Question 1

A firm is currently operating where the MC of the last unit produced is $84, and the MR of this unit is $70. What would you advise this firm to do?

Accepted Answer

A)  Shut down. 
B)  Increase output. 
C)  Stay at its current output. 
D)  Decrease output. 
E)  Decrease price. 
A)  Shut down. 
B)  Increase output. 
C)  Stay at its current output. 
D)  Decrease output. 
E)  Decrease price.

Question 2

Suppose the total cost for various levels of output for a competitive price-taker firm are given in the table below:
 
If the market price is $8, how many units should the firm produce to maximize profit?

Accepted Answer

A)  5 
B)  6 
C)  7 
D)  8 
A)  5 
B)  6 
C)  7 
D)  8

Question 3

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 P3 to P4, the firm finds that

Accepted Answer

A)  fixed costs are lower at a production level of Q4. 
B)  it can earn a positive profit by increasing production to Q4. 
C)  profit is still maximized at a production level of Q3. 
D)  average revenue exceeds marginal revenue at a production level of Q4. 
A)  fixed costs are lower at a production level of Q4. 
B)  it can earn a positive profit by increasing production to Q4. 
C)  profit is still maximized at a production level of Q3. 
D)  average revenue exceeds marginal revenue at a production level of Q4.

Question 4

Figure 9-10  
In Figure 9-10, the movement from points A to B to C can best be explained by which of the following factors?

Accepted Answer

A)  a decrease in demand, followed by the entry of new firms and an expansion in supply in a constant cost industry. 
B)  an increase in demand, followed by the entry of new firms and an expansion in supply in an increasing cost industry. 
C)  a decrease in demand, followed by the exit of firms and a decline in supply in an increasing cost industry. 
D)  an increase in demand, followed by the exit of firms and a decline in supply in a constant cost industry. 
A)  a decrease in demand, followed by the entry of new firms and an expansion in supply in a constant cost industry. 
B)  an increase in demand, followed by the entry of new firms and an expansion in supply in an increasing cost industry. 
C)  a decrease in demand, followed by the exit of firms and a decline in supply in an increasing cost industry. 
D)  an increase in demand, followed by the exit of firms and a decline in supply in a constant cost industry.

Question 5

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. Given the current market conditions, in the long run,

Accepted Answer

A)  new firms will enter the industry and market price will fall. 
B)  firms will exit the industry and market price will rise. 
C)  firms will neither enter nor exit because the market is in long-run equilibrium. 
D)  firms will maintain their current level of economic profit. 
A)  new firms will enter the industry and market price will fall. 
B)  firms will exit the industry and market price will rise. 
C)  firms will neither enter nor exit because the market is in long-run equilibrium. 
D)  firms will maintain their current level of economic profit.

Question 6

If firms in a price-taker industry were forced to install antipollution devices that increased their production costs, we should expect

Accepted Answer

A)  the cost curves for the firms in this industry to shift downward. 
B)  the market price of the product to decrease. 
C)  that the firms in the industry would suffer long-run economic losses. 
D)  that the firms in the industry would earn normal economic profits in the long run, as the higher production costs were passed along to consumers in the form of higher prices. 
A)  the cost curves for the firms in this industry to shift downward. 
B)  the market price of the product to decrease. 
C)  that the firms in the industry would suffer long-run economic losses. 
D)  that the firms in the industry would earn normal economic profits in the long run, as the higher production costs were passed along to consumers in the form of higher prices.

Question 7

When new firms enter a competitive price-taker market,

Accepted Answer

A)  economic profits of existing firms will continue to be zero. 
B)  entering firms will earn zero economic profit upon entry into the market. 
C)  existing firms may see their costs rise as more firms compete for limited resources. 
D)  prices will rise as existing firms raise prices to keep new firms out of the market. 
A)  economic profits of existing firms will continue to be zero. 
B)  entering firms will earn zero economic profit upon entry into the market. 
C)  existing firms may see their costs rise as more firms compete for limited resources. 
D)  prices will rise as existing firms raise prices to keep new firms out of the market.

Question 8

In price-taker markets, individual firms have no control over price. Therefore, the firm's marginal revenue curve is

Accepted Answer

A)  a downward-sloping curve. 
B)  indeterminate. 
C)  constant at the market price of the product. 
D)  precisely the same as the firm's total revenue curve. 
A)  a downward-sloping curve. 
B)  indeterminate. 
C)  constant at the market price of the product. 
D)  precisely the same as the firm's total revenue curve.

Question 9

The exit of existing firms from 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 10

A price-taker firm is currently producing 50 units of output at an average total cost of $3 per unit. If the market price is $7, then the firm's total economic profit is

Accepted Answer

A)  $4. 
B)  $150. 
C)  $200. 
D)  $350. 
A)  $4. 
B)  $150. 
C)  $200. 
D)  $350.

Question 11

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 12

A firm that is a price taker can

Accepted Answer

A)  substantially change the market price of its product by changing its level of production. 
B)  sell all of its output at the market price. 
C)  sell some of its output at a price higher than the market price. 
D)  decide what price to charge for its product. 
A)  substantially change the market price of its product by changing its level of production. 
B)  sell all of its output at the market price. 
C)  sell some of its output at a price higher than the market price. 
D)  decide what price to charge for its product.

Question 13

When consumer demand for a good produced in a price-taker market decreases,

Accepted Answer

A)  firms in the industry will continue to produce at the same output levels as before. 
B)  total market output will generally rise, but each individual firm will reduce its output. 
C)  the market price of the good will rise, causing additional resources to flow into the industry in the long run. 
D)  some firms will shut down in the long run, making their resources available for the production of other goods. 
A)  firms in the industry will continue to produce at the same output levels as before. 
B)  total market output will generally rise, but each individual firm will reduce its output. 
C)  the market price of the good will rise, causing additional resources to flow into the industry in the long run. 
D)  some firms will shut down in the long run, making their resources available for the production of other goods.

Question 14

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. Given the current market conditions, in the long run,

Accepted Answer

A)  new firms will enter the industry and market price will fall. 
B)  firms will exit the industry and market price will rise. 
C)  firms will neither enter nor exit because the market is in long-run equilibrium. 
D)  firms will maintain their current level of economic profit. 
A)  new firms will enter the industry and market price will fall. 
B)  firms will exit the industry and market price will rise. 
C)  firms will neither enter nor exit because the market is in long-run equilibrium. 
D)  firms will maintain their current level of economic profit.

Question 15

Suppose wheat farmers are price takers. If wheat farmers are currently making economic profits, over time we would expect that

Accepted Answer

A)  existing wheat farmers would plant more acres of wheat. 
B)  farmers growing other crops would switch some of their land from these crops to the growing of wheat. 
C)  the wheat farmers will continue to earn economic profits because they would be driven out of business without such profit. 
D)  both a and b are correct. 
A)  existing wheat farmers would plant more acres of wheat. 
B)  farmers growing other crops would switch some of their land from these crops to the growing of wheat. 
C)  the wheat farmers will continue to earn economic profits because they would be driven out of business without such profit. 
D)  both a and b are correct.

Question 16

"Competitive price-taker markets" and "purely competitive markets" are

Accepted Answer

A)  similar, but competition is stronger in the latter. 
B)  similar, but products are differentiated in the former. 
C)  merely alternative names for the same concept. 
D)  terms used to designate markets in which the firms confront a downward sloping demand curve. 
A)  similar, but competition is stronger in the latter. 
B)  similar, but products are differentiated in the former. 
C)  merely alternative names for the same concept. 
D)  terms used to designate markets in which the firms confront a downward sloping demand curve.

Question 17

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 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

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 20

In the short run, a profit-maximizing price taker will expand output as long as the market price exceeds

Accepted Answer

A)  average variable cost. 
B)  marginal cost. 
C)  average total cost. 
D)  average fixed cost. 
A)  average variable cost. 
B)  marginal cost. 
C)  average total cost. 
D)  average fixed cost.

A firm is currently operating where the MC of the last unit produced is $84, and the MR of this unit is $70. What would you advise this firm to do?

Suppose the total cost for various levels of output for a competitive price-taker firm are given in the table below: If the market price is $8, how many units should the firm produce to maximize profit?

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 P₃ to P₄, the firm finds that

Figure 9-10 In Figure 9-10, the movement from points A to B to C can best be explained by which of the following factors?

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. Given the current market conditions, in the long run,

If firms in a price-taker industry were forced to install antipollution devices that increased their production costs, we should expect

When new firms enter a competitive price-taker market,

In price-taker markets, individual firms have no control over price. Therefore, the firm's marginal revenue curve is

The exit of existing firms from a competitive market will

A price-taker firm is currently producing 50 units of output at an average total cost of $3 per unit. If the market price is $7, then the firm's total economic profit is

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?

A firm that is a price taker can

When consumer demand for a good produced in a price-taker market decreases,

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. Given the current market conditions, in the long run,

Suppose wheat farmers are price takers. If wheat farmers are currently making economic profits, over time we would expect that

"Competitive price-taker markets" and "purely competitive markets" are

A profit-maximizing firm will continue to expand output

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

In the short run, a profit-maximizing price taker will expand output as long as the market price exceeds

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

A firm is currently operating where the MC of the last unit produced is $84, and the MR of this unit is $70. What would you advise this firm to do?

Suppose the total cost for various levels of output for a competitive price-taker firm are given in the table below: If the market price is $8, how many units should the firm produce to maximize profit?

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 P3 to P4, the firm finds that

Figure 9-10 In Figure 9-10, the movement from points A to B to C can best be explained by which of the following factors?

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. Given the current market conditions, in the long run,

If firms in a price-taker industry were forced to install antipollution devices that increased their production costs, we should expect

When new firms enter a competitive price-taker market,

In price-taker markets, individual firms have no control over price. Therefore, the firm's marginal revenue curve is

The exit of existing firms from a competitive market will

A price-taker firm is currently producing 50 units of output at an average total cost of $3 per unit. If the market price is $7, then the firm's total economic profit is

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?

A firm that is a price taker can

When consumer demand for a good produced in a price-taker market decreases,

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. Given the current market conditions, in the long run,

Suppose wheat farmers are price takers. If wheat farmers are currently making economic profits, over time we would expect that

"Competitive price-taker markets" and "purely competitive markets" are

A profit-maximizing firm will continue to expand output

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

In the short run, a profit-maximizing price taker will expand output as long as the market price exceeds

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 P₃ to P₄, the firm finds that