Question 1

A price-taker firm will tend to expand its output so long as its

Accepted Answer

A)   marginal revenue is positive.
B)   marginal revenue is greater than the market price.
C)   marginal revenue is less than the market price.
D)   marginal cost is less than the market price.E) All of the above
F) B) and C)

Question 2

The figure depicts a firm in a price-taker market. Use this figure to answer the following question(s) .
Figure 9-19
2. C)  q 3. D)  q 4." class="answers-bank-image d-inline" rel="preload" >
Refer to Figure 9-19. To maximize profit, the firm should produce an output level of

Accepted Answer

A)   zero; the firm should shut down immediately.
B)   q 2.
C)   q 3.
D)   q 4.E) B) and C)
F) A) and C)

Question 3

In a constant cost industry,

Accepted Answer

A)   a natural monopoly is likely to occur.
B)   total cost is the same, no matter how much a firm produces.
C)   the long-run supply curve will be perfectly elastic.
D)   entry of new firms in the industry will lead to a reduction in the cost of inputs.E) C) and D)
F) None of the above

Question 4

In the short run, a firm that is a price taker will stay in business as long as

Accepted Answer

A)   price equals average revenue.
B)   marginal revenue is greater than or equal to marginal cost.
C)   price exceeds average variable cost.
D)   price is less than average variable cost.E) None of the above
F) A) and B)

Question 5

"I have been making furniture for 27 years. I have never heard of either marginal cost or marginal revenue. Fancy economic theories mean nothing to me. I just know how to do well in business. Whenever I can sell something for more than it cost me to produce it, I make it, and whenever I can't sell it for enough to cover my cost, I don't. That's how I stay in business and earn income for my family. Common sense and watching the market are good enough for me." For producers like this, economic models

Accepted Answer

A)   accurately describe their behavior and allow predictions to be made as to how they will respond to changes in market conditions.
B)   indicate nothing about the behavior of such producers.
C)   will generally only apply if the person has a college education.
D)   do not apply because the producers do not understand the terminology.E) All of the above
F) A) and D)

Question 6

Several states require cosmetologists to undertake 1,500 hours or more of training in order to obtain a license to provide hair styling or braiding services. This is an example of

Accepted Answer

A)   antitrust legislation.
B)   government action that promotes competition.
C)   a barrier to entry
D)   the legal structure that is required for the operation of price-taker markets.E) B) and D)
F) A) and D)

Question 7

For a certain firm, the 100th unit of output that the firm produces has marginal revenue equal to $10 and a marginal cost of $7. It follows that

Accepted Answer

A)   the production of the 100th unit of output increases the firm's profit by $3.
B)   the production of the 100th unit of output increases the firm's average total cost by $7.
C)   the firm's profit-maximizing level of output is less than 100 units.
D)   the production of the 110th unit of output must increase the firm's profit by less than $3.E) All of the above
F) A) and B)

Question 8

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

Accepted Answer

A)   greater economic profit.
B)   a normal profit.
C)   lower average total cost.
D)   lower average variable cost.
E)   economic losses.F) A) and B)
G) B) and E)

Question 9

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

Accepted Answer

A)   This firm should shut down immediately.
B)   This firm is earning positive economic profit.
C)   This firm is able to cover its variable cost but not its total cost.
D)   All of the above are true.E) A) and B)
F) B) and C)

Question 10

Which of the following is a primary difference between price takers and price searchers that operate in markets with low barriers to entry?

Accepted Answer

A)   The price searchers will maximize profits in the short run, but price takers will not. Price takers can only maximize profits in the long run.
B)   The price searchers will have to search for the price, while price takers will have to take the price determined in the market.
C)   The price searchers will be able to earn profit in the long run, but the price takers will not.
D)   The price searchers may be able to earn profit in the short run, but the price takers will not be able to do so.E) C) and D)
F) A) and D)

Question 11

The price-taker firm should discontinue production immediately if

Accepted Answer

A)   the market price exceeds the firm's average total costs.
B)   the market price is less than the firm's average variable costs.
C)   the market price is less than the firm's average total costs but greater than its average variable cost.
D)   its accounting statement indicates that it is suffering losses.E) C) and D)
F) All of the above

Question 12

A competitive price-taker firm would be willing to remain in the industry in the long run at zero economic profit because

Accepted Answer

A)   it would find it too difficult to exit from the industry in the long run.
B)   accounting profit would be negative.
C)   it is covering all costs, including the opportunity cost of capital and labor.
D)   its sunk costs would prevent it from leaving the industry.E) C) and D)
F) None of the above

Question 13

Which of the following is a residual reward that accrues to business decision makers who use resources so as to increase their value?

Accepted Answer

A)   opportunity cost
B)   earnings of employees
C)   economic profit
D)   interest earnings of corporate bondholdersE) A) and B)
F) All of the above

Question 14

A profit-maximizing entrepreneur will produce and sell an additional unit of output as long as

Accepted Answer

A)   it lowers the firm's unit costs.
B)   it lowers the firm's marginal cost.
C)   it adds more to revenue than it adds to cost.
D)   there is additional plant capacity to produce.E) All of the above
F) B) and C)

Question 15

Harry Smith sells wheat in a price-taker market. With regard to Smith's price and output choices, which of the following is true?

Accepted Answer

A)   Smith will constantly attempt to increase the price of his product so he can increase his total revenue.
B)   Since the price of his product is dictated by the market, Smith will not have an incentive to control per-unit cost.
C)   Since the price of his product is dictated by the market, Smith has no production decisions to make.
D)   It would be senseless for Smith to try to increase sales by lowering the price of his product.E) None of the above
F) All of the above

Question 16

Within the framework of the price-taker model, a price taker will always produce a quantity of output that

Accepted Answer

A)   minimizes the per-unit cost of production.
B)   is expected to provide the largest possible total revenue.
C)   maximizes total revenue minus total cost.
D)   brings average total cost and price into equality.E) B) and D)
F) None of the above

Question 17

The long-run supply curve is

Accepted Answer

A)   a horizontal line for a constant-cost industry.
B)   upward sloping for a decreasing-cost industry.
C)   downward sloping for an increasing-cost industry.
D)   all of the above.E) None of the above
F) A) and C)

Question 18

When price is greater than marginal cost for a firm in a competitive market,

Accepted Answer

A)   marginal cost must be falling.
B)   the firm must be minimizing its losses.
C)   there are opportunities to increase profit by increasing production.
D)   the firm should decrease output to maximize profit.E) A) and B)
F) None of the above

Question 19

If a restaurant in a summer tourist area is highly profitable during the summer months but unable to cover even its variable costs during the winter months, the restaurant should

Accepted Answer

A)   go out of business immediately, because no firm should continue to operate if it is losing money; doing so is contrary to the idea of profit maximization.
B)   go out of business as soon as the summer is over; losses should never be tolerated.
C)   operate during all months of the year as long as its profits during the summer exceed its losses during the winter.
D)   shut down during the winter, but continue operating during the summer as long as the summer profits exceed the losses (fixed costs)  during the winter shutdown period.E) C) and D)
F) A) and D)

Question 20

A competitive price-taker firm's marginal cost curve is regarded as its supply curve because

Accepted Answer

A)   the position of the marginal cost curve determines the price for which the firm should sell its product.
B)   among the various cost curves, the marginal cost curve is the only one that slopes upward.
C)   the marginal cost curve determines the quantity of output the firm is willing to supply at alternative prices.
D)   the firm is aware that marginal revenue must exceed marginal cost in order for profit to be maximized.E) A) and D)
F) A) and B)

Exam 9: Price Takers and the Competitive Process

Several states require cosmetologists to undertake 1,500 hours or more of training in order to obtain a license to provide hair styling or braiding services. This is an example of

Correct Answer
verified

A price-taker firm will tend to expand its output so long as its

Correct Answer
verified

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

Correct Answer
verified

In the short run, a firm that is a price taker will stay in business as long as

Correct Answer
verified

The figure depicts a firm in a price-taker market. Use this figure to answer the following question(s) . Figure 9-19 Refer to Figure 9-19. To maximize profit, the firm should produce an output level of

Correct Answer
verified

A competitive price-taker firm's marginal cost curve is regarded as its supply curve because

Correct Answer
verified

If a restaurant in a summer tourist area is highly profitable during the summer months but unable to cover even its variable costs during the winter months, the restaurant should

Correct Answer
verified

Harry Smith sells wheat in a price-taker market. With regard to Smith's price and output choices, which of the following is true?

Correct Answer
verified

Correct Answer
verified

The price-taker firm should discontinue production immediately if

Correct Answer
verified

When price is greater than marginal cost for a firm in a competitive market,

Correct Answer
verified

A competitive price-taker firm would be willing to remain in the industry in the long run at zero economic profit because

Correct Answer
verified

The long-run supply curve is

Correct Answer
verified

In a constant cost industry,

Correct Answer
verified

A profit-maximizing entrepreneur will produce and sell an additional unit of output as long as

Correct Answer
verified

Which of the following is a residual reward that accrues to business decision makers who use resources so as to increase their value?

Correct Answer
verified

Within the framework of the price-taker model, a price taker will always produce a quantity of output that

Correct Answer
verified

For a certain firm, the 100th unit of output that the firm produces has marginal revenue equal to $10 and a marginal cost of $7. It follows that

Correct Answer
verified

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

Correct Answer
verified

Which of the following is a primary difference between price takers and price searchers that operate in markets with low barriers to entry?

Correct Answer
verified

Exam 9: Price Takers and the Competitive Process

Several states require cosmetologists to undertake 1,500 hours or more of training in order to obtain a license to provide hair styling or braiding services. This is an example of

Correct AnswerverifiedShow Answer

A price-taker firm will tend to expand its output so long as its

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the short run, a firm that is a price taker will stay in business as long as

Correct AnswerverifiedShow Answer

The figure depicts a firm in a price-taker market. Use this figure to answer the following question(s) . Figure 9-19 Refer to Figure 9-19. To maximize profit, the firm should produce an output level of

Correct AnswerverifiedShow Answer

A competitive price-taker firm's marginal cost curve is regarded as its supply curve because

Correct AnswerverifiedShow Answer

If a restaurant in a summer tourist area is highly profitable during the summer months but unable to cover even its variable costs during the winter months, the restaurant should

Correct AnswerverifiedShow Answer

Harry Smith sells wheat in a price-taker market. With regard to Smith's price and output choices, which of the following is true?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The price-taker firm should discontinue production immediately if

Correct AnswerverifiedShow Answer

When price is greater than marginal cost for a firm in a competitive market,

Correct AnswerverifiedShow Answer

A competitive price-taker firm would be willing to remain in the industry in the long run at zero economic profit because

Correct AnswerverifiedShow Answer

The long-run supply curve is

Correct AnswerverifiedShow Answer

In a constant cost industry,

Correct AnswerverifiedShow Answer

A profit-maximizing entrepreneur will produce and sell an additional unit of output as long as

Correct AnswerverifiedShow Answer

Which of the following is a residual reward that accrues to business decision makers who use resources so as to increase their value?

Correct AnswerverifiedShow Answer

Within the framework of the price-taker model, a price taker will always produce a quantity of output that

Correct AnswerverifiedShow Answer

For a certain firm, the 100th unit of output that the firm produces has marginal revenue equal to $10 and a marginal cost of $7. It follows that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is a primary difference between price takers and price searchers that operate in markets with low barriers to entry?

Correct AnswerverifiedShow Answer

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