Question 1

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 2

If the ice cream industry is a competitive price-taker market and all ice cream producers are earning zero economic profit, what will be the impact of an increase in the demand for ice cream?

Accepted Answer

A)  Firms will exit the ice cream industry in the long run since they are earning zero economic profit. 
B)  The firms will now be able to earn long-run economic profit assuming that barriers to entry remain low and new firms can enter the market. 
C)  A shortage of ice cream will develop. 
D)  The price of ice cream will rise initially, inducing the existing firms to expand output and new firms to enter the industry. 
A)  Firms will exit the ice cream industry in the long run since they are earning zero economic profit. 
B)  The firms will now be able to earn long-run economic profit assuming that barriers to entry remain low and new firms can enter the market. 
C)  A shortage of ice cream will develop. 
D)  The price of ice cream will rise initially, inducing the existing firms to expand output and new firms to enter the industry.

Question 3

The schedule of total cost for a firm in a price-taker market is given in the table. If the market price for this product is $50, which of the following output levels should this firm produce if it wants to maximize its profit?

Accepted Answer

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

Question 4

If there is an increase in market demand in a competitive price-taker market, then in the short run

Accepted Answer

A)  there will be no change in the demand curves faced by individual firms in the market. 
B)  the demand curves for firms will shift downward. 
C)  the demand curves for firms will become more elastic. 
D)  profits will rise. 
A)  there will be no change in the demand curves faced by individual firms in the market. 
B)  the demand curves for firms will shift downward. 
C)  the demand curves for firms will become more elastic. 
D)  profits will rise.

Question 5

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which

Accepted Answer

A)  total revenue is equal to variable cost. 
B)  total revenue is equal to fixed cost. 
C)  total revenue is equal to total cost. 
D)  profit is maximized. 
A)  total revenue is equal to variable cost. 
B)  total revenue is equal to fixed cost. 
C)  total revenue is equal to total cost. 
D)  profit is maximized.

Question 6

Suppose sharply higher coffee prices lead to an increase in demand for tea. As tea prices increase, tea producers experience short-run economic profits. If the tea industry is a price-taker industry and if sufficient time is allowed for the market to adjust fully to the increase in demand for tea, one would expect the tea industry's output to

Accepted Answer

A)  increase, and economic profits to increase as well. 
B)  increase, and economic profits to disappear. 
C)  decline, and economic profits to increase. 
D)  decline, and economic profits to disappear. 
A)  increase, and economic profits to increase as well. 
B)  increase, and economic profits to disappear. 
C)  decline, and economic profits to increase. 
D)  decline, and economic profits to disappear.

Question 7

Which of the following best explains why a firm in a competitive price-taker market must take the price determined in the market?

Accepted Answer

A)  The short-run average total costs of firms that are price takers will be constant. 
B)  If a price taker increased its price, consumers would buy from other suppliers. 
C)  Firms in a price-taker market will have to advertise in order to increase sales. 
D)  There are no good substitutes for the product supplied by a firm that is a price taker. 
A)  The short-run average total costs of firms that are price takers will be constant. 
B)  If a price taker increased its price, consumers would buy from other suppliers. 
C)  Firms in a price-taker market will have to advertise in order to increase sales. 
D)  There are no good substitutes for the product supplied by a firm that is a price taker.

Question 8

Use the figure to answer the following question(s).
Figure 9-5
 
If the market price in Figure 9-5 fell to $2.50, what should the firm do?

Accepted Answer

A)  raise its price 
B)  shut down and wait for conditions to improve 
C)  continue operating in the short run if it expects conditions to improve 
D)  go out of business immediately 
A)  raise its price 
B)  shut down and wait for conditions to improve 
C)  continue operating in the short run if it expects conditions to improve 
D)  go out of business immediately

Question 9

To maximize profits, a firm should always produce the level of output where

Accepted Answer

A)  marginal cost equals average total cost. 
B)  average total cost equals price. 
C)  marginal cost equals marginal revenue. 
D)  marginal revenue equals price. 
A)  marginal cost equals average total cost. 
B)  average total cost equals price. 
C)  marginal cost equals marginal revenue. 
D)  marginal revenue equals price.

Question 10

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 11

When the marginal cost of a price-taker firm is more than the market price of its product, the firm should

Accepted Answer

A)  expand output. 
B)  reduce output. 
C)  maintain output. 
D)  charge more than the market price. 
A)  expand output. 
B)  reduce output. 
C)  maintain output. 
D)  charge more than the market price.

Question 12

In a price-taker market, economic losses indicate that

Accepted Answer

A)  some firms are using unfair tactics to harm others. 
B)  some firms have miscalculated, producing goods that are less valuable than the resources used to make them. 
C)  the situation is normal and firms need to make no adjustments. 
D)  the firms in the industry are not minimizing their cost; they should expand output in order to fully realize the economies of scale in the industry. 
A)  some firms are using unfair tactics to harm others. 
B)  some firms have miscalculated, producing goods that are less valuable than the resources used to make them. 
C)  the situation is normal and firms need to make no adjustments. 
D)  the firms in the industry are not minimizing their cost; they should expand output in order to fully realize the economies of scale in the industry.

Question 13

There are 1,000 identical firms in a price-taker industry. In the short run, the total revenues of each firm are less than total costs. What will happen in the long run?

Accepted Answer

A)  Nothing, because each firm is already maximizing its profits. 
B)  Additional firms will enter the market, and price will be driven down to where each firm will be making just enough to stay in business (cover its variable costs). 
C)  Additional firms will enter the market, but the price will remain the same because the existing firms will not allow it to decrease. 
D)  Firms will exit the market, and the product price will rise. 
A)  Nothing, because each firm is already maximizing its profits. 
B)  Additional firms will enter the market, and price will be driven down to where each firm will be making just enough to stay in business (cover its variable costs). 
C)  Additional firms will enter the market, but the price will remain the same because the existing firms will not allow it to decrease. 
D)  Firms will exit the market, and the product price will rise.

Question 14

The entry of new firms into a competitive market will

Accepted Answer

A)  increase market supply and increase market prices. 
B)  increase market supply and decrease market prices. 
C)  decrease market supply and increase market prices. 
D)  decrease market supply and decrease market prices. 
A)  increase market supply and increase market prices. 
B)  increase market supply and decrease market prices. 
C)  decrease market supply and increase market prices. 
D)  decrease market supply and decrease market prices.

Question 15

Which of the following best explains why price in competitive price-taker markets will tend to be driven to the minimum per-unit 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 16

Suppose antitheft auto alarms are produced in a price-taker market that is initially in long-run equilibrium. It is estimated that only 23 percent of all autos have alarms. Due to rising auto theft, Congress mandates alarms in every vehicle. Assume complete compliance. If the industry is an increasing cost industry, price will

Accepted Answer

A)  increase in both the short run and long run. 
B)  decrease in both the short run and long run. 
C)  increase in the short run but not in the long run. 
D)  decrease in the short run but not in the long run. 
A)  increase in both the short run and long run. 
B)  decrease in both the short run and long run. 
C)  increase in the short run but not in the long run. 
D)  decrease in the short run but not in the long run.

Question 17

Figure 9-2  
Figure 9-2 illustrates a firm

Accepted Answer

A)  capable of earning economic profit. 
B)  that is only able to break even when it maximizes profit. 
C)  taking economic losses. 
D)  that should shut down immediately. 
A)  capable of earning economic profit. 
B)  that is only able to break even when it maximizes profit. 
C)  taking economic losses. 
D)  that should shut down immediately.

Question 18

A profit-maximizing firm will continue to expand output

Accepted Answer

A)  as long as the revenues from the production and sale of an additional unit exceeds the average costs of the unit. 
B)  until the average cost of producing the good or service is at a minimum. 
C)  as long as the revenues from the production and sale of an additional unit exceeds the marginal cost of the unit. 
D)  until the marginal cost of producing a good or service is at a minimum. 
A)  as long as the revenues from the production and sale of an additional unit exceeds the average costs of the unit. 
B)  until the average cost of producing the good or service is at a minimum. 
C)  as long as the revenues from the production and sale of an additional unit exceeds the marginal cost of the unit. 
D)  until the marginal cost of producing a good or service is at a minimum.

Question 19

In a competitive price-taker market,

Accepted Answer

A)  many other sellers are offering a product that is essentially identical. 
B)  consumers have more influence over the market price than producers do. 
C)  government intervention prevents firms from influencing price. 
D)  producers agree not to change the price. 
A)  many other sellers are offering a product that is essentially identical. 
B)  consumers have more influence over the market price than producers do. 
C)  government intervention prevents firms from influencing price. 
D)  producers agree not to change the price.

Question 20

If resource prices rise and the per-unit cost of producing a product increases as the firms in an industry expand output in response to an increase in demand, the long-run market supply curve for the product will

Accepted Answer

A)  be perfectly elastic (a horizontal line). 
B)  be perfectly inelastic (a vertical line). 
C)  slope upward to the right. 
D)  be more inelastic than the short-run supply curve for the product. 
A)  be perfectly elastic (a horizontal line). 
B)  be perfectly inelastic (a vertical line). 
C)  slope upward to the right. 
D)  be more inelastic than the short-run supply curve for the product.

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

If the ice cream industry is a competitive price-taker market and all ice cream producers are earning zero economic profit, what will be the impact of an increase in the demand for ice cream?

The schedule of total cost for a firm in a price-taker market is given in the table. If the market price for this product is $50, which of the following output levels should this firm produce if it wants to maximize its profit?

If there is an increase in market demand in a competitive price-taker market, then in the short run

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which

Which of the following best explains why a firm in a competitive price-taker market must take the price determined in the market?

Use the figure to answer the following question(s). Figure 9-5 If the market price in Figure 9-5 fell to $2.50, what should the firm do?

To maximize profits, a firm should always produce the level of output where

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

When the marginal cost of a price-taker firm is more than the market price of its product, the firm should

In a price-taker market, economic losses indicate that

There are 1,000 identical firms in a price-taker industry. In the short run, the total revenues of each firm are less than total costs. What will happen in the long run?

The entry of new firms into a competitive market will

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

Figure 9-2 Figure 9-2 illustrates a firm

A profit-maximizing firm will continue to expand output

In a competitive price-taker market,

If resource prices rise and the per-unit cost of producing a product increases as the firms in an industry expand output in response to an increase in demand, the long-run market supply curve for the product will

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

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

If the ice cream industry is a competitive price-taker market and all ice cream producers are earning zero economic profit, what will be the impact of an increase in the demand for ice cream?

The schedule of total cost for a firm in a price-taker market is given in the table. If the market price for this product is $50, which of the following output levels should this firm produce if it wants to maximize its profit?

If there is an increase in market demand in a competitive price-taker market, then in the short run

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which

Which of the following best explains why a firm in a competitive price-taker market must take the price determined in the market?

Use the figure to answer the following question(s). Figure 9-5 If the market price in Figure 9-5 fell to $2.50, what should the firm do?

To maximize profits, a firm should always produce the level of output where

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

When the marginal cost of a price-taker firm is more than the market price of its product, the firm should

In a price-taker market, economic losses indicate that

There are 1,000 identical firms in a price-taker industry. In the short run, the total revenues of each firm are less than total costs. What will happen in the long run?

The entry of new firms into a competitive market will

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

Figure 9-2 Figure 9-2 illustrates a firm

A profit-maximizing firm will continue to expand output

In a competitive price-taker market,

If resource prices rise and the per-unit cost of producing a product increases as the firms in an industry expand output in response to an increase in demand, the long-run market supply curve for the product will

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