Question 1

Firms that are price takers

Accepted Answer

A)  are small relative to the total market. 
B)  produce products that are different than their competitors. 
C)  can sell only a portion of their output at the market price. 
D)  have downward-sloping demand curves. 
A)  are small relative to the total market. 
B)  produce products that are different than their competitors. 
C)  can sell only a portion of their output at the market price. 
D)  have downward-sloping demand curves.

Question 2

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 = 999, the firm's total cost amounts to

Accepted Answer

A)  $10,985. 
B)  $10,990. 
C)  $10,995. 
D)  $10,999. 
A)  $10,985. 
B)  $10,990. 
C)  $10,995. 
D)  $10,999.

Question 3

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 4

When a law is passed that requires businesses to obtain permission from government officials in order to enter a market, this is an example of

Accepted Answer

A)  price-control legislation. 
B)  a barrier to entry 
C)  antitrust legislation. 
D)  the invisible hand principle. 
A)  price-control legislation. 
B)  a barrier to entry 
C)  antitrust legislation. 
D)  the invisible hand principle.

Question 5

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 6

"I'm losing money, but having invested so much in equipment, I simply cannot afford to shut down." If the firm were attempting to maximize profit, this decision may be

Accepted Answer

A)  correct if the firm is covering its fixed costs. 
B)  incorrect because a firm experiencing economic losses should never continue to operate. 
C)  correct if the firm is covering its variable costs and expects the price of its product to rise in the near future. 
D)  incorrect since the firm's fixed costs are sunk costs. 
A)  correct if the firm is covering its fixed costs. 
B)  incorrect because a firm experiencing economic losses should never continue to operate. 
C)  correct if the firm is covering its variable costs and expects the price of its product to rise in the near future. 
D)  incorrect since the firm's fixed costs are sunk costs.

Question 7

When the price of a product rises, the increase in quantity supplied will generally be greater in the long run than the short run because

Accepted Answer

A)  producers maximize short-run, not long-run, profits. 
B)  over time, new firms will enter the industry and old firms will expand their operations in response to the price increase. 
C)  consumers are less resistant to higher prices in the long run than in the short run because they have fewer options in the long run. 
D)  consumer income will expand in the long run, causing resource prices to rise, which will induce producers to increase output. 
A)  producers maximize short-run, not long-run, profits. 
B)  over time, new firms will enter the industry and old firms will expand their operations in response to the price increase. 
C)  consumers are less resistant to higher prices in the long run than in the short run because they have fewer options in the long run. 
D)  consumer income will expand in the long run, causing resource prices to rise, which will induce producers to increase output.

Question 8

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 9

In a competitive market, profit can be considered a reward to businesses that

Accepted Answer

A)  produce a good that consumers value more highly than its component resources. 
B)  reduce the value of resources used as inputs in production. 
C)  prohibit rival firms from entering the market and competing. 
D)  control costs, rather than following the wishes of consumers when deciding what products to produce. 
A)  produce a good that consumers value more highly than its component resources. 
B)  reduce the value of resources used as inputs in production. 
C)  prohibit rival firms from entering the market and competing. 
D)  control costs, rather than following the wishes of consumers when deciding what products to produce.

Question 10

When an economist states that a firm is earning zero economic profit, this statement implies that the firm

Accepted Answer

A)  will be forced out of business unless market conditions change. 
B)  is doing as well as it could in any other line of business. 
C)  is earning a zero rate of return on its assets. 
D)  could earn a higher rate of return in other industries. 
A)  will be forced out of business unless market conditions change. 
B)  is doing as well as it could in any other line of business. 
C)  is earning a zero rate of return on its assets. 
D)  could earn a higher rate of return in other industries.

Question 11

Use the figure to answer the following question(s).
Figure 9-4
 
At the market price of $6 in Figure 9-4, indicate the firm's total revenue and total cost at its profit-maximizing level of output.

Accepted Answer

A)  total revenue, $30 million; total cost, $22.5 million (approx.) 
B)  total revenue, $30 million; total cost, $30 million 
C)  total revenue, $40 million; total cost, $30 million 
D)  total revenue, $48 million; total cost, $38 million (approx.) 
A)  total revenue, $30 million; total cost, $22.5 million (approx.) 
B)  total revenue, $30 million; total cost, $30 million 
C)  total revenue, $40 million; total cost, $30 million 
D)  total revenue, $48 million; total cost, $38 million (approx.)

Question 12

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 13

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 14

Why will the long-run market supply curve for most products slope upward to the right?

Accepted Answer

A)  The firms producing the product will be unable to expand the size of their plant and equipment in the long run. 
B)  Economies of scale are present in most industries. 
C)  Most products are produced under conditions of constant cost. 
D)  Resource prices will rise and push costs upward as the output of the industry expands. 
A)  The firms producing the product will be unable to expand the size of their plant and equipment in the long run. 
B)  Economies of scale are present in most industries. 
C)  Most products are produced under conditions of constant cost. 
D)  Resource prices will rise and push costs upward as the output of the industry expands.

Question 15

If the expansion of output in an industry leads to unchanged resource prices, the industry is most likely to be

Accepted Answer

A)  a decreasing cost industry. 
B)  an increasing cost industry. 
C)  a constant cost industry. 
D)  an industry characterized by economies of scale. 
A)  a decreasing cost industry. 
B)  an increasing cost industry. 
C)  a constant cost industry. 
D)  an industry characterized by economies of scale.

Question 16

In short-run equilibrium, a competitive price-taker firm

Accepted Answer

A)  may earn a profit or a loss. 
B)  always earns a profit. 
C)  never earns a profit. 
D)  earns a profit only if the firm has no fixed cost. 
A)  may earn a profit or a loss. 
B)  always earns a profit. 
C)  never earns a profit. 
D)  earns a profit only if the firm has no fixed cost.

Question 17

Suppose the minimum average total cost (ATC) of a firm competing in a competitive price-taker market was $1.00 per unit and that the firm's minimum average variable cost (AVC) was $.80 per unit. If the market price was $.75 per unit, a profit-seeking firm would

Accepted Answer

A)  shut down immediately. 
B)  produce where MR = MC in the short run. 
C)  shut down in the long run but remain in business in the short run. 
D)  do both b and c. 
A)  shut down immediately. 
B)  produce where MR = MC in the short run. 
C)  shut down in the long run but remain in business in the short run. 
D)  do both b and c.

Question 18

Suppose a restaurant that is highly profitable during the summer months is unable to cover its total cost during the winter months. If it wants to maximize profits, the restaurant should

Accepted Answer

A)  shut down during the winter, even if it is able to cover its variable costs during that period. 
B)  continue operating during the winter months if it is able to cover its variable costs. 
C)  go a out of business immediately; losses should never be tolerated. 
D)  lower its prices during the summer months. 
A)  shut down during the winter, even if it is able to cover its variable costs during that period. 
B)  continue operating during the winter months if it is able to cover its variable costs. 
C)  go a out of business immediately; losses should never be tolerated. 
D)  lower its prices during the summer months.

Question 19

Regarding costs of production, can a firm ever be at a point that is not on the marginal cost curve? Explain.

Accepted Answer

A profit-maximizing, price-taker firm al

Question 20

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.

Firms that are price takers

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 = 999, the firm's total cost amounts to

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

When a law is passed that requires businesses to obtain permission from government officials in order to enter a market, this is an example of

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

"I'm losing money, but having invested so much in equipment, I simply cannot afford to shut down." If the firm were attempting to maximize profit, this decision may be

When the price of a product rises, the increase in quantity supplied will generally be greater in the long run than the short run because

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

In a competitive market, profit can be considered a reward to businesses that

When an economist states that a firm is earning zero economic profit, this statement implies that the firm

Use the figure to answer the following question(s). Figure 9-4 At the market price of $6 in Figure 9-4, indicate the firm's total revenue and total cost at its profit-maximizing level of output.

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

Why will the long-run market supply curve for most products slope upward to the right?

If the expansion of output in an industry leads to unchanged resource prices, the industry is most likely to be

In short-run equilibrium, a competitive price-taker firm

Suppose the minimum average total cost (ATC) of a firm competing in a competitive price-taker market was $1.00 per unit and that the firm's minimum average variable cost (AVC) was $.80 per unit. If the market price was $.75 per unit, a profit-seeking firm would

Suppose a restaurant that is highly profitable during the summer months is unable to cover its total cost during the winter months. If it wants to maximize profits, the restaurant should

Regarding costs of production, can a firm ever be at a point that is not on the marginal cost curve? Explain.

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

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

Firms that are price takers

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 = 999, the firm's total cost amounts to

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

When a law is passed that requires businesses to obtain permission from government officials in order to enter a market, this is an example of

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

"I'm losing money, but having invested so much in equipment, I simply cannot afford to shut down." If the firm were attempting to maximize profit, this decision may be

When the price of a product rises, the increase in quantity supplied will generally be greater in the long run than the short run because

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

In a competitive market, profit can be considered a reward to businesses that

When an economist states that a firm is earning zero economic profit, this statement implies that the firm

Use the figure to answer the following question(s). Figure 9-4 At the market price of $6 in Figure 9-4, indicate the firm's total revenue and total cost at its profit-maximizing level of output.

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

Why will the long-run market supply curve for most products slope upward to the right?

If the expansion of output in an industry leads to unchanged resource prices, the industry is most likely to be

In short-run equilibrium, a competitive price-taker firm

Suppose the minimum average total cost (ATC) of a firm competing in a competitive price-taker market was $1.00 per unit and that the firm's minimum average variable cost (AVC) was $.80 per unit. If the market price was $.75 per unit, a profit-seeking firm would

Suppose a restaurant that is highly profitable during the summer months is unable to cover its total cost during the winter months. If it wants to maximize profits, the restaurant should

Regarding costs of production, can a firm ever be at a point that is not on the marginal cost curve? Explain.

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

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