question
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.
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.
answer
be able to choose their price, and the entry barriers into the market will be low.
question
A profit-maximizing price searcher will expand output to the point where
a. total revenue equals total cost.
c. price equals average total cost.
b. marginal revenue equals marginal cost.
d. price equals marginal cost.
a. total revenue equals total cost.
c. price equals average total cost.
b. marginal revenue equals marginal cost.
d. price equals marginal cost.
answer
marginal revenue equals marginal cost.
question
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.
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
competition will force prices down to the level of per-unit production costs.
question
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.
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
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.
increase in demand for their products until zero economic profit is again restored.
question
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.
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.
answer
threat of new entrants will prevent the prices from rising above the competitive level.
question
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.
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.
answer
is necessary to make business decisions when no fixed decision rule can be used.
question
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.
b. less product variety and higher prices.
c. a wider variety of products and lower prices.
d. less product variety and lower prices.
answer
a wider variety of products and higher prices.
question
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
a. P = ATC b. MR = MC c. P = MC d. MR < P
answer
P=MC
question
The strategy underlying price discrimination is If a market is
a. to charge higher prices to customers who have good 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
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.
answer
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.
demand for the product and lower prices to those with the most elastic demand.
question
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.
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.
answer
reducing barriers that restrict the ability of potential competitors to enter markets.
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?
a. When a business fails, the assets and resources from that business become unemployed,
resulting in higher government subsidies.
b. 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.
c. Only through frequent business failure will it be possible to avoid income being
concentrated in a few rich entrepreneurs.
d. The new, rival businesses that drive out old competitors tend to be less efficient and less
creative than the older established businesses.
a. When a business fails, the assets and resources from that business become unemployed,
resulting in higher government subsidies.
b. 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.
c. Only through frequent business failure will it be possible to avoid income being
concentrated in a few rich entrepreneurs.
d. The new, rival businesses that drive out old competitors tend to be less efficient and less
creative than the older established businesses.
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.
areas where those resources are now more productive and highly valued.
question
Which of the following is the major reason why most economists are reluctant to charge price searcher markets with allocative inefficiency?
a. Consumers value the wider variety of quality and styles in competitive price-searcher
markets.
b. Advertising costs are typically so small that they are irrelevant.
c. Competitive price searchers always operate that the lowest point on their average total
cost curve.
d. Competitive price searchers charge a price equal to marginal cost.
a. Consumers value the wider variety of quality and styles in competitive price-searcher
markets.
b. Advertising costs are typically so small that they are irrelevant.
c. Competitive price searchers always operate that the lowest point on their average total
cost curve.
d. Competitive price searchers charge a price equal to marginal cost.
answer
Consumers value the wider variety of quality and styles in competitive price-searcher
markets.
markets.
question
Given the cost and demand conditions shown in Figure 10-5 for the competitive price-searcher firm, what is the level of output it should produce to maximize its profit?
a. 1 b. 2 c. 3 d. 4
a. 1 b. 2 c. 3 d. 4
answer
2
question
Given the cost and demand conditions depicted in Figure 10-5 for the competitive price-searcher firm, what is the price that the firm should charge if it wants to maximize its profit?
a. 20 b. 30 c. 40 d. 50
a. 20 b. 30 c. 40 d. 50
answer
40
question
Given that the short-run cost and demand conditions shown in Figure 10-5 for the competitive price-searcher firm are representative for all firms in the industry, what will happen in this industry in the long run?
a. The firm will make long-run economic profits.
b. The firm will face competition from new entrants into the industry, causing this firm's
demand to decline until zero economic profits are restored.
c. The firm will face competition from new entrants into the industry, but since lower prices
will increase total sales, profit will stay the same as that shown in the figure.
d. The firm will see some of its competitors exit from the industry, causing this firm's
demand to increase until zero economic profits are restored.
a. The firm will make long-run economic profits.
b. The firm will face competition from new entrants into the industry, causing this firm's
demand to decline until zero economic profits are restored.
c. The firm will face competition from new entrants into the industry, but since lower prices
will increase total sales, profit will stay the same as that shown in the figure.
d. The firm will see some of its competitors exit from the industry, causing this firm's
demand to increase until zero economic profits are restored.
answer
The firm will face competition from new entrants into the industry, causing this firm's
demand to decline until zero economic profits are restored.
demand to decline until zero economic profits are restored.
question
Which is the best example of price discrimination?
a. The clearance section at Target.
b. The dollar menu at McDonalds.
c. Airline ticket prices.
d. A fancy restaurant that charges high prices on its menu.
a. The clearance section at Target.
b. The dollar menu at McDonalds.
c. Airline ticket prices.
d. A fancy restaurant that charges high prices on its menu.
answer
airline ticket prices
question
Refer to Figure 10-14. This firm will maximize profits by producing a quantity of output equal to
a. I and charging a price equal to A.
c. I and charging a price equal to D.
b. I and charging a price equal to C.
d. J and charging a price equal to B.
a. I and charging a price equal to A.
c. I and charging a price equal to D.
b. I and charging a price equal to C.
d. J and charging a price equal to B.
answer
I and charging a price equal to C.
question
Refer to Figure 10-14. The firm is currently earning an economic
a. profit equal to the area AHFC.
c. loss equal to the area AHED.
b. profit equal to the area CFED.
d. loss equal to the area CFED.
a. profit equal to the area AHFC.
c. loss equal to the area AHED.
b. profit equal to the area CFED.
d. loss equal to the area CFED.
answer
loss equal to the area CFED
question
Refer to Figure 10-14. In the long run, we would expect
a. more firms to enter this industry until zero economic profits are restored.
b. firms to exit this industry until zero economic profits are restored.
c. the number of firms to remain constant and existing firms will continue to suffer
economic losses in the long run.
d. the number of firms to remain constant and existing firms will continue to earn economic
profits in the long run.
a. more firms to enter this industry until zero economic profits are restored.
b. firms to exit this industry until zero economic profits are restored.
c. the number of firms to remain constant and existing firms will continue to suffer
economic losses in the long run.
d. the number of firms to remain constant and existing firms will continue to earn economic
profits in the long run.
answer
firms to exit this industry until zero economic profits are restored.
question
Which of the following is a true statement about the difference between a price-taker firm and a competitive price-searcher firm in the long run?
a. Both will sell their products at a price equal to average total cost, but only the price taker
will produce at minimum average total cost.
b. Both will sell their products at a price equal to average total cost, but only the
competitive price searcher will produce at minimum average total cost.
c. Only the price taker will sell its product at a price equal to average total cost.
d. Only the competitive price searcher will sell its product at a price equal to average total
cost.
a. Both will sell their products at a price equal to average total cost, but only the price taker
will produce at minimum average total cost.
b. Both will sell their products at a price equal to average total cost, but only the
competitive price searcher will produce at minimum average total cost.
c. Only the price taker will sell its product at a price equal to average total cost.
d. Only the competitive price searcher will sell its product at a price equal to average total
cost.
answer
Both will sell their products at a price equal to average total cost, but only the price taker
will produce at minimum average total cost.
will produce at minimum average total cost.
question
Which of the following statements about price discrimination is correct?
a. A price discriminating firm will want to charge a higher price to the consumer group with
the more inelastic demand.
b. A firm will always be able to increase its profit by price discriminating rather than
charging the same price to all customers.
c. Price discrimination will be most effective when buyers can easily resell the product
amongst themselves.
d. Each consumer will pay a higher price when a firm is a price discriminator than would be
the case if all customers were charged the same price.
a. A price discriminating firm will want to charge a higher price to the consumer group with
the more inelastic demand.
b. A firm will always be able to increase its profit by price discriminating rather than
charging the same price to all customers.
c. Price discrimination will be most effective when buyers can easily resell the product
amongst themselves.
d. Each consumer will pay a higher price when a firm is a price discriminator than would be
the case if all customers were charged the same price.
answer
A price discriminating firm will want to charge a higher price to the consumer group with
the more inelastic demand.
the more inelastic demand.
question
Which of the following statements is correct?
a. Price discrimination is always more profitable than charging a single price.
b. A price discriminator would want to charge the highest price to those customers with the
most elastic demand for his product.
c. To be successful, a price discriminator must assure that items can be resold between high-
and low-price groups.
d. To maximize profit, a price discriminator distinguishes groups with different demands
and charges higher prices to those with the more inelastic demand.
a. Price discrimination is always more profitable than charging a single price.
b. A price discriminator would want to charge the highest price to those customers with the
most elastic demand for his product.
c. To be successful, a price discriminator must assure that items can be resold between high-
and low-price groups.
d. To maximize profit, a price discriminator distinguishes groups with different demands
and charges higher prices to those with the more inelastic demand.
answer
To maximize profit, a price discriminator distinguishes groups with different demands
and charges higher prices to those with the more inelastic demand.
and charges higher prices to those with the more inelastic demand.
question
Entrepreneurial judgment requires
a. the ability to use perfect information about the suture to your advantage.
b. the ability to discover new approaches or solutions to complex problems.
c. the use of government regulations to prevent competition
d. that a firm make a profit.
a. the ability to use perfect information about the suture to your advantage.
b. the ability to discover new approaches or solutions to complex problems.
c. the use of government regulations to prevent competition
d. that a firm make a profit.
answer
the ability to discover new approaches or solutions to complex problems.
question
To gain from price discrimination, price searchers
a. must charge a higher price to those with a more inelastic demand.
b. must be pure monopolists.
c. must have small economies of scale
d. must have access to widely available natural resources.
a. must charge a higher price to those with a more inelastic demand.
b. must be pure monopolists.
c. must have small economies of scale
d. must have access to widely available natural resources.
answer
must charge a higher price to those with a more inelastic demand.
question
Refer to Figure 10-12. Panel (a) shows a profit-maximizing competitive price-searcher firm that is
a. earning zero economic profit.
c. producing its efficient scale of output.
b. likely to exit the market in the long run.
d. not maximizing its profit.
a. earning zero economic profit.
c. producing its efficient scale of output.
b. likely to exit the market in the long run.
d. not maximizing its profit.
answer
earning zero economic profit
question
Refer to Figure 10-12. Panel (b) is consistent with a firm in a competitive price-searcher market that is
a. not in long-run equilibrium. c. producing its efficient scale of output.
b. in long-run equilibrium.
d. earning a positive economic profit.
a. not in long-run equilibrium. c. producing its efficient scale of output.
b. in long-run equilibrium.
d. earning a positive economic profit.
answer
not in long-run equilibrium.
question
Refer to Figure 10-12. Which of the panels depicts a firm in a competitive price-searcher market earning positive economic profits?
a. Panel a c.
Panel c
b. Panel b
d. Panel d
a. Panel a c.
Panel c
b. Panel b
d. Panel d
answer
panel c
question
Which of the following is a major difference between a competitive price searcher and a price taker?
a. Price takers need to compete through advertising because they cannot choose their own
price, whereas competitive price searchers compete primarily through their pricing
policies.
b. Price takers are exposed to competition because of low barriers to entry, whereas
competitive price searchers are somewhat immune from competition due to relatively
high barriers to entry.
c. Price takers can never earn economic profits, whereas competitive price searchers can
earn economic profits in the short run.
d. Price takers produce identical goods, whereas competitive price searchers produce goods
that are differentiated from the goods produced by their competitors.
a. Price takers need to compete through advertising because they cannot choose their own
price, whereas competitive price searchers compete primarily through their pricing
policies.
b. Price takers are exposed to competition because of low barriers to entry, whereas
competitive price searchers are somewhat immune from competition due to relatively
high barriers to entry.
c. Price takers can never earn economic profits, whereas competitive price searchers can
earn economic profits in the short run.
d. Price takers produce identical goods, whereas competitive price searchers produce goods
that are differentiated from the goods produced by their competitors.
answer
Price takers produce identical goods, whereas competitive price searchers produce goods
that are differentiated from the goods produced by their competitors.
that are differentiated from the goods produced by their competitors.
question
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,
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.
answer
the firm's demand curve is downward sloping, not a horizontal line.
question
A competitive price-searcher market is characterized by firms
a. being able to choose their price and no barriers preventing firms from entering or leaving
the market.
b. being able to choose their price and high barriers preventing firms from entering or
leaving the market.
c. being able to accept the market price for their product and high barriers preventing firms
from entering or leaving the market.
d. having to accept the market price for their product and no barriers preventing firms from
entering or leaving the market.
a. being able to choose their price and no barriers preventing firms from entering or leaving
the market.
b. being able to choose their price and high barriers preventing firms from entering or
leaving the market.
c. being able to accept the market price for their product and high barriers preventing firms
from entering or leaving the market.
d. having to accept the market price for their product and no barriers preventing firms from
entering or leaving the market.
answer
being able to choose their price and no barriers preventing firms from entering or leaving
the market.
the market.
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
a. $1. b. $5. c. $6. d. $25.
a. $1. b. $5. c. $6. d. $25.
answer
$1
question
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 firms will not exit the market.
b. some 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.
a. these losses will remain in the long run because firms will not exit the market.
b. some 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.
answer
some current firms will exit the market, causing the demand curves that face the
remaining firms to increase.
remaining firms to increase.
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.
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
A market in which the costs of entry and exit are low is called a
a. regulated market.
c. market with high barriers to entry.
b. monopoly market.
d. contestable market.
a. regulated market.
c. market with high barriers to entry.
b. monopoly market.
d. contestable market.
answer
contestable market
question
In order for a firm to be able to engage in price discrimination, it must be able to
a. identify and separate groups with different price elasticities of demand.
b. prevent resale of the product between customer groups.
c. maximize profits at the point where average total cost is minimized.
d. do both a and b, but not c.
a. identify and separate groups with different price elasticities of demand.
b. prevent resale of the product between customer groups.
c. maximize profits at the point where average total cost is minimized.
d. do both a and b, but not c.
answer
do both a and b, but not c.
question
Some economists have argued that competitive price-searcher industries are allocatively inefficient relative to price-taker industries because
a. unlike price takers, price searchers fail to produce at the point where marginal revenue is
equal to marginal cost.
b. competition forces price takers to find the most efficient method of production, whereas
product differentiation allows competitive price searchers to stay in business even when
their methods of production are inefficient.
c. unlike price takers, price searchers do not produce at the minimum of their average total
cost curves.
d. price searchers need to pay higher salaries to their managers because of the greater
amount of entrepreneurship required in price-searcher industries.
a. unlike price takers, price searchers fail to produce at the point where marginal revenue is
equal to marginal cost.
b. competition forces price takers to find the most efficient method of production, whereas
product differentiation allows competitive price searchers to stay in business even when
their methods of production are inefficient.
c. unlike price takers, price searchers do not produce at the minimum of their average total
cost curves.
d. price searchers need to pay higher salaries to their managers because of the greater
amount of entrepreneurship required in price-searcher industries.
answer
unlike price takers, price searchers do not produce at the minimum of their average total cost curves.
question
The practice of price discrimination has which of the following effects?
a. Groups with the higher elasticity of demand will pay higher prices.
b. Groups with the lower elasticity of demand will pay higher prices.
c. With price discrimination, total output and allocative efficiency will fall.
d. Groups will pay identical prices that are exactly equal to the firm's marginal cost
a. Groups with the higher elasticity of demand will pay higher prices.
b. Groups with the lower elasticity of demand will pay higher prices.
c. With price discrimination, total output and allocative efficiency will fall.
d. Groups will pay identical prices that are exactly equal to the firm's marginal cost
answer
Groups with the lower elasticity of demand will pay higher prices.
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