Question 1

Airlines generally charge travelers willing to stay over Saturday night lower fares because

Accepted Answer

A) these travelers have lower incomes, and therefore, the airlines would like to help them. 
B) it cost less to transport travelers willing to stay over a Saturday night. 
C) the demand of these travelers is elastic, and therefore, the lower fares generate more revenue. 
D) the demand of these travelers is inelastic, and therefore, the lower fares generate more revenue for the airlines. 
A) these travelers have lower incomes, and therefore, the airlines would like to help them. 
B) it cost less to transport travelers willing to stay over a Saturday night. 
C) the demand of these travelers is elastic, and therefore, the lower fares generate more revenue. 
D) the demand of these travelers is inelastic, and therefore, the lower fares generate more revenue for the airlines. C

Question 2

Which of the following is true of a competitive price-searcher firm when the market is in a long-run equilibrium?

Accepted Answer

A) MR < MC < price 
B) MR < MC = price 
C) MR = MC < price 
D) MR = MC = price 
A) MR < MC < price 
B) MR < MC = price 
C) MR = MC < price 
D) MR = MC = price C

Question 3

The traditional view of competitive price-searcher markets holds that this type of market structure is inefficient because

Accepted Answer

A) there are too few firms to reach an efficient level of competition. 
B) barriers to entry are high. 
C) excessive advertising is encouraged. 
D) consumers are not allowed a sufficient amount of choice in which to express their individual preferences. 
A) there are too few firms to reach an efficient level of competition. 
B) barriers to entry are high. 
C) excessive advertising is encouraged. 
D) consumers are not allowed a sufficient amount of choice in which to express their individual preferences. C

Question 4

If a firm in a competitive price-searcher market finds that its marginal cost exceeds its marginal revenue at the current rate of output, it should

Accepted Answer

A) raise the price of the product and expand its output. 
B) raise the price of the product and reduce its output. 
C) lower the price of the product and expand its output. 
D) lower the price of the product and reduce its output. 
A) raise the price of the product and expand its output. 
B) raise the price of the product and reduce its output. 
C) lower the price of the product and expand its output. 
D) lower the price of the product and reduce its output.

Question 5

When Cabbage Patch Dolls were introduced, they were extremely popular at Christmas, and most stores sold out. By the next year, there were plenty still available at Christmas. What happened?

Accepted Answer

We might conclude that the manufacturer

Question 6

Which of the following is a positive side effect of business start-ups and the business failures that often follow?

Accepted Answer

A) The process makes it possible to try out numerous new ideas, and some of them will substantially improve our lives. 
B) The process increases total employment, and leads to a lower rate of unemployment. 
C) The process generates additional revenue for the government, which will then be used to produce goods and services that people value. 
D) This is a trick question. There are no positive side effects of business failures. 
A) The process makes it possible to try out numerous new ideas, and some of them will substantially improve our lives. 
B) The process increases total employment, and leads to a lower rate of unemployment. 
C) The process generates additional revenue for the government, which will then be used to produce goods and services that people value. 
D) This is a trick question. There are no positive side effects of business failures.

Question 7

Why do the airlines charge less for passengers who stay over Saturday night and purchase their tickets two weeks in advance?

Accepted Answer

The airlines are practicing a form of pr

Question 8

Which of the following is most vital if the firms in an industry are going to earn economic profit in the long run?

Accepted Answer

A) an inelastic demand for the product produced by the firms 
B) an elastic demand for the product produced by the firms 
C) managerial efficiency 
D) high barriers to entry into the industry 
A) an inelastic demand for the product produced by the firms 
B) an elastic demand for the product produced by the firms 
C) managerial efficiency 
D) high barriers to entry into the industry

Question 9

For which of the following products would effective price discrimination (from the seller's viewpoint) be most likely?

Accepted Answer

A) medical care 
B) compact discs 
C) clothing 
D) groceries 
A) medical care 
B) compact discs 
C) clothing 
D) groceries

Question 10

When a new firm enters a competitive price-searcher market, the demand curves faced by all existing firms in that market will

Accepted Answer

A) shift to the left. 
B) shift to the right. 
C) shift in a direction that is unpredictable without further information. 
D) remain unchanged. It is the supply curve that will shift. 
A) shift to the left. 
B) shift to the right. 
C) shift in a direction that is unpredictable without further information. 
D) remain unchanged. It is the supply curve that will shift.

Question 11

The strategy underlying price discrimination is

Accepted Answer

A) to charge higher prices to customers who have good substitutes available to them and lower prices to customers without many substitutes available to them.. 
B) to charge everyone the same price but limit the quantity they are allowed to buy. 
C) to increase total revenue by charging higher prices to those with the most inelastic demand for the product and lower prices to those with the most elastic demand. 
D) to reduce per-unit cost by charging higher prices to those with the most inelastic demand and lower prices to those with the most elastic demand. 
A) to charge higher prices to customers who have good substitutes available to them and lower prices to customers without many substitutes available to them.. 
B) to charge everyone the same price but limit the quantity they are allowed to buy. 
C) to increase total revenue by charging higher prices to those with the most inelastic demand for the product and lower prices to those with the most elastic demand. 
D) to reduce per-unit cost by charging higher prices to those with the most inelastic demand and lower prices to those with the most elastic demand.

Question 12

Suppose you were asked to determine whether a firm was a price taker or a competitive price searcher by looking at a graph of the firm's cost and revenue curves. The key is that for the competitive price searcher,

Accepted Answer

A) the firm's marginal revenue curve lies above and to the right of the demand curve, not below and to the left. 
B) there are only total costs, not variable costs, on the graph. 
C) the firm's demand curve is downward sloping, not a horizontal line. 
D) all of the above are true. 
A) the firm's marginal revenue curve lies above and to the right of the demand curve, not below and to the left. 
B) there are only total costs, not variable costs, on the graph. 
C) the firm's demand curve is downward sloping, not a horizontal line. 
D) all of the above are true.

Question 13

In the long run, neither competitive price takers nor competitive price searchers will be able to earn economic profits because

Accepted Answer

A) entry barriers into these markets are high, raising the costs of each firm. 
B) the government will dictate moderate prices for these firms. 
C) competition will force prices down to the level of per-unit production costs. 
D) marginal revenue is always less than marginal cost when barriers to entry are low. 
A) entry barriers into these markets are high, raising the costs of each firm. 
B) the government will dictate moderate prices for these firms. 
C) competition will force prices down to the level of per-unit production costs. 
D) marginal revenue is always less than marginal cost when barriers to entry are low.

Question 14

A contestable market is one in which

Accepted Answer

A) there is a competitive (normal) profit rate and few firms operating. 
B) the costs of entry and exit are high. 
C) each firm produces an identical product. 
D) the fixed costs of firms in the market are also sunk costs. 
A) there is a competitive (normal) profit rate and few firms operating. 
B) the costs of entry and exit are high. 
C) each firm produces an identical product. 
D) the fixed costs of firms in the market are also sunk costs.

Question 15

As new firms enter a competitive price-searcher market, profits of existing firms

Accepted Answer

A) rise and product diversity in the market increases. 
B) rise and product diversity in the market decreases. 
C) decline and product diversity in the market increases. 
D) decline and product diversity in the market decreases. 
A) rise and product diversity in the market increases. 
B) rise and product diversity in the market decreases. 
C) decline and product diversity in the market increases. 
D) decline and product diversity in the market decreases.

Question 16

In both price-taker and competitive price-searcher markets, the long-run market price of a good will be equal to the

Accepted Answer

A) average total cost of producing the good. 
B) average variable cost of producing the good. 
C) average fixed cost of producing the good plus a normal return on that cost. 
D) marginal revenue derived from the sale of an additional unit of the good. 
A) average total cost of producing the good. 
B) average variable cost of producing the good. 
C) average fixed cost of producing the good plus a normal return on that cost. 
D) marginal revenue derived from the sale of an additional unit of the good.

Question 17

Which of the following is not a necessary condition for effective price discrimination?

Accepted Answer

A) The firm must face a downward-sloping demand curve. 
B) There must be at least two distinguishable groups of consumers. 
C) The producer must be a pure monopolist. 
D) The seller must be able to prohibit buyers from easily reselling the product to other potential buyers. 
A) The firm must face a downward-sloping demand curve. 
B) There must be at least two distinguishable groups of consumers. 
C) The producer must be a pure monopolist. 
D) The seller must be able to prohibit buyers from easily reselling the product to other potential buyers.

Question 18

In the long run the prices charged by a firm in a competitive price-searcher market will be

Accepted Answer

A) high enough to provide profits to the firm. 
B) so low that many firms will drop out of the industry. 
C) equal to marginal cost. 
D) equal to average cost, including the opportunity cost of capital. 
A) high enough to provide profits to the firm. 
B) so low that many firms will drop out of the industry. 
C) equal to marginal cost. 
D) equal to average cost, including the opportunity cost of capital.

Question 19

Part of the entrepreneurial process in a competitive market economy involves

Accepted Answer

A) obtaining governmental control over the market so that a new product has some chance of being successful. 
B) knowing from the start the proper output and price to set for each new product. 
C) choosing the best structure, size, and scope of production for the firm to produce a new product. 
D) knowing in advance with certainty what products consumers will want to buy. 
A) obtaining governmental control over the market so that a new product has some chance of being successful. 
B) knowing from the start the proper output and price to set for each new product. 
C) choosing the best structure, size, and scope of production for the firm to produce a new product. 
D) knowing in advance with certainty what products consumers will want to buy.

Question 20

Niceville, Ohio, only has two dentists, while the surrounding communities have many more on a per capita basis. The demand for dental services is such that these two dentists could agree to raise their prices (they play golf together every Saturday) and earn economic profit. Instead, they choose to price competitively and earn what other dentists earn. What might explain this?

Accepted Answer

The dentists probably know that economic

Exam 10: Price-Searcher Markets With Low Entry Barriers

Airlines generally charge travelers willing to stay over Saturday night lower fares because

Which of the following is true of a competitive price-searcher firm when the market is in a long-run equilibrium?

The traditional view of competitive price-searcher markets holds that this type of market structure is inefficient because

If a firm in a competitive price-searcher market finds that its marginal cost exceeds its marginal revenue at the current rate of output, it should

When Cabbage Patch Dolls were introduced, they were extremely popular at Christmas, and most stores sold out. By the next year, there were plenty still available at Christmas. What happened?

Which of the following is a positive side effect of business start-ups and the business failures that often follow?

Why do the airlines charge less for passengers who stay over Saturday night and purchase their tickets two weeks in advance?

Which of the following is most vital if the firms in an industry are going to earn economic profit in the long run?

For which of the following products would effective price discrimination (from the seller's viewpoint) be most likely?

When a new firm enters a competitive price-searcher market, the demand curves faced by all existing firms in that market will

The strategy underlying price discrimination is

Suppose you were asked to determine whether a firm was a price taker or a competitive price searcher by looking at a graph of the firm's cost and revenue curves. The key is that for the competitive price searcher,

In the long run, neither competitive price takers nor competitive price searchers will be able to earn economic profits because

A contestable market is one in which

As new firms enter a competitive price-searcher market, profits of existing firms

In both price-taker and competitive price-searcher markets, the long-run market price of a good will be equal to the

Which of the following is not a necessary condition for effective price discrimination?

In the long run the prices charged by a firm in a competitive price-searcher market will be

Part of the entrepreneurial process in a competitive market economy involves

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

A: Price Takers and the Competitive Process

B: Price Takers and the Competitive Process

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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