Question 1

When we say that a firm is a price taker, we are indicating that the

Accepted Answer

A)  firm takes the price established in the market then tries to increase that price through advertising. 
B)  firm can change output levels without having any significant effect on price. 
C)  demand curve faced by the firm is perfectly inelastic. 
D)  firm will have to take a lower price if it wants to increase the number of units that it sells. 
A)  firm takes the price established in the market then tries to increase that price through advertising. 
B)  firm can change output levels without having any significant effect on price. 
C)  demand curve faced by the firm is perfectly inelastic. 
D)  firm will have to take a lower price if it wants to increase the number of units that it sells.

Question 2

The schedule of total costs for a chair-manufacturing firm is presented in the table below. If the market price of chairs is $100, which of the output levels should this price-taker firm produce in order to maximize profit?

Accepted Answer

A)  10 
B)  20 
C)  30 
D)  40 
A)  10 
B)  20 
C)  30 
D)  40

Question 3

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 4

Use the figure to answer the following question(s).
Figure 9-7
 
If the market price in Figure 9-7 increases to $4, what should the firm do?

Accepted Answer

A)  produce 5,000 per week 
B)  produce 7,500 per week 
C)  produce 10,000 per week 
D)  increase its price to $5 
A)  produce 5,000 per week 
B)  produce 7,500 per week 
C)  produce 10,000 per week 
D)  increase its price to $5

Question 5

The schedule of total costs for a chair-manufacturing firm is presented in the table below. If the market price of chairs is $100, which of the output levels should this price-taker firm produce in order to maximize profit?

Accepted Answer

A)  10 
B)  20 
C)  30 
D)  40 
A)  10 
B)  20 
C)  30 
D)  40

Question 6

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 shown is earning zero economic profit. 
B)  The industry is in long-run equilibrium. 
C)  Firms will neither enter nor exit the market. 
D)  All of the above are true. 
A)  This firm shown is earning zero economic profit. 
B)  The industry is in long-run equilibrium. 
C)  Firms will neither enter nor exit the market. 
D)  All of the above are true.

Question 7

Which of the following is a necessary condition for the presence of competition in a market?

Accepted Answer

A)  government regulations that assure firms will make excess profits 
B)  suppliers that offer a homogeneous product 
C)  a price that always equals per-unit production costs 
D)  low barriers to entry into the market 
A)  government regulations that assure firms will make excess profits 
B)  suppliers that offer a homogeneous product 
C)  a price that always equals per-unit production costs 
D)  low barriers to entry into the market

Question 8

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.

Question 9

Suppose product price is $24; MR = MC at Q = 200; AFC = $6; AVC = $16. What do you advise this competitive price-taker firm to do?

Accepted Answer

A)  Increase output. 
B)  Decrease output. 
C)  Shut down operations. 
D)  Stay at the current output; the firm is earning a profit of $400. 
E)  Stay at the current output even though the firm is losing $200. 
A)  Increase output. 
B)  Decrease output. 
C)  Shut down operations. 
D)  Stay at the current output; the firm is earning a profit of $400. 
E)  Stay at the current output even though the firm is losing $200.

Question 10

There are 1,000 identical firms in a price-taker industry. In the short run, total revenues of each firm exceed total costs. What will happen in the long run?

Accepted Answer

A)  Nothing, because each firm is already maximizing its profits. 
B)  Many firms will enter the market and each firm will eventually operate at a loss. 
C)  Additional firms will enter the market, and price will be driven down to where each firm will be making just enough to stay in business. 
D)  Additional firms will enter the market, but the price will remain the same because the existing firms will not allow price to decrease. 
A)  Nothing, because each firm is already maximizing its profits. 
B)  Many firms will enter the market and each firm will eventually operate at a loss. 
C)  Additional firms will enter the market, and price will be driven down to where each firm will be making just enough to stay in business. 
D)  Additional firms will enter the market, but the price will remain the same because the existing firms will not allow price to decrease.

Question 11

Which one of the following factors is not an explanation of the positive relationship between market price and quantity supplied?

Accepted Answer

A)  The law of diminishing returns makes it more costly for firms to expand output quickly. 
B)  As price increases, some less efficient firms will enter the market. 
C)  For most firms, unit costs decrease as output increases in the long run. 
D)  As all firms in an industry hire more factors of production, the prices paid for them often increase. 
A)  The law of diminishing returns makes it more costly for firms to expand output quickly. 
B)  As price increases, some less efficient firms will enter the market. 
C)  For most firms, unit costs decrease as output increases in the long run. 
D)  As all firms in an industry hire more factors of production, the prices paid for them often increase.

Question 12

The entry of new firms into 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 13

Competition as a dynamic process implies that individual firms in a market

Accepted Answer

A)  seek to utilize a variety of techniques, such as product, style, and convenience of location, to win the dollar vote of consumers, but they never use price to compete. 
B)  use price competition as well as other forms of competition to gain the dollar votes of consumers. 
C)  produce a homogeneous product. 
D)  cooperate, attempting to establish a price and output structure so each firm can survive and continue to serve the consumer. 
A)  seek to utilize a variety of techniques, such as product, style, and convenience of location, to win the dollar vote of consumers, but they never use price to compete. 
B)  use price competition as well as other forms of competition to gain the dollar votes of consumers. 
C)  produce a homogeneous product. 
D)  cooperate, attempting to establish a price and output structure so each firm can survive and continue to serve the consumer.

Question 14

The graph below depicts the cost structure for a firm in a competitive market.
Figure 9-13
 
Refer to Figure 9-13. When price falls from P3 to P1, the firm finds that

Accepted Answer

A)  fixed cost is higher at a production level of Q1 than it is at Q3. 
B)  it should produce Q1 units of output. 
C)  it should produce Q3 units of output. 
D)  it should shut down immediately. 
A)  fixed cost is higher at a production level of Q1 than it is at Q3. 
B)  it should produce Q1 units of output. 
C)  it should produce Q3 units of output. 
D)  it should shut down immediately.

Question 15

Use the figure to answer the following question(s).
Figure 9-5
 
If the market price in Figure 9-5 fell to $2.50, what should the firm do?

Accepted Answer

A)  raise its price 
B)  shut down and wait for conditions to improve 
C)  continue operating in the short run if it expects conditions to improve 
D)  go out of business immediately 
A)  raise its price 
B)  shut down and wait for conditions to improve 
C)  continue operating in the short run if it expects conditions to improve 
D)  go out of business immediately

Question 16

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. At the profit-maximizing level of output, the firm will earn an economic

Accepted Answer

A)  profit of AHEB. 
B)  loss of AGDC. 
C)  loss of AHEB. 
D)  loss of AIFB. 
A)  profit of AHEB. 
B)  loss of AGDC. 
C)  loss of AHEB. 
D)  loss of AIFB.

Question 17

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 18

In a competitive price-taker market, the actions of any single buyer or seller will

Accepted Answer

A)  have a negligible impact on the market price. 
B)  have little effect on overall production but will ultimately change final product price. 
C)  cause a noticeable change in overall production and a change in final product price. 
D)  adversely affect the profitability of more than one firm in the market. 
A)  have a negligible impact on the market price. 
B)  have little effect on overall production but will ultimately change final product price. 
C)  cause a noticeable change in overall production and a change in final product price. 
D)  adversely affect the profitability of more than one firm in the market.

Question 19

Use the figure to answer the following question(s).
Figure 9-4
 
If the market price of the product in Figure 9-4 rose to $8, indicate the firm's profit-maximizing output and total revenue.

Accepted Answer

A)  output, 5 million; total revenue, $30 million 
B)  output, 5 million; total revenue, $40 million 
C)  output, 6 million; total revenue, $10 million (approx.) 
D)  output, 6 million; total revenue, $48 million 
A)  output, 5 million; total revenue, $30 million 
B)  output, 5 million; total revenue, $40 million 
C)  output, 6 million; total revenue, $10 million (approx.) 
D)  output, 6 million; total revenue, $48 million

Question 20

Fun Time Inc. uses the same property and equipment to provide skiing services for six months during the winter and mountain roller boarding for six months during the summer. Monthly revenue and cost figures during the summer and winter months for Fun Time are shown below. Fun Time's $1,000 monthly fixed costs will be incurred as long as it remains in business.
 
Which of the following should Fun Time do if it wants to maximize its profit?

Accepted Answer

A)  operate in both the winter and summer 
B)  operate in the summer, but shut down during the winner 
C)  operate in the winter, but shut down during the summer 
D)  go out of business immediately 
A)  operate in both the winter and summer 
B)  operate in the summer, but shut down during the winner 
C)  operate in the winter, but shut down during the summer 
D)  go out of business immediately

When we say that a firm is a price taker, we are indicating that the

The schedule of total costs for a chair-manufacturing firm is presented in the table below. If the market price of chairs is $100, which of the output levels should this price-taker firm produce in order to maximize profit?

If a firm is making zero economic profit, it

Use the figure to answer the following question(s). Figure 9-7 If the market price in Figure 9-7 increases to $4, what should the firm do?

The schedule of total costs for a chair-manufacturing firm is presented in the table below. If the market price of chairs is $100, which of the output levels should this price-taker firm produce in order to maximize profit?

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

Which of the following is a necessary condition for the presence of competition in a market?

Figure 9-12 Figure 9-12 illustrates a

Suppose product price is $24; MR = MC at Q = 200; AFC = $6; AVC = $16. What do you advise this competitive price-taker firm to do?

There are 1,000 identical firms in a price-taker industry. In the short run, total revenues of each firm exceed total costs. What will happen in the long run?

Which one of the following factors is not an explanation of the positive relationship between market price and quantity supplied?

The entry of new firms into a competitive market will

Competition as a dynamic process implies that individual firms in a market

The graph below depicts the cost structure for a firm in a competitive market. Figure 9-13 Refer to Figure 9-13. When price falls from P₃ to P₁, the firm finds that

Use the figure to answer the following question(s). Figure 9-5 If the market price in Figure 9-5 fell to $2.50, 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. At the profit-maximizing level of output, the firm will earn an economic

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

In a competitive price-taker market, the actions of any single buyer or seller will

Use the figure to answer the following question(s). Figure 9-4 If the market price of the product in Figure 9-4 rose to $8, indicate the firm's profit-maximizing output and total revenue.

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

When we say that a firm is a price taker, we are indicating that the

The schedule of total costs for a chair-manufacturing firm is presented in the table below. If the market price of chairs is $100, which of the output levels should this price-taker firm produce in order to maximize profit?

If a firm is making zero economic profit, it

Use the figure to answer the following question(s). Figure 9-7 If the market price in Figure 9-7 increases to $4, what should the firm do?

The schedule of total costs for a chair-manufacturing firm is presented in the table below. If the market price of chairs is $100, which of the output levels should this price-taker firm produce in order to maximize profit?

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

Which of the following is a necessary condition for the presence of competition in a market?

Figure 9-12 Figure 9-12 illustrates a

Suppose product price is $24; MR = MC at Q = 200; AFC = $6; AVC = $16. What do you advise this competitive price-taker firm to do?

There are 1,000 identical firms in a price-taker industry. In the short run, total revenues of each firm exceed total costs. What will happen in the long run?

Which one of the following factors is not an explanation of the positive relationship between market price and quantity supplied?

The entry of new firms into a competitive market will

Competition as a dynamic process implies that individual firms in a market

The graph below depicts the cost structure for a firm in a competitive market. Figure 9-13 Refer to Figure 9-13. When price falls from P3 to P1, the firm finds that

Use the figure to answer the following question(s). Figure 9-5 If the market price in Figure 9-5 fell to $2.50, 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. At the profit-maximizing level of output, the firm will earn an economic

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

In a competitive price-taker market, the actions of any single buyer or seller will

Use the figure to answer the following question(s). Figure 9-4 If the market price of the product in Figure 9-4 rose to $8, indicate the firm's profit-maximizing output and total revenue.

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 falls from P₃ to P₁, the firm finds that