Question 1

Use the figure to answer the following question(s).
Figure 9-6
 
If the market price in Figure 9-6 increases to $20, what should the firm do?

Accepted Answer

A)  produce an output of 15 
B)  expand output to 20 
C)  expand output to 25 
D)  increase its price to $25 
A)  produce an output of 15 
B)  expand output to 20 
C)  expand output to 25 
D)  increase its price to $25

Question 2

The figure depicts a firm in a price-taker market. Use this figure to answer the following question(s).
Figure 9-19
 
Refer to Figure 9-19. To maximize profit, the firm should produce an output level of

Accepted Answer

A)  zero; the firm should shut down immediately. 
B)  q 2. 
C)  q 3. 
D)  q 4. 
A)  zero; the firm should shut down immediately. 
B)  q 2. 
C)  q 3. 
D)  q 4.

Question 3

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 $40, average variable cost is $45, and average total cost is $60. 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 4

In a competitive price taker market, a firm's short-run supply curve is its

Accepted Answer

A)  average total cost curve above its average variable cost curve. 
B)  marginal cost curve above its average variable cost curve. 
C)  marginal cost curve above its average fixed cost curve. 
D)  entire marginal cost curve. 
A)  average total cost curve above its average variable cost curve. 
B)  marginal cost curve above its average variable cost curve. 
C)  marginal cost curve above its average fixed cost curve. 
D)  entire marginal cost curve.

Question 5

Use the figure to answer the following question(s).
Figure 9-9
 
The average total cost ( ATC ) and marginal costs ( MC ) of a firm producing in a price-taker industry are depicted in Figure 9-9. If the current market price of the firm's product is $50, what output should this firm produce per day?

Accepted Answer

A)  10 
B)  15 
C)  20 
D)  25 
A)  10 
B)  15 
C)  20 
D)  25

Question 6

If a competitive price-taker firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

Accepted Answer

A)  average revenue exceeds marginal cost. 
B)  the firm is earning a positive profit. 
C)  a one-unit decrease in output would increase the firm's profit. 
D)  All of the above are correct. 
A)  average revenue exceeds marginal cost. 
B)  the firm is earning a positive profit. 
C)  a one-unit decrease in output would increase the firm's profit. 
D)  All of the above are correct.

Question 7

Which portion of the marginal cost curve is used to create a firm's short-run supply curve?

Accepted Answer

A)  the entire marginal cost curve 
B)  the marginal cost curve above its intersection with the average variable cost curve because below this price, firms will shut down in the short run 
C)  the marginal cost curve above its intersection with the marginal revenue (demand) curve 
D)  the marginal cost curve above its intersection with the average total cost curve because below this price, firms will shut down in the short run 
A)  the entire marginal cost curve 
B)  the marginal cost curve above its intersection with the average variable cost curve because below this price, firms will shut down in the short run 
C)  the marginal cost curve above its intersection with the marginal revenue (demand) curve 
D)  the marginal cost curve above its intersection with the average total cost curve because below this price, firms will shut down in the short run

Question 8

When competition is present, self-interested business decision makers have a strong incentive to

Accepted Answer

A)  produce efficiently. 
B)  ignore the wishes of customers who are also self-interested. 
C)  adopt technological improvements slowly in order to avoid making wrong decisions 
D)  maximize price in order to maximize profits. 
A)  produce efficiently. 
B)  ignore the wishes of customers who are also self-interested. 
C)  adopt technological improvements slowly in order to avoid making wrong decisions 
D)  maximize price in order to maximize profits.

Question 9

The textile industry is composed of a large number of small firms. In recent years, these firms have suffered economic losses, and many sellers have left the industry. Economic theory suggests that if technology, imports, and other factors remain constant, these conditions will

Accepted Answer

A)  shift the market demand curve outward so that price will rise to the level of production cost. 
B)  cause the remaining firms to collude so they can produce more efficiently. 
C)  cause the market supply to decline and the price of textiles to rise. 
D)  cause firms in the textile industry to suffer long-run economic losses. 
A)  shift the market demand curve outward so that price will rise to the level of production cost. 
B)  cause the remaining firms to collude so they can produce more efficiently. 
C)  cause the market supply to decline and the price of textiles to rise. 
D)  cause firms in the textile industry to suffer long-run economic losses.

Question 10

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 11

Suppose the development of new drought-resistant hybrid seed corn leads to a 50-percent increase in the average yield per acre without increasing the cost to the farmers who use the new technology. If the conditions in the corn production industry are approximated by the price-taker model, which of the following is most likely to occur?

Accepted Answer

A)  The price of corn will increase. 
B)  The price of soybeans (a substitute for corn) will increase. 
C)  The profits of corn farmers who quickly adopt the new technology will increase. 
D)  The profits of corn farmers who do not adopt the new technology will increase. 
A)  The price of corn will increase. 
B)  The price of soybeans (a substitute for corn) will increase. 
C)  The profits of corn farmers who quickly adopt the new technology will increase. 
D)  The profits of corn farmers who do not adopt the new technology will increase.

Question 12

A price-taker market tends toward a state of long-run equilibrium in which firms earn only a normal rate of return (zero economic profits) because

Accepted Answer

A)  firms will keep their prices low under fear of government regulation. 
B)  with firms able to enter and leave the industry freely, competition will drive prices down to the level of production costs. 
C)  by definition, production costs always rise to equal the market price. 
D)  mismanagement on the part of owners generally results in the firms not equating marginal revenue and marginal cost. 
A)  firms will keep their prices low under fear of government regulation. 
B)  with firms able to enter and leave the industry freely, competition will drive prices down to the level of production costs. 
C)  by definition, production costs always rise to equal the market price. 
D)  mismanagement on the part of owners generally results in the firms not equating marginal revenue and marginal cost.

Question 13

If you were the owner of a price-taker firm operating at an output level where the marginal cost of producing another unit was $5, and the market price was $7, then you

Accepted Answer

A)  could increase your profit by expanding output. 
B)  could increase your profit by decreasing output. 
C)  are maximizing your profit at your current output level. 
D)  will be able to earn positive economic profits in the long run. 
A)  could increase your profit by expanding output. 
B)  could increase your profit by decreasing output. 
C)  are maximizing your profit at your current output level. 
D)  will be able to earn positive economic profits in the long run.

Question 14

Which of the following statements best reflects the production decision of a profit-maximizing firm in a competitive price-taker market when price falls below the minimum of average variable cost?

Accepted Answer

A)  The firm will continue to produce to attempt to pay fixed costs. 
B)  The firm will stop production to minimize its losses. 
C)  The firm will stop production as soon as it is able to pay its sunk costs. 
D)  The firm will continue to produce in the short run but will likely exit the market in the long run. 
A)  The firm will continue to produce to attempt to pay fixed costs. 
B)  The firm will stop production to minimize its losses. 
C)  The firm will stop production as soon as it is able to pay its sunk costs. 
D)  The firm will continue to produce in the short run but will likely exit the market in the long run.

Question 15

The graph below depicts the cost structure for a firm in a competitive market.
Figure 9-13
 
Refer to Figure 9-13. When price rises from P2 to P3, the firm finds that

Accepted Answer

A)  marginal cost exceeds marginal revenue at a production level of Q2. 
B)  if it produces at output level Q3 it will earn a positive profit. 
C)  expanding output to Q4 would leave the firm with losses. 
D)  it could increase profits by lowering output from Q3 to Q2. 
A)  marginal cost exceeds marginal revenue at a production level of Q2. 
B)  if it produces at output level Q3 it will earn a positive profit. 
C)  expanding output to Q4 would leave the firm with losses. 
D)  it could increase profits by lowering output from Q3 to Q2.

Question 16

If a price taker in a competitive market is going to maximize profits, he must

Accepted Answer

A)  increase the price of his product. 
B)  minimize his fixed costs of production. 
C)  minimize the per-unit cost of producing the good. 
D)  use the highest valued set of resources to produce his product. 
A)  increase the price of his product. 
B)  minimize his fixed costs of production. 
C)  minimize the per-unit cost of producing the good. 
D)  use the highest valued set of resources to produce his product.

Question 17

If the demand for a product increases in an increasing-cost industry, as the market adjusts in the long run, production costs for all firms will

Accepted Answer

A)  rise as new firms enter the industry. 
B)  fall as new firms enter the industry. 
C)  remain unchanged. 
D)  fall as firms exit the industry. 
A)  rise as new firms enter the industry. 
B)  fall as new firms enter the industry. 
C)  remain unchanged. 
D)  fall as firms exit the industry.

Question 18

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 19

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 20

Figure 9-12  
Figure 9-12 illustrates a

Accepted Answer

A)  competitive price-taker firm that is earning economic profit. 
B)  competitive price-taker firm that is only able to break even when it is maximizing economic profit. 
C)  firm that should shut down immediately. 
D)  competitive price-taker firm that is making economic losses. 
A)  competitive price-taker firm that is earning economic profit. 
B)  competitive price-taker firm that is only able to break even when it is maximizing economic profit. 
C)  firm that should shut down immediately. 
D)  competitive price-taker firm that is making economic losses.

Use the figure to answer the following question(s). Figure 9-6 If the market price in Figure 9-6 increases to $20, what should the firm do?

The figure depicts a firm in a price-taker market. Use this figure to answer the following question(s). Figure 9-19 Refer to Figure 9-19. To maximize profit, the firm should produce an output level of

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 $40, average variable cost is $45, and average total cost is $60. Claude should

In a competitive price taker market, a firm's short-run supply curve is its

Use the figure to answer the following question(s). Figure 9-9 The average total cost ( ATC ) and marginal costs ( MC ) of a firm producing in a price-taker industry are depicted in Figure 9-9. If the current market price of the firm's product is $50, what output should this firm produce per day?

If a competitive price-taker firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

Which portion of the marginal cost curve is used to create a firm's short-run supply curve?

When competition is present, self-interested business decision makers have a strong incentive to

The textile industry is composed of a large number of small firms. In recent years, these firms have suffered economic losses, and many sellers have left the industry. Economic theory suggests that if technology, imports, and other factors remain constant, these conditions will

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

A price-taker market tends toward a state of long-run equilibrium in which firms earn only a normal rate of return (zero economic profits) because

If you were the owner of a price-taker firm operating at an output level where the marginal cost of producing another unit was $5, and the market price was $7, then you

Which of the following statements best reflects the production decision of a profit-maximizing firm in a competitive price-taker market when price falls below the minimum of average variable cost?

The graph below depicts the cost structure for a firm in a competitive market. Figure 9-13 Refer to Figure 9-13. When price rises from P₂ to P₃, the firm finds that

If a price taker in a competitive market is going to maximize profits, he must

If the demand for a product increases in an increasing-cost industry, as the market adjusts in the long run, production costs for all firms will

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

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

Figure 9-12 Figure 9-12 illustrates a

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

Use the figure to answer the following question(s). Figure 9-6 If the market price in Figure 9-6 increases to $20, what should the firm do?

The figure depicts a firm in a price-taker market. Use this figure to answer the following question(s). Figure 9-19 Refer to Figure 9-19. To maximize profit, the firm should produce an output level of

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 $40, average variable cost is $45, and average total cost is $60. Claude should

In a competitive price taker market, a firm's short-run supply curve is its

Use the figure to answer the following question(s). Figure 9-9 The average total cost ( ATC ) and marginal costs ( MC ) of a firm producing in a price-taker industry are depicted in Figure 9-9. If the current market price of the firm's product is $50, what output should this firm produce per day?

If a competitive price-taker firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

Which portion of the marginal cost curve is used to create a firm's short-run supply curve?

When competition is present, self-interested business decision makers have a strong incentive to

The textile industry is composed of a large number of small firms. In recent years, these firms have suffered economic losses, and many sellers have left the industry. Economic theory suggests that if technology, imports, and other factors remain constant, these conditions will

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

A price-taker market tends toward a state of long-run equilibrium in which firms earn only a normal rate of return (zero economic profits) because

If you were the owner of a price-taker firm operating at an output level where the marginal cost of producing another unit was $5, and the market price was $7, then you

Which of the following statements best reflects the production decision of a profit-maximizing firm in a competitive price-taker market when price falls below the minimum of average variable cost?

The graph below depicts the cost structure for a firm in a competitive market. Figure 9-13 Refer to Figure 9-13. When price rises from P2 to P3, the firm finds that

If a price taker in a competitive market is going to maximize profits, he must

If the demand for a product increases in an increasing-cost industry, as the market adjusts in the long run, production costs for all firms will

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

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

Figure 9-12 Figure 9-12 illustrates a

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

The graph below depicts the cost structure for a firm in a competitive market. Figure 9-13 Refer to Figure 9-13. When price rises from P₂ to P₃, the firm finds that