Question 1

Figure 10-8 
Figure 10-8 presents the demand, marginal revenue, and cost curves for a typical firm in a market. This figure illustrates

Accepted Answer

A)   short-run equilibrium in a competitive price-taker market.
B)   long-run equilibrium in a competitive price-taker market.
C)   short-run equilibrium in a competitive price-searcher market.
D)   long-run equilibrium in a competitive price-searcher market.E) B) and D)
F) A) and B)

Question 2

For the competitive price searcher,

Accepted Answer

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.E) A) and B)
F) A) and C)

Question 3

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?

Accepted Answer

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.E) A) and D)
F) B) and D)

Question 4

Figure 10-1 1 B)  P 2 C)  P 3 D)  P 4" class="answers-bank-image d-inline" rel="preload" >
Given the cost and demand conditions in Figure 10-1, what price should this competitive price-searcher firm charge in order to maximize profits?

Accepted Answer

A)   P 1
B)   P 2
C)   P 3
D)   P 4E) None of the above
F) B) and D)

Question 5

Competitive price-searcher markets are common in

Accepted Answer

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

Question 6

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

Accepted Answer

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

Question 7

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

Accepted Answer

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.E) None of the above
F) A) and B)

Question 8

The strategy underlying price discrimination is

Accepted Answer

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

Question 9

Use the figure to answer the following question(s) .
Figure 10-9

What price should a competitive price-searcher firm charge with the cost and demand conditions depicted in Figure 10-9 if it wants to maximize its profit?

Accepted Answer

A)   $12
B)   $16
C)   $20
D)   $24E) A) and D)
F) C) and D)

Question 10

Monopolistic competition is a term referring to markets characterized by

Accepted Answer

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.E) C) and D)
F) All of the above

Question 11

Which of the following conditions is most essential if a firm is going to earn long-run economic profits?

Accepted Answer

A)   an inelastic market demand for the product
B)   a small number of firms, even though competitors are free to enter the industry
C)   a differentiated product
D)   restrictions that limit the entry of potential competitors into the industryE) B) and C)
F) B) and D)

Question 12

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

Accepted Answer

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.E) B) and C)
F) None of the above

Question 13

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

Accepted Answer

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.E) A) and B)
F) B) and C)

Question 14

In competitive price-searcher markets, short-run economic losses will lead to

Accepted Answer

A)   long-run economic losses.
B)   the exit of firms from the market and the eventual restoration of zero long-run economic profits.
C)   the entry of new firms into the market as old firms fail.
D)   the entry of additional firms into the market, causing each firm to experience an increase in demand for its product.E) A) and B)
F) A) and C)

Question 15

Which of the following characteristics is true for a competitive price searcher but not for a price taker?

Accepted Answer

A)   The firm earns zero profits in the long run.
B)   The firm has an incentive to operate efficiently.
C)   A reduction in market demand will lead to short-run losses.
D)   Price is above marginal cost in long-run equilibrium.E) B) and C)
F) A) and B)

Question 16

The strategy underlying price discrimination is to

Accepted Answer

A)   charge higher prices to customers who have better access to substitutes.
B)   charge everyone the same price but limit the quantity they are allowed to buy.
C)   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)   reduce per-unit cost to the firm by charging higher prices to those with the most inelastic demand and lower prices to those with the most elastic demand.E) A) and B)
F) A) and C)

Question 17

Only undertaking an activity when it adds more to revenue than to cost is the decision rule a profit-maximizing firm will use when deciding upon

Accepted Answer

A)   the level of output to produce.
B)   the amount of advertising to undertake.
C)   the level of product quality (for example, how many years it is designed to last) .
D)   all of the above.E) A) and B)
F) A) and C)

Question 18

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

Accepted Answer

A)   1
B)   2
C)   3
D)   4E) C) and D)
F) None of the above

Question 19

Which of the following statements about price discrimination is correct?

Accepted Answer

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.E) A) and B)
F) None of the above

Question 20

When profits exist in a competitive price-searcher market,

Accepted Answer

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.E) C) and D)
F) B) and D)

Exam 10: Price-Searcher Markets With Low Entry Barriers

Figure 10-1 Given the cost and demand conditions in Figure 10-1, what price should this competitive price-searcher firm charge in order to maximize profits?

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Use the figure to answer the following question(s) . Figure 10-9 What price should a competitive price-searcher firm charge with the cost and demand conditions depicted in Figure 10-9 if it wants to maximize its profit?

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Which of the following characteristics is true for a competitive price searcher but not for a price taker?

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Which of the following statements about price discrimination is correct?

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

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

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Figure 10-8 Figure 10-8 presents the demand, marginal revenue, and cost curves for a typical firm in a market. This figure illustrates

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Monopolistic competition is a term referring to markets characterized by

Correct AnswerverifiedShow Answer

In competitive price-searcher markets, short-run economic losses will lead to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

For the competitive price searcher,

Correct AnswerverifiedShow Answer

Only undertaking an activity when it adds more to revenue than to cost is the decision rule a profit-maximizing firm will use when deciding upon

Correct AnswerverifiedShow Answer

Competitive price-searcher markets are common in

Correct AnswerverifiedShow Answer

When profits exist in a competitive price-searcher market,

Correct AnswerverifiedShow Answer

The strategy underlying price discrimination is to

Correct AnswerverifiedShow Answer

Which of the following conditions is most essential if a firm is going to earn long-run economic profits?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

The strategy underlying price discrimination is

Correct AnswerverifiedShow Answer

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