Question 1

If long-run equilibrium is present in a competitive market, the typical firm in the market will be

Accepted Answer

A) making economic losses. 
B) making zero economic profit. 
C) making economic profit. 
D) making a rate of return that is higher than the rate earned in other industries. 
E) both c and d are correct. 
A) making economic losses. 
B) making zero economic profit. 
C) making economic profit. 
D) making a rate of return that is higher than the rate earned in other industries. 
E) both c and d are correct. B

Question 2

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. C

Question 3

When profits occur in a competitive market, this indicates that

Accepted Answer

A) consumers value the goods more than the resources used to produce them. 
B) producers value the goods more than the resources used to produce them. 
C) producers value the goods more than consumers value the goods. 
D) consumers value the goods less than the resources used to produce them. 
A) consumers value the goods more than the resources used to produce them. 
B) producers value the goods more than the resources used to produce them. 
C) producers value the goods more than consumers value the goods. 
D) consumers value the goods less than the resources used to produce them. A

Question 4

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 5

The owners of a firm are earning economic profit if

Accepted Answer

A) return on their capital is lower than the opportunity cost of employing that capital in their industry. 
B) their total revenues exceed the monetary payments to labor and other resources in the long run after all plant size adjustments are made. 
C) price exceeds average variable costs at the shutdown point. 
D) they are earning a return on their capital that is higher than what can generally be earned in other markets. 
A) return on their capital is lower than the opportunity cost of employing that capital in their industry. 
B) their total revenues exceed the monetary payments to labor and other resources in the long run after all plant size adjustments are made. 
C) price exceeds average variable costs at the shutdown point. 
D) they are earning a return on their capital that is higher than what can generally be earned in other markets.

Question 6

Which of the following is true for a constant cost industry?

Accepted Answer

A) The total cost of producing 500 units will be the same as the total cost of producing 250 units. 
B) If 100 units can be produced for $500, then 200 units can be produced for $1,000. 
C) The demand curve and, therefore, the unit price in the industry are constant. 
D) Firms in the industry will hold output constant if the price of the product increases. 
A) The total cost of producing 500 units will be the same as the total cost of producing 250 units. 
B) If 100 units can be produced for $500, then 200 units can be produced for $1,000. 
C) The demand curve and, therefore, the unit price in the industry are constant. 
D) Firms in the industry will hold output constant if the price of the product increases.

Question 7

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 8

If the demand and marginal revenue curves confronting firm A are identical, it may be concluded that firm A is a

Accepted Answer

A) monopolistic competitor. 
B) price taker. 
C) price searcher. 
D) monopolist. 
A) monopolistic competitor. 
B) price taker. 
C) price searcher. 
D) monopolist.

Question 9

If the demand for a product increases in an increasing-cost industry, as the market adjusts in the long run, production costs for all firms will

Accepted Answer

A) rise as new firms enter the industry. 
B) fall as new firms enter the industry. 
C) remain unchanged. 
D) fall as firms exit the industry. 
A) rise as new firms enter the industry. 
B) fall as new firms enter the industry. 
C) remain unchanged. 
D) fall as firms exit the industry.

Question 10

Figure 9-8
  
-At the market price of $3 in Figure 9-8, indicate the firm's total revenue and total cost at its profit-maximizing level of output.

Accepted Answer

A) total revenue, $45; total cost, $37 (approx.) 
B) total revenue, $45; total cost, $45 
C) total revenue, $60; total cost, $45 
D) total revenue, $80; total cost, $65 (approx.) 
A) total revenue, $45; total cost, $37 (approx.) 
B) total revenue, $45; total cost, $45 
C) total revenue, $60; total cost, $45 
D) total revenue, $80; total cost, $65 (approx.)

Question 11

Which of the following is a reason to study the decisions of price takers?

Accepted Answer

A) While there are not many price-taker markets, these few markets dominate the economy. 
B) The decision making of both price searchers and price takers is identical. 
C) The price-taker model enhances our knowledge of competition as a dynamic process. 
D) Price takers are the most common type of business in the real world. 
A) While there are not many price-taker markets, these few markets dominate the economy. 
B) The decision making of both price searchers and price takers is identical. 
C) The price-taker model enhances our knowledge of competition as a dynamic process. 
D) Price takers are the most common type of business in the real world.

Question 12

If consumers suddenly began desiring more apples and fewer oranges,

Accepted Answer

A) the market price of apples would rise, creating short-run economic profits in the apple industry. Current firms will expand output and new firms will enter the industry. 
B) the market price of oranges would fall, creating short-run economic losses in the orange industry. Current firms will reduce output and some will go out of business in the long run. 
C) neither a nor b are correct. 
D) both a and b are correct. 
A) the market price of apples would rise, creating short-run economic profits in the apple industry. Current firms will expand output and new firms will enter the industry. 
B) the market price of oranges would fall, creating short-run economic losses in the orange industry. Current firms will reduce output and some will go out of business in the long run. 
C) neither a nor b are correct. 
D) both a and b are correct.

Question 13

If a single firm in a price-taker market lowers its price below the market equilibrium price,

Accepted Answer

A) it will get a larger share of the market. 
B) it will lose revenue without increasing the quantity it can sell. 
C) other firms will lower their prices. 
D) other firms will be driven out of the industry. 
A) it will get a larger share of the market. 
B) it will lose revenue without increasing the quantity it can sell. 
C) other firms will lower their prices. 
D) other firms will be driven out of the industry.

Question 14

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 output should this price-taker firm produce to maximize profit?

Accepted Answer

A) 200 
B) 300 
C) 400 
D) 500 
A) 200 
B) 300 
C) 400 
D) 500

Question 15

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 $40, average variable cost is $45, and average total cost is $60. 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 16

Figure 9-7
  
-The average total cost (ATC) and marginal costs (MC) of a firm producing in a price-taker industry are depicted in Figure 9-7. If the current market price of the firm's product is $3, what output should this firm produce per week?

Accepted Answer

A) 5,000 
B) 7,500 
C) 10,000 
D) 12,500 
A) 5,000 
B) 7,500 
C) 10,000 
D) 12,500

Question 17

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 18

Figure 9-18
  
-Refer to Figure 9-18. To maximize profit, the firm should produce an output level of

Accepted Answer

A) Q₁. 
B) Q₂. 
C) Q₃. 
D) Q₄. 
A) Q₁. 
B) Q₂. 
C) Q₃. 
D) Q₄.

Question 19

If price is above average variable cost and below average total cost, a profit-maximizing price taker should

Accepted Answer

A) immediately shut down; failing to do so is contrary to the idea of profit maximization in a competitive market. 
B) continue producing as long as it expects the market price to rise above average total cost in the near future. 
C) attempt to push price upward by slowly reducing output. 
D) cut price so more units can be sold. 
A) immediately shut down; failing to do so is contrary to the idea of profit maximization in a competitive market. 
B) continue producing as long as it expects the market price to rise above average total cost in the near future. 
C) attempt to push price upward by slowly reducing output. 
D) cut price so more units can be sold.

Question 20

When new firms have an incentive to enter a competitive price-taker market, their entry will

Accepted Answer

A) increase the price of the product. 
B) drive down profits of existing firms in the market. 
C) shift the market supply curve to the left. 
D) increase demand for the product. 
A) increase the price of the product. 
B) drive down profits of existing firms in the market. 
C) shift the market supply curve to the left. 
D) increase demand for the product.

Exam 9: A: Price Takers and the Competitive Process

If long-run equilibrium is present in a competitive market, the typical firm in the market will be

The exit of existing firms from a competitive market will

When profits occur in a competitive market, this indicates that

Figure 9-13 -Refer to Figure 9-13. When price falls from P₃ to P₁, the firm finds that

The owners of a firm are earning economic profit if

Which of the following is true for a constant cost industry?

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

If the demand and marginal revenue curves confronting firm A are identical, it may be concluded that firm A is a

If the demand for a product increases in an increasing-cost industry, as the market adjusts in the long run, production costs for all firms will

Figure 9-8 -At the market price of $3 in Figure 9-8, indicate the firm's total revenue and total cost at its profit-maximizing level of output.

Which of the following is a reason to study the decisions of price takers?

If consumers suddenly began desiring more apples and fewer oranges,

If a single firm in a price-taker market lowers its price below the market equilibrium price,

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 output should this price-taker firm produce to maximize profit?

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 $40, average variable cost is $45, and average total cost is $60. Claude should

Figure 9-7 -The average total cost (ATC) and marginal costs (MC) of a firm producing in a price-taker industry are depicted in Figure 9-7. If the current market price of the firm's product is $3, what output should this firm produce per week?

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

Figure 9-18 -Refer to Figure 9-18. To maximize profit, the firm should produce an output level of

If price is above average variable cost and below average total cost, a profit-maximizing price taker should

When new firms have an incentive to enter a competitive price-taker market, their entry will

The Economic Approach

A: Some Tools of the Economist

B: Some Tools of the Economist

A: Supply, Demand, and the Market Process

B: Supply, Demand, and the Market Process

A: Supply and Demand: Applications and Extensions

B: Supply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Consumer Choice and Elasticity

A: Costs and the Supply of Goods

B: Costs and the Supply of Goods

B: Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

A: Price-Searcher Markets With High Entry Barriers

B: 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

Appendix: Government Spending and Taxation

Appendix: the Economics of Social Security

Appendix: the Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Appendix: Great Debates in Economics: Keynes Versus Hayek

Appendix: the Crisis of 2008: Causes and Lessons for the Future

Appendix: Lessons From the Great Depression

Appendix: the Economics of Healthcare

Appendix:education: Problems and Performance

Appendix: Earnings Differences Between Men and Women

Appendix: the Question of Resource Exhaustion

Appendix: Do Labor Unions Increase the Wages of Workers

Appendix: Difficult Environmental Cases and the Role of Government

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