Question 1

In a price-taker market, profits are

Accepted Answer

A)  the result of consumers being charged arbitrarily high prices. 
B)  a reward for creating value. 
C)  the result of barriers to entry into the market. 
D)  a signal that fewer resources are needed in a market. 
A)  the result of consumers being charged arbitrarily high prices. 
B)  a reward for creating value. 
C)  the result of barriers to entry into the market. 
D)  a signal that fewer resources are needed in a market.

Question 2

The dynamic process of competition

Accepted Answer

A)  provides profit-seeking sellers with little incentive to heed consumer preferences. 
B)  was shown by Adam Smith to be a major source of economic inefficiency. 
C)  provides consumers with alternative suppliers and thus a mechanism with which they can discipline sellers. 
D)  will permit business decision makers to earn long-run economic profit unless they are regulated by government officials. 
A)  provides profit-seeking sellers with little incentive to heed consumer preferences. 
B)  was shown by Adam Smith to be a major source of economic inefficiency. 
C)  provides consumers with alternative suppliers and thus a mechanism with which they can discipline sellers. 
D)  will permit business decision makers to earn long-run economic profit unless they are regulated by government officials.

Question 3

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

Accepted Answer

A)  Nothing, because each firm is already maximizing its profits. 
B)  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 (cover its variable costs). 
C)  Additional firms will enter the market, but the price will remain the same because the existing firms will not allow it to decrease. 
D)  Firms will exit the market, and the product price will rise. 
A)  Nothing, because each firm is already maximizing its profits. 
B)  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 (cover its variable costs). 
C)  Additional firms will enter the market, but the price will remain the same because the existing firms will not allow it to decrease. 
D)  Firms will exit the market, and the product price will rise.

Question 4

If a firm is losing money, this implies that

Accepted Answer

A)  consumers do not understand the value of the product. 
B)  the value of the resources used to make the product is being reduced. 
C)  the firm must go out of business immediately. 
D)  this product cannot be produced profitably in the long run. 
A)  consumers do not understand the value of the product. 
B)  the value of the resources used to make the product is being reduced. 
C)  the firm must go out of business immediately. 
D)  this product cannot be produced profitably in the long run.

Question 5

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 6

A competitive price-taker market in long-run equilibrium is described as efficient because firms

Accepted Answer

A)  produce at the low point on their average cost curve. 
B)  produce where marginal cost yields a profit. 
C)  earn no more than the cost of capital. 
D)  are not profitable. 
A)  produce at the low point on their average cost curve. 
B)  produce where marginal cost yields a profit. 
C)  earn no more than the cost of capital. 
D)  are not profitable.

Question 7

Which of the following is a primary difference between price searchers and price takers?

Accepted Answer

A)  Price searchers maximize profits, but price takers do not. 
B)  Price searchers have to cut their price to sell additional output, but price takers do not. 
C)  The market demand for goods produced by price searchers is downward sloping, while the market demand for goods produced by price takers is horizontal. 
D)  Profit-maximizing price searchers will expand output to the quantity where marginal revenue equals marginal cost, but price takers will not. 
A)  Price searchers maximize profits, but price takers do not. 
B)  Price searchers have to cut their price to sell additional output, but price takers do not. 
C)  The market demand for goods produced by price searchers is downward sloping, while the market demand for goods produced by price takers is horizontal. 
D)  Profit-maximizing price searchers will expand output to the quantity where marginal revenue equals marginal cost, but price takers will not.

Question 8

The dynamic process of competition

Accepted Answer

A)  provides profit-seeking sellers with little incentive to heed consumer preferences. 
B)  was shown by Adam Smith to be a major source of economic inefficiency. 
C)  provides consumers with alternative suppliers and thus a mechanism with which they can discipline sellers. 
D)  will permit business decision makers to earn long-run economic profit unless they are regulated by government officials. 
A)  provides profit-seeking sellers with little incentive to heed consumer preferences. 
B)  was shown by Adam Smith to be a major source of economic inefficiency. 
C)  provides consumers with alternative suppliers and thus a mechanism with which they can discipline sellers. 
D)  will permit business decision makers to earn long-run economic profit unless they are regulated by government officials.

Question 9

Use the figure to answer the following question(s).
Figure 9-9
 
If the market price in Figure 9-9 increases to $60, what should the firm do?

Accepted Answer

A)  produce 10 per day 
B)  produce 15 per day 
C)  produce 20 per day 
D)  increase its price to $70 
A)  produce 10 per day 
B)  produce 15 per day 
C)  produce 20 per day 
D)  increase its price to $70

Question 10

If the demand for a product increases in an increasing cost industry, as the market adjusts in the long run,

Accepted Answer

A)  price will rise. 
B)  the firm's per-unit costs will increase. 
C)  the firm's per-unit costs will fall. 
D)  the market price will return to its initial position. 
A)  price will rise. 
B)  the firm's per-unit costs will increase. 
C)  the firm's per-unit costs will fall. 
D)  the market price will return to its initial position.

Question 11

The ability of price-taker firms to freely expand or contract their businesses and to enter or exit the market means that

Accepted Answer

A)  prices will always be high enough to generate positive economic profit. 
B)  resources that would be more valuable elsewhere will be trapped, unproductively, in a particular industry. 
C)  resource owners cannot move their resources to other areas where they would be more highly valued. 
D)  resources that would be more valuable elsewhere will not be trapped, unproductively, in a particular industry. 
A)  prices will always be high enough to generate positive economic profit. 
B)  resources that would be more valuable elsewhere will be trapped, unproductively, in a particular industry. 
C)  resource owners cannot move their resources to other areas where they would be more highly valued. 
D)  resources that would be more valuable elsewhere will not be trapped, unproductively, in a particular industry.

Question 12

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 13

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 14

Use the figure to answer the following question(s).
Figure 9-5
 
The cost conditions for a profit-maximizing firm operating in a price-taker market are indicated in Figure 9-5. If the market price was $3, what output should the firm produce, and what would be the firm's maximum profit?

Accepted Answer

A)  output, 3; maximum profit, $3 loss 
B)  output, 5; maximum profit, zero 
C)  output, 5; maximum profit, $5 
D)  output, 6; maximum profit, $6 
A)  output, 3; maximum profit, $3 loss 
B)  output, 5; maximum profit, zero 
C)  output, 5; maximum profit, $5 
D)  output, 6; maximum profit, $6

Question 15

Suppose the demand curve for aluminum cans is downward sloping, and the cans are produced in a constant cost industry where the firms are price takers. A $.25-per-can tax is levied on aluminum cans. How much will the price of aluminum cans increase in the short run and the long run?

Accepted Answer

A)  short run, $.25; long run, more than $.25 
B)  short run, less than $.25; long run, $.25 
C)  short run, less than $.25; long run, more than $.25 
D)  short run, $.25; long run, less than $.25 
A)  short run, $.25; long run, more than $.25 
B)  short run, less than $.25; long run, $.25 
C)  short run, less than $.25; long run, more than $.25 
D)  short run, $.25; long run, less than $.25

Question 16

In a price-taker market, the short-run market supply curve is the

Accepted Answer

A)  vertical sum of the marginal cost curves of all firms in the market. 
B)  vertical sum of the average variable cost curves of all firms. 
C)  horizontal sum of the marginal cost curves of all firms so long as price exceeds average variable cost. 
D)  horizontal sum of the average total cost curves of all the firms in the market so long as average total cost exceeds the market price. 
A)  vertical sum of the marginal cost curves of all firms in the market. 
B)  vertical sum of the average variable cost curves of all firms. 
C)  horizontal sum of the marginal cost curves of all firms so long as price exceeds average variable cost. 
D)  horizontal sum of the average total cost curves of all the firms in the market so long as average total cost exceeds the market price.

Question 17

The schedule of total costs for a table-manufacturing company is presented in the table below. The firm sells its product in a price-taker market at $120 per table. What is the maximum monthly profit (or minimum loss) that the firm will be able to earn?

Accepted Answer

A)  $15 loss 
B)  zero 
C)  $5 profit 
D)  $10 profit 
A)  $15 loss 
B)  zero 
C)  $5 profit 
D)  $10 profit

Question 18

A firm is currently operating where the MC of the last unit produced is $64, and the MR of this unit is $70. Which of the following would increase profit?

Accepted Answer

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

Question 19

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 20

Several producers in industry A developed an improved technology that reduces the quantity of resources used to produce a given output. Which of the following would be expected?

Accepted Answer

A)  The per-unit costs of production of the firms adopting the technology would increase. 
B)  In the short run, economic profits would be earned by the earliest firms adopting the technology. 
C)  Product price would immediately fall to the minimum average total cost of the firms quickly adopting the technology, thus retarding the rate at which firms enter the industry. 
D)  Producers who adopt the technology will have short-run economic losses. 
A)  The per-unit costs of production of the firms adopting the technology would increase. 
B)  In the short run, economic profits would be earned by the earliest firms adopting the technology. 
C)  Product price would immediately fall to the minimum average total cost of the firms quickly adopting the technology, thus retarding the rate at which firms enter the industry. 
D)  Producers who adopt the technology will have short-run economic losses.

In a price-taker market, profits are

The dynamic process of competition

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

If a firm is losing money, this implies that

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?

A competitive price-taker market in long-run equilibrium is described as efficient because firms

Which of the following is a primary difference between price searchers and price takers?

The dynamic process of competition

Use the figure to answer the following question(s). Figure 9-9 If the market price in Figure 9-9 increases to $60, what should the firm do?

If the demand for a product increases in an increasing cost industry, as the market adjusts in the long run,

The ability of price-taker firms to freely expand or contract their businesses and to enter or exit the market means that

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?

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?

Use the figure to answer the following question(s). Figure 9-5 The cost conditions for a profit-maximizing firm operating in a price-taker market are indicated in Figure 9-5. If the market price was $3, what output should the firm produce, and what would be the firm's maximum profit?

Suppose the demand curve for aluminum cans is downward sloping, and the cans are produced in a constant cost industry where the firms are price takers. A $.25-per-can tax is levied on aluminum cans. How much will the price of aluminum cans increase in the short run and the long run?

In a price-taker market, the short-run market supply curve is the

The schedule of total costs for a table-manufacturing company is presented in the table below. The firm sells its product in a price-taker market at $120 per table. What is the maximum monthly profit (or minimum loss) that the firm will be able to earn?

A firm is currently operating where the MC of the last unit produced is $64, and the MR of this unit is $70. Which of the following would increase profit?

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?

Several producers in industry A developed an improved technology that reduces the quantity of resources used to produce a given output. Which of the following would be expected?

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

In a price-taker market, profits are

The dynamic process of competition

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

If a firm is losing money, this implies that

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?

A competitive price-taker market in long-run equilibrium is described as efficient because firms

Which of the following is a primary difference between price searchers and price takers?

The dynamic process of competition

Use the figure to answer the following question(s). Figure 9-9 If the market price in Figure 9-9 increases to $60, what should the firm do?

If the demand for a product increases in an increasing cost industry, as the market adjusts in the long run,

The ability of price-taker firms to freely expand or contract their businesses and to enter or exit the market means that

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?

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?

Use the figure to answer the following question(s). Figure 9-5 The cost conditions for a profit-maximizing firm operating in a price-taker market are indicated in Figure 9-5. If the market price was $3, what output should the firm produce, and what would be the firm's maximum profit?

Suppose the demand curve for aluminum cans is downward sloping, and the cans are produced in a constant cost industry where the firms are price takers. A $.25-per-can tax is levied on aluminum cans. How much will the price of aluminum cans increase in the short run and the long run?

In a price-taker market, the short-run market supply curve is the

The schedule of total costs for a table-manufacturing company is presented in the table below. The firm sells its product in a price-taker market at $120 per table. What is the maximum monthly profit (or minimum loss) that the firm will be able to earn?

A firm is currently operating where the MC of the last unit produced is $64, and the MR of this unit is $70. Which of the following would increase profit?

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?

Several producers in industry A developed an improved technology that reduces the quantity of resources used to produce a given output. Which of the following would be expected?

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