Deck 10: Price-Searcher Markets With Low Entry Barriers

Question 1

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

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.

Answer 1

C

Question 2

If firms in a competitive price-searcher market are currently earning economic losses, then in the long run,

A)new firms will enter the market, and the current firms will experience a decrease in demand for their products until zero economic profit is again restored.
B)new firms will enter the market, and the current firms will experience an increase in demand for their products until zero economic profit is again restored.
C)some existing firms will exit the market, and the remaining firms will experience an increase in demand for their products until zero economic profit is again restored.
D)some existing firms will exit the market, and the remaining firms will experience a decrease in demand for their products until zero economic profit is again restored.

Answer 2

C

Question 3

A competitive price-searcher market is best described as

A)many firms with some control over price, and some product differentiation.
B)many firms with no control over price, producing identical products.
C)a few firms with some control over price, producing highly differentiated products.
D)a few firms with no control over price, producing similar products.
E)a single firm producing all of the output for the industry, with strong control over price.

Answer 3

A

Question 4

If a government wanted to increase the prosperity of a nation, it could best serve this goal by

A)protecting domestic industries from international trade, thus encouraging domestic growth.
B)regulating the way in which firms can operate.
C)reducing barriers that restrict the ability of potential competitors to enter markets.
D)subsidizing firms that are in danger of going out of business.

Question 5

Cecilia's Café is in a competitive price-searcher market. Cecilia's is currently producing where average total cost is at its minimum, and Cecilia's is earning a positive economic profit. In the long run we would expect Cecilia's output to

A)decrease and average total cost to be higher.
B)decrease and average total cost to be lower.
C)remain unchanged as Cecilia's is doing the best it can.
D)increase and average total costs to be lower.

Question 6

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

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 7

As long as a market is contestable, then even if it has only a few sellers, the

A)threat of new entrants will prevent the prices from rising above the competitive level.
B)producers will be able to charge prices that are high enough to produce long-run economic profits.
C)producers will not face new competition because the barriers to entry are high.
D)market will never be expected to come close to the competitive result.

Question 8

In a competitive price-searcher market, the firms will

A)be able to choose their price, and the entry barriers into the market will be low.
B)be able to choose their price, and the entry barriers into the market will be high.
C)have to accept the market price for their product, and the entry barriers into the market will be low.
D)have to accept the market price for their product, and the entry barriers into the market will be high.

Question 9

Which of the following is a true statement?

A)A price-taker firm can sell additional units of output without having to lower its price, while a price-searcher firm must lower its price in order to sell additional units.
B)A price-searcher firm can sell additional units of output without having to lower its price, while a price-taker firm must lower its price in order to sell additional units.
C)Both price searchers and price takers can sell additional units of output without having to lower their price.
D)Both price searchers and price takers must lower their price in order to sell additional units of output.

Question 10

The strategy underlying price discrimination is

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 11

Compared to the outcome when the firms are price takers, competitive price-searcher markets will result in

A)a wider variety of products and higher prices.
B)less product variety and higher prices.
C)a wider variety of products and lower prices.
D)less product variety and lower prices.

Question 12

Entrepreneurial judgment

A)is necessary to make business decisions when no fixed decision rule can be used.
B)is fully incorporated into modern economic models of business behavior.
C)requires decision makers to follow carefully defined rules regarding uncertainty, discovery, and business judgment.
D)requires government advice and regulation.

Question 13

An important difference between the situation faced by a profit-maximizing competitive price-searcher firm in the short run and the situation faced by that same firm in the long run is that in the short run,

A)price may exceed marginal revenue, but in the long run, price will equal marginal revenue.
B)price may exceed marginal cost, but in the long run, price will equal marginal cost.
C)price may exceed average total cost, but in the long run, price will equal average total cost.
D)there are many firms in the market, but in the long run, there are only a few firms in the market.

Question 14

A competitive price-searcher firm is currently producing 10 units of output. At this level of output the firm is charging a price equal to $10, has marginal revenue equal to $6, has marginal cost equal to $6, and has average total cost equal to $12. From this information we can conclude that

A)the firm is currently maximizing its profit.
B)the profits of the firm are positive.
C)firms are likely to enter this market in the long run.
D)the firm would earn more profit by expanding output

Question 15

Competitive price-searcher markets are common in

A)retail selling.
B)farming.
C)basic manufacturing.
D)electric power generation.

Question 16

When a firm exits a competitive price-searcher market, the individual demand curves faced by all remaining firms in that market will

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

Question 17

A competitive price-searcher firm is currently producing 10 units of output. At this level of output the firm is charging a price equal to $10, has marginal revenue equal to $6, has marginal cost equal to $6, and has average total cost equal to $12. From this information we can conclude that

A)the firm is currently earning zero profit.
B)the profits of the firm are negative.
C)firms are likely to enter this market in the long run.
D)the firm would earn more profit by reducing output.

Question 18

A profit-maximizing price searcher will expand output to the point where

A)total revenue equals total cost.
B)marginal revenue equals marginal cost.
C)price equals average total cost.
D)price equals marginal cost.

Question 19

If a market is in long-run equilibrium, which of the following conditions will be present in a competitive price-taker market but absent from a competitive price-searcher market?

A)P = ATC
B)MR = MC
C)P = MC
D)MR < P

Question 20

Which of the following is not a characteristic of a competitive price-searcher market?

A)Each firm produces a differentiated product.
B)The entry barriers are high.
C)Each firm faces a downward-sloping demand curve.
D)The number of firms in the market is large.

Question 21

Which of the following is the best example of a firm operating in a competitive price-searcher market?

A)a pizza parlor operating near a college campus
B)Shell Oil Company, a major refiner of gasoline
C)a Texas rancher that raises beef cattle
D)Boeing, the aircraft manufacturer

Question 22

Firms that are price searchers

A)will eventually find and charge the highest price at which consumers will purchase any units.
B)face inelastic demand curves for their products.
C)do not confront rival sellers like price takers do.
D)face a downward-sloping demand curve.

Question 23

Which of the following most closely approximates the conditions of a competitive price-searcher market?

A)the market for Grade A eggs, which is characterized by a large number of firms producing a homogeneous product
B)the restaurant industry, which is characterized by firms producing a differentiated product in a market with low entry barriers
C)local cable television service, where a licensed supplier competes with firms offering satellite service
D)the market for jumbo aircraft, where one major domestic firm competes with one major foreign firm

Question 24

Suppose a price-searcher firm faces the following demand curve data for its product.
What is the firm's marginal revenue from selling the seventh unit?

A)$0
B)$2
C)$7
D)$42

Question 25

If a price-searcher firm can sell nine units at a price of $6, or it can sell ten units at a price of $5.75, what is the marginal revenue of the tenth unit?

A)$1
B)$3.50
C)$5.75
D)$6

Question 26

If a price-searcher firm can sell nine units at a price of $20, or it can sell ten units at a price of $17, what is the marginal revenue of the tenth unit?

A)-$10
B)$10
C)$17
D)$20

Question 27

When the firm is a price searcher, the marginal revenue of selling the tenth unit is the

A)sales price of the tenth unit.
B)change in total revenue that results from selling the tenth unit.
C)change in total cost that results from producing the tenth unit.
D)change in total revenue that results from selling the ninth unit.

Question 28

Suppose a price-searcher firm faces the following demand curve data for its product.
What is the firm's marginal revenue from selling the sixth unit?

A)$4
B)$9
C)$10
D)$54

Question 29

Which of the following is true for a price-searcher firm?

A)Its marginal revenue curve will lie below its demand curve.
B)Its marginal revenue curve will lie above its demand curve.
C)Its marginal revenue curve is equal to its demand curve.
D)Its marginal revenue curve is horizontal at the market equilibrium price.

Question 30

In a competitive price-searcher market, the marginal revenue of the firm will always be

A)a horizontal line.
B)greater than price.
C)less than price.
D)equal to price.

Question 31

Which of the following is a term that is sometimes used to describe markets with low entry barriers and firms that are price searchers?

A)pure competition
B)monopoly
C)monopolistic competition
D)oligopoly

Question 32

A firm in a competitive price-searcher market faces

A)a horizontal demand curve at the market equilibrium price.
B)a horizontal demand curve at every price.
C)an upward-sloping demand curve.
D)a downward-sloping demand curve.

Question 33

Monopolistic competition is a term referring to markets characterized by

A)price-taker firms.
B)price-searcher firms in markets with low barriers to entry.
C)price-searcher firms in markets with high barriers to entry.
D)oligopoly, a small number of sellers.

Question 34

If a price searcher is producing at a level of output such that its marginal cost is $5 and its marginal revenue is $3, the firm should

A)increase output in order to reduce per-unit costs.
B)decrease the price of its product and expand output.
C)increase price and reduce its rate of output.
D)reduce both price and output.

Question 35

When a firm is a price searcher, its marginal revenue is

A)equal to price because the firm's demand curve is perfectly elastic.
B)equal to price if, and only if, the firm is maximizing profits.
C)less than price when the firm is maximizing profits.
D)equal to average total cost at the long-run equilibrium output rate.

Question 36

If a firm in a competitive price-searcher market raises its price, it will

A)lose all of its sales.
B)increase its sales.
C)lose only some of its sales.
D)have to go out of business.

Question 37

The term price searcher applies to all firms that

A)face a downward-sloping demand curve.
B)face an upward-sloping demand curve.
C)operate in a purely competitive environment.
D)purchase resources in a noncompetitive market.

Question 38

A firm in a competitive price-searcher market can raise its price without losing all of its customers. This is a result of

A)low entry barriers.
B)a perfectly elastic market demand.
C)the small number of firms in the market.
D)product differentiation.

Question 39

A competitive price-searcher market is characterized by firms

A)being able to choose their price and by low barriers preventing firms from entering or leaving the market.
B)being able to choose their price and by high barriers preventing firms from entering or leaving the market.
C)having to accept the market price for their product and by high barriers preventing firms from entering or leaving the market.
D)having to accept the market price for their product and by low barriers preventing firms from entering or leaving the market.

Question 40

Which of the following is characteristic of a firm that is a competitive price searcher?

A)The firm faces an upward-sloping demand curve.
B)The firm faces an inelastic demand curve.
C)The firm faces a horizontal demand curve.
D)The firm produces a differentiated product.

Question 41

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

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 42

If the firms in a competitive price-searcher market are suffering short-run losses, which of the following will occur in the long run?

A)New firms will enter the industry.
B)Customers of firms that leave the industry will switch to remaining firms.
C)Firms that remain in the industry will face reduced demand.
D)Firms will continue to incur losses.

Question 43

If firms in a competitive price-searcher market are earning economic profits, which of the following scenarios would best describe the change existing firms would face as the market adjusts to long-run equilibrium?

A)An increase in demand for each firm and lower prices.
B)A decrease in demand for each firm and lower prices.
C)An increase in demand for each firm and higher prices.
D)A decrease in demand for each firm and higher prices.

Question 44

Suppose that competitive price-searcher firms are experiencing losses. In the transition from this initial situation to a long-run equilibrium,

A)the number of firms in the market decreases.
B)each existing firm experiences a decrease in demand for its product.
C)each firm experiences an upward shift to its marginal cost and average total cost curves.
D)each existing firm's average total cost falls to bring economic profit back to zero.

Question 45

As firms exit a competitive price-searcher market, profits of remaining firms

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

Question 46

Assume a competitive price-searcher firm is earning an economic profit. The marginal revenue from selling an additional unit is $30 and the marginal cost of producing that additional unit is $23. The firm should

A)change neither its price nor its output level
B)reduce its price and increase its output level
C)increase its price and reduce its output level
D)reduce both its price and its output level
E)increase both its price and its output level

Question 47

Which of the following must be true if a price-searcher firm is operating at the profit-maximizing output rate?

A)The marginal cost of producing the last unit is greater than the marginal revenue derived from its sale.
B)The marginal cost of producing the last unit is no greater than the marginal revenue derived from its sale.
C)The total cost of producing all units is no greater than the total revenue derived from the sale of the units.
D)The total cost of producing all units is less than the total revenue derived from the sale of the units.

Question 48

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

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 49

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

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 50

If marginal cost exceeds marginal revenue, a profit-maximizing firm should

A)expand output until marginal cost equals marginal revenue.
B)expand output until marginal revenue equals price.
C)reduce output until marginal cost equals marginal revenue.
D)reduce output until price equals average total cost.

Question 51

The free entry and exit of firms in a competitive price-searcher market guarantees that

A)both economic profits and economic losses can persist in the long run.
B)both economic profits and economic losses disappear in the long run.
C)economic profits, but not economic losses, can persist in the long run.
D)economic losses, but not economic profits, can persist in the long run.

Question 52

Suppose that competitive price-searcher firms are earning positive profits. In the transition from this initial situation to a long-run equilibrium,

A)the number of firms in the market decreases.
B)each existing firm experiences a decrease in demand for its product.
C)each existing firm experiences a rightward shift of its marginal revenue curve.
D)each existing firm experiences an upward shift in its average total cost curve.

Question 53

Long-run equilibrium in a competitive price-searcher market requires that

A)the demand curve intersect the average cost curve.
B)the demand curve be tangent to the average cost curve.
C)price be equal to marginal cost.
D)quantity produced be at the point where average cost is at a minimum.

Question 54

If Dell Computer finds that its marginal cost exceeds its marginal revenue on a model of laptop, then to maximize profit, it will

A)increase output if it is a price searcher, but this may not be proper if it is a price taker.
B)increase output if it is a price taker, but this may not be proper if it is a price searcher.
C)decrease output, regardless of whether it is a price taker or a price searcher.
D)increase output, regardless of whether it is a price taker or a price searcher.

Question 55

If firms in a competitive price-searcher market are incurring economic losses, which of the following scenarios would best describe the change existing firms (who are able to stay in the market) would face as the market adjusts to long-run equilibrium?

A)An increase in demand for each firm and lower prices.
B)A decrease in demand for each firm and lower prices.
C)An increase in demand for each firm and higher prices.
D)A decrease in demand for each firm and higher prices.

Question 56

A profit-maximizing price searcher will expand output to the point where

A)total revenue equals total cost.
B)marginal revenue equals marginal cost.
C)price equals average total cost.
D)price equals marginal cost.

Question 57

In the short run, Fed Ex, a price searcher wishing to maximize profits or minimize losses, should produce the output that

A)equates marginal cost with marginal revenue.
B)equates marginal cost with price.
C)corresponds to the lowest point on the average variable cost curve.
D)corresponds to the lowest point on the average total cost curve.

Question 58

A price-searcher firm will expand output and sales until

A)marginal revenue falls to equal the rising marginal cost.
B)marginal revenue rises to equal the falling marginal cost.
C)marginal revenue falls below marginal cost.
D)marginal cost rises above marginal revenue.

Question 59

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

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 60

Which of the following would be most likely if firms in a competitive price-searcher market were earning economic profit?

A)Production inefficiencies would persist until the profit was eliminated.
B)Firms would decrease their rate of output in the short run, causing a decline in profitability in the market.
C)New firms would enter the market, resulting in fewer sales by existing firms.
D)All firms in the market would continue to produce at their current levels and continue to charge the same price.

Question 61

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

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

Question 62

Which of the following is true when long-run equilibrium conditions are present in price-taker and competitive price-searcher markets?

A)MR = ATC in both price-taker and competitive price-searcher markets.
B)P = ATC in price-taker markets; P = MC in competitive price-searcher markets.
C)P = MC in both price-taker and competitive price-searcher markets.
D)P = ATC in both price-taker and competitive price-searcher markets.

Question 63

When a competitive price-searcher market is in long-run equilibrium, the firms in the market will earn

A)substantial economic profits.
B)zero economic profits.
C)significant economic losses.
D)an above-normal accounting rate of return.

Question 64

The table below presents the expected cost and demand schedules confronting Handy John, a chair manufacturer. Given this information, what will be the profit (or loss) of Handy John at the profit-maximizing price?

A)$200 loss
B)$200 profit
C)$150 profit
D)$500 profit

Question 65

As new firms enter a competitive price-searcher market, it can be expected that

A)market price will increase.
B)the output of existing firms will increase.
C)profits of existing firms will increase.
D)market demand should decrease.
E)profits of existing firms will decrease

Question 66

When a competitive price-searcher market is in long-run equilibrium, the firms will

A)earn economic profit.
B)operate at an output level that minimizes long-run average total cost.
C)charge a price that is equal to average total cost.
D)operate at an output level where price is equal to marginal cost.

Question 67

The fact that barriers to entry are low in competitive price-searcher markets means that if current firms are making economic losses,

A)these losses will remain in the long run because no firms can exit the market.
B)current firms will exit the market, causing the demand curves that face the remaining firms to increase.
C)new firms will enter the market, causing the demand curves that face the existing firms to decrease.
D)new firms will enter the market, causing no change in the demand curves that face the existing firms in the market.

Question 68

When profits exist in a competitive price-searcher market,

A)rival firms will be attracted into the market.
B)high barriers to entry will prevent rival firms from entering the market.
C)product differentiation will prevent new firms from making a profit.
D)the profits will persist because the firms face a downward-sloping demand curve.

Question 69

In the long run, a competitive price-searcher firm will

A)produce a greater variety of goods than do firms in other market structures
B)produce a greater output level than would a perfectly competitive firm
C)produce where price equals average total cost
D)earn an economic profit
E)suffer a loss because of its advertising budget

Question 70

Tombstones are produced in a competitive price-searcher market. One producer, Rolling Stones, sells 20 tombstones a week at a price of $500 each. Its average total cost is $600. From this information, we can conclude

A)new tombstone firms will want to enter.
B)this producer is losing $2,000 a week.
C)this producer is making an economic profit of $400.
D)this producer is setting MR = MC.
E)this producer should increase production.

Question 71

Many small U.S. cities are served by only one or two airlines. If a price increase in these markets allows other airlines to quickly and easily enter the market and compete, economists would call these markets

A)contestable markets.
B)high entry markets.
C)conventional markets.
D)monopolistic markets.

Question 72

Given the following schedule, what price and output level would a profit-maximizing price searcher choose?

A)price, $45; output, 2 units
B)price, $35; output, 3 units
C)price, $30; output, 4 units
D)price, $25; output, 5 units

Question 73

Because barriers to entry are low in competitive price-searcher markets, in the long run, a firm's price will be equal to

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

Question 74

Which of the following is true for firms that produce in markets where there are no barriers to entry?

A)The firms will always make positive economic profits in the long run.
B)The firms will always make positive economic profits in the short run.
C)The firms will always make zero economic profits in the short run.
D)The firms will always make zero economic profits in the long run.

Question 75

If firms in a competitive price-searcher market are currently experiencing economic profits, then over time,

A)new firms will enter the market, and the current firms will experience a decrease in demand for their products until zero economic profit is again restored.
B)new firms will enter the market, and the current firms will experience an increase in demand for their products until zero economic profit is again restored.
C)some existing firms will exit the market, and the remaining firms will experience an increase in demand for their products until zero economic profit is again restored.
D)some existing firms will exit the market, and the remaining firms will experience a decrease in demand for their products until zero economic profit is again restored.

Question 76

Even when there are only a few firms in a market, the market can still be competitive as long as barriers to entry are low. Markets of this type are called

A)monopolistic markets.
B)price-taker markets.
C)contestable markets.
D)convertible markets.

Question 77

Given the following price and output schedule, how many units should this price-searcher firm produce in order to maximize profits?

A)1
B)2
C)3
D)4

Question 78

If the firms in a competitive price-searcher market are earning zero economic profit, this indicates that the

A)market is not in long-run equilibrium.
B)firms are earning the normal rate of return.
C)firms are performing worse than the firms in other markets.
D)firms are performing better than firms in other markets.

Question 79

When a profit-maximizing firm in a competitive price-searcher market is in long-run equilibrium, price equals

A)marginal cost, and profits are positive.
B)average total cost, and profits are zero.
C)marginal cost, and profits are zero.
D)average total cost, and profits are positive.

Question 80

A picture frame company operates in a competitive price-searcher market. Its short-run equilibrium price is $80 and its ATC is $65. It sells 100 picture frames a week. From this we can conclude

A)this firm is making a normal profit.
B)other picture frame companies will want to exit the market.
C)there are no other picture frame companies in the area.
D)economic profits are $1,500.
E)total profits are being maximized.