econ 003 exam 2 - Assignment Essays

question

When firms have an incentive to exit a competitive price-taker market, their exit will

answer

raise profits for firms that remain in the market

question

Competitive price-taker markets are characterized by

answer

firms that all produce the same product

question

If an amusement park that is highly profitable during the summer months is unable to cover its variable costs during the winter months, it should

answer

operate during the summer but shut down during the winter months

question

Which one of the following industries most closely resembles the competitive price-taker model?

answer

vegetable farming

question

According to the income effect, when the price of automobiles rises, people buy fewer automobiles because

answer

the purchasing power of their income is reduced

question

Maureen left her teaching job, which paid $30,000 per year, and invested $20,000 of her retirement fund (which was earning 10 percent interest) in a new real estate business. Her accountant projected $50,000 net revenue the first year. Her husband forecast her economic profit to be

answer

$18,000

question

Average fixed costs

answer

will always decrease as output expands

question

Long-run economies of scale exist when the long-run average cost curve

answer

falls

question

When the marginal cost of a price-taker firm is more than the market price of its product, the firm should

answer

reduce output

question

Whenever average total cost exceeds marginal cost,

answer

average total cost is falling*

question

The demand for Chocolate Chip Cookie Dough ice cream is likely quite elastic because

answer

other flavors of ice cream are good substitutes for this particular flavor

question

Which of the following would most likely cause a firm's cost curve to shift downward?

answer

a decrease in taxes

question

In the competitive price-taker model, individual firms exert no effect on the market price. Therefore, the firm's marginal revenue curve is

answer

the same as the firm's demand curve

question

A good that takes up a very large percentage of the consumer's budget will tend to have

answer

an elastic demand

question

In the short run, if average variable costs equal $60, average total costs equal $70, and output equals 100, the total fixed costs should equal

answer

$1,000

question

During the short-run period of the production process, a firm will be

answer

able to vary only some of its factors of production

question

If a firm is making zero economic profit, it

answer

is doing as well as typical firms in other markets

question

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

a. MR = MC in both price-taker and competitive price-searcher markets
b. P = ATC in both price-taker and competitive price-searcher markets
c. P = MC in both price-taker and competitive price-searcher markets
d. Both a and b, but not c are true.

answer

Both a and b, but not c are true*

question

Refer to Figure 10-13 10-13.png. This firm will maximize profits by producing a quantity of output equal to

answer

E and charging a price equal to A

question

Which of the following is a major difference between a competitive price searcher and a price taker?

answer

Price takers produce identical goods, whereas competitive price searchers produce goods that are differentiated from the goods produced by their competitors

question

If a price-searcher firm can sell 4 units at a price of $6 or it can sell 5 units at a price of $5, the marginal revenue from the fifth unit is

answer

question

All else equal, if a firm raises its price by 20 percent and the firm's total revenue falls by 20 percent,

answer

demand must be elastic

question

The market demand for a good is

answer

the horizontal sum of all individual demand curves for the good

question

If a Krispy Kreme doughnut shop near campus increases its prices by 5 percent, but revenues from its sales are unchanged, the price elasticity of demand for the services offered by the doughnut shop must be

answer

of unitary elasticity

question

Which of the following is true regarding the price elasticity of demand?

a. Demand is generally more elastic in the long run than in the short run
b. Along a single demand curve, demand elasticity decreases as you move down the curve (to lower prices)
c. A demand curve that is flatter (has a less steep slope) is relatively more elastic than a demand curve that has a steeper slope
d. All of the above are true.

answer

All of the above are true

question

Bob goes out to dinner three times per week, usually either to the local steak house or a Chinese restaurant in town. If the steak house were to raise its prices, Bob would probably (1) be less inclined to eat at the steak house and more inclined to eat at the Chinese restaurant when he did go out and (2) eat out fewer times per week because at the higher prices he cannot afford to eat out as much

answer

Part 1 is an example of the substitution effect, part 2 of the income effect

question

Which of the following would shift a firm's short-run cost curves downward?

answer

an advance in technology

question

Which of the following explains most clearly why business owners have a strong incentive to strive for operational efficiency?

answer

As residual claimants, owners will receive a higher income from increased efficiency

question

Refer to Figure 8-14. This firm minimizes its per-unit costs of production at an output level of

answer

Q = 15

question

Which of the following represents a long-run adjustment?

answer

construction of a new assembly-line plant by a car manufacturer

question

Advantages of the corporate form of business organization include

a. the ease of transferring ownership in a corporation
b. the limited liability concept that protects the stockholder from potential debts incurred by the corporation
c. the lack of employee shirking that occurs in corporations
d. both a and b

answer

both a and b

question

Historically, most economists have referred to markets where firms are price takers as

answer

purely competitive markets

question

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

answer

rise as new firms enter the industry

question

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

answer

This firm should shut down immediately

question

For a firm in a price-taker market, the firm's demand curve is

answer

a horizontal line at the market price that is equal to the firm's marginal revenue curve

question

A price-taker firm is currently producing 50 units of output at an average total cost of $3 per unit. If the market price is $7, then the firm's total economic profit is

answer

$200

question

FYI Sanitation is currently eight months into a year-long lease contract on a garbage truck at a cost that averages $500 per month. Other variable costs (fuel, workers, etc.) for operating the truck amount to $300 per month. If the monthly revenue from operating the truck is $400, and these conditions are expected to continue into the future, to maximize its profit, FYI Sanitation should

answer

continue operating the truck until the lease expires, then not renew the lease for next year

question

Refer to Figure 10-13 10-13.png. The firm is currently earning an economic

answer

profit equal to the area CKGA

question

A competitive price-searcher market is characterized by firms

answer

being able to choose their price and no barriers preventing firms from entering or leaving the market

question

Refer to Figure 10-14 10-14.png. In the long run, we would expect

answer

firms to exit this industry until zero economic profits are restored

question

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

answer

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

question

Refer to Figure 10-14 10-14.png. This firm will maximize profits by producing a quantity of output equal to

answer

I and charging a price equal to C

question

"Because of the unseasonably cold weather, Florida orange growers expect (1) fewer bushels of oranges to be harvested, (2) a higher market price for oranges, and (3) larger total revenues from this year's crop." This statement would most likely be correct if the

answer

demand for Florida oranges was inelastic

question

Studies indicate that the demand for fresh tomatoes is much more elastic than the demand for salt. These findings reflect that

answer

more good substitutes exist for fresh tomatoes than for salt

question

Coach Ballford: "To increase our revenue from football games, we need to lower ticket prices." University President Smith: "Coach, that would be counterproductive; a reduction in ticket prices would reduce our revenue, not increase it." Which of the following best explains this disagreement?

answer

The coach thinks that demand is elastic, whereas the university president thinks that demand is inelastic

question

If Joe's income increased and as a result he purchased more wine and less fast food,

answer

wine is a normal good and fast food an inferior good for Joe

question

Suppose that the quantity of DVD players sold increased from 200 to 400 when the price fell from $225 to $175. Over this price range, the absolute value of the price elasticity of demand for DVD players is

answer

2.67

question

Which of the following would shift a firm's short-run cost curves downward?

answer

an advance in technology

question

A downward-sloping portion of a long-run average total cost curve is the result of

answer

economies of scale

question

In the short run, if average variable cost equals $50, average total cost equals $75, and output equals 100, the total fixed cost must be

answer

$2,500

question

Refer to Figure 8-14. The marginal cost of producing the tenth unit is

answer

question

The short run is a time period of insufficient length for the firm to change its

answer

plant size and heavy equipment

question

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

answer

firm can change output levels without having any significant effect on price

question

Beginning from a point of long-run equilibrium, an increase in the market demand for wheat would result in
a. an increase in the market price of wheat
b. existing wheat producers increasing output in the short run and earning positive economic profits
c. new firms entering the wheat industry in the long run
d. all of the above

answer

all of the above

question

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

answer

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

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

answer

rise as new firms enter the industry

question

Refer to Figure 9-19. Given the current market conditions, in the long run,

answer

firms will exit the industry and market price will rise

question

For the competitive price searcher
a. price will exceed marginal cost at the profit-maximizing level of output
b. price will equal average total cost in the long run
c. economic profit will be driven to zero in the long run by the entry and exit of firms
d. all of the above are correct

answer

all of the above are correct

question

Refer to Figure 10-13 10-13.png. In the long run, we would expect the firm's

answer

demand curve to decrease as firms enter the industry due to the presence of positive economic profits.

question

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

answer

a wider variety of products and higher prices

question

If Sarah's income rises by 20 percent, and, as a result, she purchases 40 percent more designer clothing, her income elasticity for designer clothing is

answer

2.0

question

Which of the following statements is true regarding the price elasticity of supply?

answer

The price elasticity of supply is always positive

question

Suppose the state of New York imposes a one dollar per pack tax on cigarettes, which increases their price by 30 percent, and as a result, the quantity sold declines by 20 percent. The price elasticity of demand for cigarettes is equal to

answer

-0.67

question

Refer to Figure 8-14. If the firm produces 10 units of output, its total fixed cost is

answer

question

When costs that vary with the level of output are divided by the output, you have calculated

answer

average variable cost

question

Which of the following factors would not shift the cost curves of an automobile company upward?

answer

An employee develops a new method of installing doors on the cars that requires half as many workers as before

question

The long-run supply curve is

answer

a horizontal line for a constant-cost industry

question

If consumers suddenly began desiring more apples and fewer oranges

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

answer

both a and b are correct

question

The schedule of total cost for a firm in a price-taker market is given in the table. If the market price for this product is $50, which of the following output levels should this firm produce if it wants to maximize its profit?

answer

question

The figure depicts a firm in a price-taker market. Use this figure to answer the following question(s)

answer

firms will exit the industry and market price will rise

question

For a price-taker firm, marginal revenue is
a. equal to price
b. equal to zero when the market is in long-run equilibrium
c. equal to the change in total revenue divided by the change in output
d. both a and c

answer

both a and c

question

The idea that business failure is a positive force for progress in a market economy is often summarized by the term "creative destruction." Which of the following best states the central idea of this principle?

answer

Business failure allows the assets and resources from that business to move into other areas where those resources are now more productive and highly valued

question

If a price-searcher firm can sell 4 units at a price of $6 or it can sell 5 units at a price of $5, the marginal revenue from the fifth unit is

answer

question

answer

Both a and b, but not c are true

question

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

answer

some current firms will exit the market, causing the demand curves that face the remaining firms to increase.

question

Jane received a 10 percent increase in her salary and purchased 20 percent more jewelry. For Jane, jewelry

a. has an income elasticity of two
b. is a normal good
c. is a luxury good
d. is all of the above

answer

is all of the above

question

Making drugs, such as cocaine, illegal results in a higher price than would be present if the drugs were legal. All else constant, the higher price results in drug users spending

answer

more on drugs if the demand for drugs is inelastic

question

If a 50 percent increase in the price of hula hoops led to a 10 percent reduction in the quantity of hula hoops purchased, the price elasticity of demand is

answer

0.2 and the demand for hula hoops is inelastic

question

A 10 percent increase in the price of sugar reduces sugar consumption by about 5 percent. The increase causes households to

answer

spend more on sugar

question

Refer to Figure 8-14. Diminishing returns to the variable factor of production for this firm set in at

answer

Q = 6

question

The law of diminishing returns states that

a. as we continually add variable factors to a fixed amount of other resources, output eventually increases at a decreasing rate
b. as we increase plant size, costs must diminish
c. the additional output generated by the employment of additional units of a variable input eventually decline
d. both a and c are correct

answer

both a and c are correct

question

The short-run average total cost (ATC) curve of a firm will tend to be U-shaped because

answer

at low levels of output, AFC will be high, while at high levels of output, MC will be high as the result of diminishing returns.

question

If marginal revenue exceeds marginal cost at the current level of output, profit will increase when output is expanded because

answer

producing and selling an additional unit will add more to total revenue than it adds to total cost.

question

Which portion of the marginal cost curve is used to create a firm's short-run supply curve?

answer

the marginal cost curve above its intersection with the average variable cost curve because below this price, firms will shut down in the short run

question

When consumer demand for a good produced in a price-taker market decreases,

answer

some firms will shut down in the long run, making their resources available for the production of other goods.

question

If occupational safety laws were changed so that firms no longer had to take expensive steps to meet regulatory requirements, we would expect

answer

competition to force producers to pass the lower production costs on to consumers in the long run

question

Neither price takers nor competitive price searchers will be able to earn long-run economic profit because

answer

with low entry barriers, the entry and exit of firms result in prices that are equal to per-unit costs in the long run

question

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

answer

marginal revenue equals marginal cost

question

A 15 percent increase in the price of beef reduces the quantity of beef consumed by 30 percent. Thus, the demand for beef is ____, and total consumer expenditure (or total firm revenue) will ____ as a result of the price increase. (Fill in the blanks.)

answer

elastic; decrease

question

Studies indicate that the demand for fresh tomatoes is much more elastic than the demand for salt. These findings reflect that

answer

more good substitutes exist for fresh tomatoes than for salt

question

If the price of steak rises from $6 to $10 per pound, and the quantity purchased falls from 90 to 70 pounds, the price elasticity of demand (in absolute value) is

answer

0.5

question

Refer to Figure 8-14. If the firm produces 10 units of output, its average total cost is

answer

question

If marginal revenue exceeds marginal cost, a price-taker firm should

answer

expand output

question

You are the owner of an ice cream shop that earns a profit most of the year except during the cold winter months. During the month of December, your rent and other fixed costs amount to a total of $200. If you remain open, your total variable costs (workers, ice cream cones, etc.) will amount to $300. If you would be able to sell 100 ice cream cones at $4 each during December, then

answer

to maximize profits, you should remain open in December

question

If a firm in a price-taker market is earning zero economic profit, it

answer

is doing as well as typical firms in other markets

question

A price-taker market tends toward a state of long-run equilibrium in which firms earn only a normal rate of return (zero economic profits) because

answer

with firms able to enter and leave the industry freely, competition will drive prices down to the level of production costs

question

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

answer

Price searchers have to cut their price to sell additional output, but price takers do not.

question

In both price-taker and competitive price-searcher markets, short-run economic profits will lead to

answer

the entry of additional firms into the market and the eventual restoration of zero long-run economic profits

question

answer

Business failure allows the assets and resources from that business to move into other areas where those resources are now more productive and highly valued

question

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

answer

competition will force prices down to the level of per-unit production costs

1 of 100

question

When firms have an incentive to exit a competitive price-taker market, their exit will

answer

raise profits for firms that remain in the market

question

Competitive price-taker markets are characterized by

answer

firms that all produce the same product

question

If an amusement park that is highly profitable during the summer months is unable to cover its variable costs during the winter months, it should

answer

operate during the summer but shut down during the winter months

question

Which one of the following industries most closely resembles the competitive price-taker model?

answer

vegetable farming

question

According to the income effect, when the price of automobiles rises, people buy fewer automobiles because

answer

the purchasing power of their income is reduced

question

answer

$18,000

question

Average fixed costs

answer

will always decrease as output expands

question

Long-run economies of scale exist when the long-run average cost curve

answer

falls

question

When the marginal cost of a price-taker firm is more than the market price of its product, the firm should

answer

reduce output

question

Whenever average total cost exceeds marginal cost,

answer

average total cost is falling*

question

The demand for Chocolate Chip Cookie Dough ice cream is likely quite elastic because

answer

other flavors of ice cream are good substitutes for this particular flavor

question

Which of the following would most likely cause a firm's cost curve to shift downward?

answer

a decrease in taxes

question

In the competitive price-taker model, individual firms exert no effect on the market price. Therefore, the firm's marginal revenue curve is

answer

the same as the firm's demand curve

question

A good that takes up a very large percentage of the consumer's budget will tend to have

answer

an elastic demand

question

In the short run, if average variable costs equal $60, average total costs equal $70, and output equals 100, the total fixed costs should equal

answer

$1,000

question

During the short-run period of the production process, a firm will be

answer

able to vary only some of its factors of production

question

If a firm is making zero economic profit, it

answer

is doing as well as typical firms in other markets

question

answer

Both a and b, but not c are true*

question

Refer to Figure 10-13 10-13.png. This firm will maximize profits by producing a quantity of output equal to

answer

E and charging a price equal to A

question

Which of the following is a major difference between a competitive price searcher and a price taker?

answer

Price takers produce identical goods, whereas competitive price searchers produce goods that are differentiated from the goods produced by their competitors

question

If a price-searcher firm can sell 4 units at a price of $6 or it can sell 5 units at a price of $5, the marginal revenue from the fifth unit is

answer

question

All else equal, if a firm raises its price by 20 percent and the firm's total revenue falls by 20 percent,

answer

demand must be elastic

question

The market demand for a good is

answer

the horizontal sum of all individual demand curves for the good

question

answer

of unitary elasticity

question

answer

All of the above are true

question

answer

Part 1 is an example of the substitution effect, part 2 of the income effect

question

Which of the following would shift a firm's short-run cost curves downward?

answer

an advance in technology

question

Which of the following explains most clearly why business owners have a strong incentive to strive for operational efficiency?

answer

As residual claimants, owners will receive a higher income from increased efficiency

question

Refer to Figure 8-14. This firm minimizes its per-unit costs of production at an output level of

answer

Q = 15

question

Which of the following represents a long-run adjustment?

answer

construction of a new assembly-line plant by a car manufacturer

question

answer

both a and b

question

Historically, most economists have referred to markets where firms are price takers as

answer

purely competitive markets

question

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

answer

rise as new firms enter the industry

question

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

answer

This firm should shut down immediately

question

For a firm in a price-taker market, the firm's demand curve is

answer

a horizontal line at the market price that is equal to the firm's marginal revenue curve

question

A price-taker firm is currently producing 50 units of output at an average total cost of $3 per unit. If the market price is $7, then the firm's total economic profit is

answer

$200

question

answer

continue operating the truck until the lease expires, then not renew the lease for next year

question

Refer to Figure 10-13 10-13.png. The firm is currently earning an economic

answer

profit equal to the area CKGA

question

A competitive price-searcher market is characterized by firms

answer

being able to choose their price and no barriers preventing firms from entering or leaving the market

question

Refer to Figure 10-14 10-14.png. In the long run, we would expect

answer

firms to exit this industry until zero economic profits are restored

question

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

answer

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

question

Refer to Figure 10-14 10-14.png. This firm will maximize profits by producing a quantity of output equal to

answer

I and charging a price equal to C

question

answer

demand for Florida oranges was inelastic

question

Studies indicate that the demand for fresh tomatoes is much more elastic than the demand for salt. These findings reflect that

answer

more good substitutes exist for fresh tomatoes than for salt

question

answer

The coach thinks that demand is elastic, whereas the university president thinks that demand is inelastic

question

If Joe's income increased and as a result he purchased more wine and less fast food,

answer

wine is a normal good and fast food an inferior good for Joe

question

answer

2.67

question

Which of the following would shift a firm's short-run cost curves downward?

answer

an advance in technology

question

A downward-sloping portion of a long-run average total cost curve is the result of

answer

economies of scale

question

In the short run, if average variable cost equals $50, average total cost equals $75, and output equals 100, the total fixed cost must be

answer

$2,500

question

Refer to Figure 8-14. The marginal cost of producing the tenth unit is

answer

question

The short run is a time period of insufficient length for the firm to change its

answer

plant size and heavy equipment

question

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

answer

firm can change output levels without having any significant effect on price

question

answer

all of the above

question

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

answer

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

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

answer

rise as new firms enter the industry

question

Refer to Figure 9-19. Given the current market conditions, in the long run,

answer

firms will exit the industry and market price will rise

question

answer

all of the above are correct

question

Refer to Figure 10-13 10-13.png. In the long run, we would expect the firm's

answer

demand curve to decrease as firms enter the industry due to the presence of positive economic profits.

question

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

answer

a wider variety of products and higher prices

question

If Sarah's income rises by 20 percent, and, as a result, she purchases 40 percent more designer clothing, her income elasticity for designer clothing is

answer

2.0

question

Which of the following statements is true regarding the price elasticity of supply?

answer

The price elasticity of supply is always positive

question

answer

-0.67

question

Refer to Figure 8-14. If the firm produces 10 units of output, its total fixed cost is

answer

question

When costs that vary with the level of output are divided by the output, you have calculated

answer

average variable cost

question

Which of the following factors would not shift the cost curves of an automobile company upward?

answer

An employee develops a new method of installing doors on the cars that requires half as many workers as before

question

The long-run supply curve is

answer

a horizontal line for a constant-cost industry

question

answer

both a and b are correct

question

answer

question

The figure depicts a firm in a price-taker market. Use this figure to answer the following question(s)

answer

firms will exit the industry and market price will rise

question

answer

both a and c

question

answer

Business failure allows the assets and resources from that business to move into other areas where those resources are now more productive and highly valued

question

If a price-searcher firm can sell 4 units at a price of $6 or it can sell 5 units at a price of $5, the marginal revenue from the fifth unit is

answer

question

answer

Both a and b, but not c are true

question

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

answer

some current firms will exit the market, causing the demand curves that face the remaining firms to increase.

question

answer

is all of the above

question

Making drugs, such as cocaine, illegal results in a higher price than would be present if the drugs were legal. All else constant, the higher price results in drug users spending

answer

more on drugs if the demand for drugs is inelastic

question

If a 50 percent increase in the price of hula hoops led to a 10 percent reduction in the quantity of hula hoops purchased, the price elasticity of demand is

answer

0.2 and the demand for hula hoops is inelastic

question

A 10 percent increase in the price of sugar reduces sugar consumption by about 5 percent. The increase causes households to

answer

spend more on sugar

question

Refer to Figure 8-14. Diminishing returns to the variable factor of production for this firm set in at

answer

Q = 6

question

answer

both a and c are correct

question

The short-run average total cost (ATC) curve of a firm will tend to be U-shaped because

answer

at low levels of output, AFC will be high, while at high levels of output, MC will be high as the result of diminishing returns.

question

If marginal revenue exceeds marginal cost at the current level of output, profit will increase when output is expanded because

answer

producing and selling an additional unit will add more to total revenue than it adds to total cost.

question

Which portion of the marginal cost curve is used to create a firm's short-run supply curve?

answer

the marginal cost curve above its intersection with the average variable cost curve because below this price, firms will shut down in the short run

question

When consumer demand for a good produced in a price-taker market decreases,

answer

some firms will shut down in the long run, making their resources available for the production of other goods.

question

If occupational safety laws were changed so that firms no longer had to take expensive steps to meet regulatory requirements, we would expect

answer

competition to force producers to pass the lower production costs on to consumers in the long run

question

Neither price takers nor competitive price searchers will be able to earn long-run economic profit because

answer

with low entry barriers, the entry and exit of firms result in prices that are equal to per-unit costs in the long run

question

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

answer

marginal revenue equals marginal cost

question

answer

elastic; decrease

question

Studies indicate that the demand for fresh tomatoes is much more elastic than the demand for salt. These findings reflect that

answer

more good substitutes exist for fresh tomatoes than for salt

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If the price of steak rises from $6 to $10 per pound, and the quantity purchased falls from 90 to 70 pounds, the price elasticity of demand (in absolute value) is

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0.5

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Refer to Figure 8-14. If the firm produces 10 units of output, its average total cost is

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If marginal revenue exceeds marginal cost, a price-taker firm should

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expand output

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to maximize profits, you should remain open in December

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If a firm in a price-taker market is earning zero economic profit, it

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is doing as well as typical firms in other markets

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A price-taker market tends toward a state of long-run equilibrium in which firms earn only a normal rate of return (zero economic profits) because

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with firms able to enter and leave the industry freely, competition will drive prices down to the level of production costs

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

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Price searchers have to cut their price to sell additional output, but price takers do not.

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In both price-taker and competitive price-searcher markets, short-run economic profits will lead to

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the entry of additional firms into the market and the eventual restoration of zero long-run economic profits

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Business failure allows the assets and resources from that business to move into other areas where those resources are now more productive and highly valued

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

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competition will force prices down to the level of per-unit production costs

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