cost curve above marginal revenue. (II) The short-run supply curve for a price-taker market is the horizontal sum of the supply curves of all firms in the industry.

Accepted Answer

A)  I is true; II is false. 
B)  I is false; II is true. 
C)  Both I and II are true. 
D)  Both I and II are false. 
A)  I is true; II is false. 
B)  I is false; II is true. 
C)  Both I and II are true. 
D)  Both I and II are false.

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

Use the figure to answer the following question(s). Figure 9-5 The cost conditions for a profit-maximizing firm operating in a price-taker market are indicated in Figure 9-5. If the market price was $3, what output should the firm produce, and what would be the firm's maximum profit?

The following table gives the average total cost of production for various levels of output for a competitive price-taker firm If the firm's fixed cost of production is $3 and the market price is $10, how many units should the firm produce to maximize its profit?

A price-taker firm will tend to expand its output so long as its

Suppose a typical firm in a particular industry is making positive economic profits. These economic profits

Use the figure to answer the following question(s). Figure 9-6 When the market price in Figure 9-6 is $20, the firm's maximum profit will be approximately

The supply curve of a price-taker firm in the short run is the

The competitive price-taker model is usually used to illustrate the competitive process. If firms cannot choose their price, where is the competition?

Which of the following is a characteristic of a competitive price-taker market?

Which of the following best describes the series of events shown in the figure? The original conditions prior to the change are shown by D ₀ and S ₀ (point A), and S _LR is the market long-run supply curve.

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

Historically, most economists have referred to markets where firms are price takers as

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. At Q = 1,000, the firm's profit amounts to

Use the figure to answer the following question(s). Figure 9-7 The average total cost ( ATC ) and marginal costs ( MC ) of a firm producing in a price-taker industry are depicted in Figure 9-7. If the current market price of the firm's product is $3, what output should this firm produce per week?

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

The owners of a firm are earning economic profit if

Which of the following statements is correct?

Consider a firm operating in a competitive price-taker market. The firm is producing 40 units of output, has an average cost of production equal to $5, and is earning $240 economic profit in the short run. What is the current market price?

(I) A firm's short-run supply curve is equal to its average variable cost curve above marginal revenue. (II) The short-run supply curve for a price-taker market is the horizontal sum of the supply curves of all firms in the industry.

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

Exam 9: Price Takers and the Competitive Process

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

Use the figure to answer the following question(s). Figure 9-5 The cost conditions for a profit-maximizing firm operating in a price-taker market are indicated in Figure 9-5. If the market price was $3, what output should the firm produce, and what would be the firm's maximum profit?

The following table gives the average total cost of production for various levels of output for a competitive price-taker firm If the firm's fixed cost of production is $3 and the market price is $10, how many units should the firm produce to maximize its profit?

A price-taker firm will tend to expand its output so long as its

Suppose a typical firm in a particular industry is making positive economic profits. These economic profits

Use the figure to answer the following question(s). Figure 9-6 When the market price in Figure 9-6 is $20, the firm's maximum profit will be approximately

The supply curve of a price-taker firm in the short run is the

The competitive price-taker model is usually used to illustrate the competitive process. If firms cannot choose their price, where is the competition?

Which of the following is a characteristic of a competitive price-taker market?

Which of the following best describes the series of events shown in the figure? The original conditions prior to the change are shown by D 0 and S 0 (point A), and S LR is the market long-run supply curve.

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

Historically, most economists have referred to markets where firms are price takers as

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. At Q = 1,000, the firm's profit amounts to

Use the figure to answer the following question(s). Figure 9-7 The average total cost ( ATC ) and marginal costs ( MC ) of a firm producing in a price-taker industry are depicted in Figure 9-7. If the current market price of the firm's product is $3, what output should this firm produce per week?

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

The owners of a firm are earning economic profit if

Which of the following statements is correct?

Consider a firm operating in a competitive price-taker market. The firm is producing 40 units of output, has an average cost of production equal to $5, and is earning $240 economic profit in the short run. What is the current market price?

(I) A firm's short-run supply curve is equal to its average variable cost curve above marginal revenue. (II) The short-run supply curve for a price-taker market is the horizontal sum of the supply curves of all firms in the industry.

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

Which of the following best describes the series of events shown in the figure? The original conditions prior to the change are shown by D ₀ and S ₀ (point A), and S _LR is the market long-run supply curve.