Question 1

Harry Smith sells wheat in a price-taker market. With regard to Smith's price and output choices, which of the following is true?

Accepted Answer

A)  Smith will constantly attempt to increase the price of his product so he can increase his total revenue. 
B)  Since the price of his product is dictated by the market, Smith will not have an incentive to control per-unit cost. 
C)  Since the price of his product is dictated by the market, Smith has no production decisions to make. 
D)  It would be senseless for Smith to try to increase sales by lowering the price of his product. 
A)  Smith will constantly attempt to increase the price of his product so he can increase his total revenue. 
B)  Since the price of his product is dictated by the market, Smith will not have an incentive to control per-unit cost. 
C)  Since the price of his product is dictated by the market, Smith has no production decisions to make. 
D)  It would be senseless for Smith to try to increase sales by lowering the price of his product.

Question 2

Which of the following is a residual reward that accrues to business decision makers who use resources so as to increase their value?

Accepted Answer

A)  opportunity cost 
B)  earnings of employees 
C)  economic profit 
D)  interest earnings of corporate bondholders 
A)  opportunity cost 
B)  earnings of employees 
C)  economic profit 
D)  interest earnings of corporate bondholders

Question 3

In the short run, a firm that is a price taker will stay in business as long as

Accepted Answer

A)  price equals average revenue. 
B)  marginal revenue is greater than or equal to marginal cost. 
C)  price exceeds average variable cost. 
D)  price is less than average variable cost. 
A)  price equals average revenue. 
B)  marginal revenue is greater than or equal to marginal cost. 
C)  price exceeds average variable cost. 
D)  price is less than average variable cost.

Question 4

Within the framework of the price-taker model, a price taker will always produce a quantity of output that

Accepted Answer

A)  minimizes the per-unit cost of production. 
B)  is expected to provide the largest possible total revenue. 
C)  maximizes total revenue minus total cost. 
D)  brings average total cost and price into equality. 
A)  minimizes the per-unit cost of production. 
B)  is expected to provide the largest possible total revenue. 
C)  maximizes total revenue minus total cost. 
D)  brings average total cost and price into equality.

Question 5

"I have been making furniture for 27 years. I have never heard of either marginal cost or marginal revenue. Fancy economic theories mean nothing to me. I just know how to do well in business. Whenever I can sell something for more than it cost me to produce it, I make it, and whenever I can't sell it for enough to cover my cost, I don't. That's how I stay in business and earn income for my family. Common sense and watching the market are good enough for me." For producers like this, economic models

Accepted Answer

A)  accurately describe their behavior and allow predictions to be made as to how they will respond to changes in market conditions. 
B)  indicate nothing about the behavior of such producers. 
C)  will generally only apply if the person has a college education. 
D)  do not apply because the producers do not understand the terminology. 
A)  accurately describe their behavior and allow predictions to be made as to how they will respond to changes in market conditions. 
B)  indicate nothing about the behavior of such producers. 
C)  will generally only apply if the person has a college education. 
D)  do not apply because the producers do not understand the terminology.

Question 6

A competitive price-taker firm would be willing to remain in the industry in the long run at zero economic profit because

Accepted Answer

A)  it would find it too difficult to exit from the industry in the long run. 
B)  accounting profit would be negative. 
C)  it is covering all costs, including the opportunity cost of capital and labor. 
D)  its sunk costs would prevent it from leaving the industry. 
A)  it would find it too difficult to exit from the industry in the long run. 
B)  accounting profit would be negative. 
C)  it is covering all costs, including the opportunity cost of capital and labor. 
D)  its sunk costs would prevent it from leaving the industry.

Question 7

Which of the following is a primary difference between price takers and price searchers that operate in markets with low barriers to entry?

Accepted Answer

A)  The price searchers will maximize profits in the short run, but price takers will not. Price takers can only maximize profits in the long run. 
B)  The price searchers will have to search for the price, while price takers will have to take the price determined in the market. 
C)  The price searchers will be able to earn profit in the long run, but the price takers will not. 
D)  The price searchers may be able to earn profit in the short run, but the price takers will not be able to do so. 
A)  The price searchers will maximize profits in the short run, but price takers will not. Price takers can only maximize profits in the long run. 
B)  The price searchers will have to search for the price, while price takers will have to take the price determined in the market. 
C)  The price searchers will be able to earn profit in the long run, but the price takers will not. 
D)  The price searchers may be able to earn profit in the short run, but the price takers will not be able to do so.

Question 8

A profit-maximizing entrepreneur will produce and sell an additional unit of output as long as

Accepted Answer

A)  it lowers the firm's unit costs. 
B)  it lowers the firm's marginal cost. 
C)  it adds more to revenue than it adds to cost. 
D)  there is additional plant capacity to produce. 
A)  it lowers the firm's unit costs. 
B)  it lowers the firm's marginal cost. 
C)  it adds more to revenue than it adds to cost. 
D)  there is additional plant capacity to produce.

Question 9

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 10

When price is greater than marginal cost for a firm in a competitive market,

Accepted Answer

A)  marginal cost must be falling. 
B)  the firm must be minimizing its losses. 
C)  there are opportunities to increase profit by increasing production. 
D)  the firm should decrease output to maximize profit. 
A)  marginal cost must be falling. 
B)  the firm must be minimizing its losses. 
C)  there are opportunities to increase profit by increasing production. 
D)  the firm should decrease output to maximize profit.

Question 11

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 12

The long-run supply curve is

Accepted Answer

A)  a horizontal line for a constant-cost industry. 
B)  upward sloping for a decreasing-cost industry. 
C)  downward sloping for an increasing-cost industry. 
D)  all of the above. 
A)  a horizontal line for a constant-cost industry. 
B)  upward sloping for a decreasing-cost industry. 
C)  downward sloping for an increasing-cost industry. 
D)  all of the above.

Question 13

If a competitive price-taking firm is operating in long-run equilibrium and market demand suddenly falls, the short-run result will be

Accepted Answer

A)  greater economic profit. 
B)  a normal profit. 
C)  lower average total cost. 
D)  lower average variable cost. 
E)  economic losses. 
A)  greater economic profit. 
B)  a normal profit. 
C)  lower average total cost. 
D)  lower average variable cost. 
E)  economic losses.

Question 14

Several states require cosmetologists to undertake 1,500 hours or more of training in order to obtain a license to provide hair styling or braiding services. This is an example of

Accepted Answer

A)  antitrust legislation. 
B)  government action that promotes competition. 
C)  a barrier to entry 
D)  the legal structure that is required for the operation of price-taker markets. 
A)  antitrust legislation. 
B)  government action that promotes competition. 
C)  a barrier to entry 
D)  the legal structure that is required for the operation of price-taker markets.

Question 15

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 16

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 17

The figure shows a representative firm in a price-taker market. Which of the following is true regarding the situation depicted in the figure?

Accepted Answer

A)  This firm should shut down immediately. 
B)  This firm is earning positive economic profit. 
C)  This firm is able to cover its variable cost but not its total cost. 
D)  All of the above are true. 
A)  This firm should shut down immediately. 
B)  This firm is earning positive economic profit. 
C)  This firm is able to cover its variable cost but not its total cost. 
D)  All of the above are true.

Question 18

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 19

In a constant cost industry,

Accepted Answer

A)  a natural monopoly is likely to occur. 
B)  total cost is the same, no matter how much a firm produces. 
C)  the long-run supply curve will be perfectly elastic. 
D)  entry of new firms in the industry will lead to a reduction in the cost of inputs. 
A)  a natural monopoly is likely to occur. 
B)  total cost is the same, no matter how much a firm produces. 
C)  the long-run supply curve will be perfectly elastic. 
D)  entry of new firms in the industry will lead to a reduction in the cost of inputs.

Question 20

For a certain firm, the 100th unit of output that the firm produces has marginal revenue equal to $10 and a marginal cost of $7. It follows that

Accepted Answer

A)  the production of the 100th unit of output increases the firm's profit by $3. 
B)  the production of the 100th unit of output increases the firm's average total cost by $7. 
C)  the firm's profit-maximizing level of output is less than 100 units. 
D)  the production of the 110th unit of output must increase the firm's profit by less than $3. 
A)  the production of the 100th unit of output increases the firm's profit by $3. 
B)  the production of the 100th unit of output increases the firm's average total cost by $7. 
C)  the firm's profit-maximizing level of output is less than 100 units. 
D)  the production of the 110th unit of output must increase the firm's profit by less than $3.

Harry Smith sells wheat in a price-taker market. With regard to Smith's price and output choices, which of the following is true?

Which of the following is a residual reward that accrues to business decision makers who use resources so as to increase their value?

In the short run, a firm that is a price taker will stay in business as long as

Within the framework of the price-taker model, a price taker will always produce a quantity of output that

A competitive price-taker firm would be willing to remain in the industry in the long run at zero economic profit because

Which of the following is a primary difference between price takers and price searchers that operate in markets with low barriers to entry?

A profit-maximizing entrepreneur will produce and sell an additional unit of output as long as

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

When price is greater than marginal cost for a firm in a competitive market,

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

The long-run supply curve is

If a competitive price-taking firm is operating in long-run equilibrium and market demand suddenly falls, the short-run result will be

Several states require cosmetologists to undertake 1,500 hours or more of training in order to obtain a license to provide hair styling or braiding services. This is an example of

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

The price-taker firm should discontinue production immediately if

The figure shows a representative firm in a price-taker market. Which of the following is true regarding the situation depicted in the figure?

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

In a constant cost industry,

For a certain firm, the 100th unit of output that the firm produces has marginal revenue equal to $10 and a marginal cost of $7. It follows that

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

Harry Smith sells wheat in a price-taker market. With regard to Smith's price and output choices, which of the following is true?

Which of the following is a residual reward that accrues to business decision makers who use resources so as to increase their value?

In the short run, a firm that is a price taker will stay in business as long as

Within the framework of the price-taker model, a price taker will always produce a quantity of output that

A competitive price-taker firm would be willing to remain in the industry in the long run at zero economic profit because

Which of the following is a primary difference between price takers and price searchers that operate in markets with low barriers to entry?

A profit-maximizing entrepreneur will produce and sell an additional unit of output as long as

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

When price is greater than marginal cost for a firm in a competitive market,

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

The long-run supply curve is

If a competitive price-taking firm is operating in long-run equilibrium and market demand suddenly falls, the short-run result will be

Several states require cosmetologists to undertake 1,500 hours or more of training in order to obtain a license to provide hair styling or braiding services. This is an example of

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

The price-taker firm should discontinue production immediately if

The figure shows a representative firm in a price-taker market. Which of the following is true regarding the situation depicted in the figure?

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

In a constant cost industry,

For a certain firm, the 100th unit of output that the firm produces has marginal revenue equal to $10 and a marginal cost of $7. It follows that

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