Question 1

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 2

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 3

The short-run supply curve in a price-taking industry is the

Accepted Answer

A)  horizontal summation of the individual firms' MC curves above ATC. 
B)  horizontal summation of the individual firms' MC curves above AVC. 
C)  horizontal summation of the individual firms' AVC curves above MC. 
D)  vertical summation of ATC curves above AVC. 
A)  horizontal summation of the individual firms' MC curves above ATC. 
B)  horizontal summation of the individual firms' MC curves above AVC. 
C)  horizontal summation of the individual firms' AVC curves above MC. 
D)  vertical summation of ATC curves above AVC.

Question 4

Use the figure to answer the following question(s).
Figure 9-11
 
Which of the following represents the firm's total cost of producing the profit-maximizing output in Figure 9-11?

Accepted Answer

A)  O CFK 
B)  O BGK 
C)  O AEL 
D)  O CHI 
A)  O CFK 
B)  O BGK 
C)  O AEL 
D)  O CHI

Question 5

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 6

If a firm is making zero economic profit, it

Accepted Answer

A)  will be forced to shutdown and leave the market. 
B)  will also generally be making zero accounting profit. 
C)  is doing as well as typical firms in other markets. 
D)  will not survive in the long run. 
A)  will be forced to shutdown and leave the market. 
B)  will also generally be making zero accounting profit. 
C)  is doing as well as typical firms in other markets. 
D)  will not survive in the long run.

Question 7

When the conditions in a competitive price-taker market are such that the firms are consistently unable to cover their production costs,

Accepted Answer

A)  the firms will suffer short-run economic losses that will be exactly offset by long-run economic profits. 
B)  all firms will go out of business since consumers will not pay prices that enable firms to cover their production costs. 
C)  some firms will exit from the industry, and market price will rise until the remaining firms can earn the normal rate of return. 
D)  resource prices will increase, competition will decline, and eventually the firms in the industry will earn monopoly profit. 
A)  the firms will suffer short-run economic losses that will be exactly offset by long-run economic profits. 
B)  all firms will go out of business since consumers will not pay prices that enable firms to cover their production costs. 
C)  some firms will exit from the industry, and market price will rise until the remaining firms can earn the normal rate of return. 
D)  resource prices will increase, competition will decline, and eventually the firms in the industry will earn monopoly profit.

Question 8

In a constant-cost industry, an increase in output that increases the demand for resources used by the industry

Accepted Answer

A)  is likely to result in higher prices for at least some resources. 
B)  causes the firm's cost curves to shift downward. 
C)  causes the demand curve for the industry to rise. 
D)  is not likely to result in higher prices for resources. 
A)  is likely to result in higher prices for at least some resources. 
B)  causes the firm's cost curves to shift downward. 
C)  causes the demand curve for the industry to rise. 
D)  is not likely to result in higher prices for resources.

Question 9

The price-taker firm should discontinue production immediately if

Accepted Answer

A)  the market price exceeds the firm's average total costs. 
B)  the market price is less than the firm's average variable costs. 
C)  the market price is less than the firm's average total costs but greater than its average variable cost. 
D)  its accounting statement indicates that it is suffering losses. 
A)  the market price exceeds the firm's average total costs. 
B)  the market price is less than the firm's average variable costs. 
C)  the market price is less than the firm's average total costs but greater than its average variable cost. 
D)  its accounting statement indicates that it is suffering losses.

Question 10

If a decrease in the demand for corn leads to economic losses for corn farmers,

Accepted Answer

A)  some existing corn farmers will exit the industry. 
B)  the price of corn will remain low in the long run due to the economic losses. 
C)  the suppliers of corn will suffer long-run economic losses. 
D)  all of the above are correct. 
A)  some existing corn farmers will exit the industry. 
B)  the price of corn will remain low in the long run due to the economic losses. 
C)  the suppliers of corn will suffer long-run economic losses. 
D)  all of the above are correct.

Question 11

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 12

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 13

Which of the following business decisions will be made by firms that are price searchers but not those that are price takers?

Accepted Answer

A)  What combination of resources should be used to produce a product that is supplied? 
B)  What output should be produced? 
C)  What price should be charged? 
D)  What legal structure of business organization (for example, a proprietorship or corporation) should be used? 
A)  What combination of resources should be used to produce a product that is supplied? 
B)  What output should be produced? 
C)  What price should be charged? 
D)  What legal structure of business organization (for example, a proprietorship or corporation) should be used?

Question 14

A competitive price-taker firm's marginal cost curve is regarded as its supply curve because

Accepted Answer

A)  the position of the marginal cost curve determines the price for which the firm should sell its product. 
B)  among the various cost curves, the marginal cost curve is the only one that slopes upward. 
C)  the marginal cost curve determines the quantity of output the firm is willing to supply at alternative prices. 
D)  the firm is aware that marginal revenue must exceed marginal cost in order for profit to be maximized. 
A)  the position of the marginal cost curve determines the price for which the firm should sell its product. 
B)  among the various cost curves, the marginal cost curve is the only one that slopes upward. 
C)  the marginal cost curve determines the quantity of output the firm is willing to supply at alternative prices. 
D)  the firm is aware that marginal revenue must exceed marginal cost in order for profit to be maximized.

Question 15

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 16

The ability of price-taker firms to freely expand or contract their businesses and to enter or exit the market means that

Accepted Answer

A)  prices will always be high enough to generate positive economic profit. 
B)  resources that would be more valuable elsewhere will be trapped, unproductively, in a particular industry. 
C)  resource owners cannot move their resources to other areas where they would be more highly valued. 
D)  resources that would be more valuable elsewhere will not be trapped, unproductively, in a particular industry. 
A)  prices will always be high enough to generate positive economic profit. 
B)  resources that would be more valuable elsewhere will be trapped, unproductively, in a particular industry. 
C)  resource owners cannot move their resources to other areas where they would be more highly valued. 
D)  resources that would be more valuable elsewhere will not be trapped, unproductively, in a particular industry.

Question 17

In a constant-cost industry, an increase in output that increases the demand for resources used by the industry

Accepted Answer

A)  is likely to result in higher prices for at least some resources. 
B)  causes the firm's cost curves to shift downward. 
C)  causes the demand curve for the industry to rise. 
D)  is not likely to result in higher prices for resources. 
A)  is likely to result in higher prices for at least some resources. 
B)  causes the firm's cost curves to shift downward. 
C)  causes the demand curve for the industry to rise. 
D)  is not likely to result in higher prices for resources.

Question 18

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 19

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 20

The usefulness of the price-taker model requires that the firm's decision makers

Accepted Answer

A)  act to maximize their total revenue and fully understand marginal costs and marginal revenues. 
B)  be able to draw accurate marginal cost and marginal revenue curves. 
C)  place the social interest of the economy above their individual self interests. 
D)  seek to maximize the profits of the firm. 
A)  act to maximize their total revenue and fully understand marginal costs and marginal revenues. 
B)  be able to draw accurate marginal cost and marginal revenue curves. 
C)  place the social interest of the economy above their individual self interests. 
D)  seek to maximize the profits of the firm.

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

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

The short-run supply curve in a price-taking industry is the

Use the figure to answer the following question(s). Figure 9-11 Which of the following represents the firm's total cost of producing the profit-maximizing output in Figure 9-11?

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

If a firm is making zero economic profit, it

When the conditions in a competitive price-taker market are such that the firms are consistently unable to cover their production costs,

In a constant-cost industry, an increase in output that increases the demand for resources used by the industry

The price-taker firm should discontinue production immediately if

If a decrease in the demand for corn leads to economic losses for corn farmers,

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 business decisions will be made by firms that are price searchers but not those that are price takers?

A competitive price-taker firm's marginal cost curve is regarded as its supply curve because

The ability of price-taker firms to freely expand or contract their businesses and to enter or exit the market means that

In a constant-cost industry, an increase in output that increases the demand for resources used by the industry

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?

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?

The usefulness of the price-taker model requires that the firm's decision makers

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

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

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

The short-run supply curve in a price-taking industry is the

Use the figure to answer the following question(s). Figure 9-11 Which of the following represents the firm's total cost of producing the profit-maximizing output in Figure 9-11?

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

If a firm is making zero economic profit, it

When the conditions in a competitive price-taker market are such that the firms are consistently unable to cover their production costs,

In a constant-cost industry, an increase in output that increases the demand for resources used by the industry

The price-taker firm should discontinue production immediately if

If a decrease in the demand for corn leads to economic losses for corn farmers,

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 business decisions will be made by firms that are price searchers but not those that are price takers?

A competitive price-taker firm's marginal cost curve is regarded as its supply curve because

The ability of price-taker firms to freely expand or contract their businesses and to enter or exit the market means that

In a constant-cost industry, an increase in output that increases the demand for resources used by the industry

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?

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?

The usefulness of the price-taker model requires that the firm's decision makers

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