Question 1

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) B) and C)
F) A) and B)

Question 2

Figure 10-4
 
-What price should a competitive price-searcher firm with the cost and demand conditions depicted in Figure 10-4 charge if it wants to maximize its profit?

Accepted Answer

A)   $10
B)   $15
C)   $20
D)   $24E) All of the above
F) A) and D)

Question 3

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

Accepted Answer

A)   price may exceed marginal revenue, but in the long run, price will equal marginal revenue.
B)   price may exceed marginal cost, but in the long run, price will equal marginal cost.
C)   price may exceed average total cost, but in the long run, price will equal average total cost.
D)   there are many firms in the market, but in the long run, there are only a few firms in the market.E) None of the above
F) B) and D)

Question 4

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

Accepted Answer

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

Question 5

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

Accepted Answer

A)   high enough to provide profits to the firm.
B)   so low that many firms will drop out of the industry.
C)   equal to marginal cost.
D)   equal to average cost, including the opportunity cost of capital.E) None of the above
F) All of the above

Question 6

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

Accepted Answer

A)   raise the price of the product and expand its output.
B)   raise the price of the product and reduce its output.
C)   lower the price of the product and expand its output.
D)   lower the price of the product and reduce its output.E) A) and C)
F) B) and C)

Question 7

Figure 10-14
The following question(s)  refer(s)  to the figure below, which depicts the demand, marginal revenue, and cost curves facing a firm in a competitive price-searcher industry.
 
-Refer to Figure 10-14. This firm will maximize profits by producing a quantity of output equal to

Accepted Answer

A)   I and charging a price equal to A.
B)   I and charging a price equal to C.
C)   I and charging a price equal to D.
D)   J and charging a price equal to B.E) B) and D)
F) All of the above

Question 8

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

Accepted Answer

A)   The firm faces an upward-sloping demand curve.
B)   The firm faces an inelastic demand curve.
C)   The firm faces a horizontal demand curve.
D)   The firm produces a differentiated product.E) A) and D)
F) None of the above

Question 9

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

Accepted Answer

A)   earn economic profit.
B)   operate at an output level that minimizes long-run average total cost.
C)   charge a price that is equal to average total cost.
D)   operate at an output level where price is equal to marginal cost.E) None of the above
F) A) and B)

Question 10

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

Accepted Answer

A)   long-run economic profits.
B)   the exit of firms from the market and the eventual restoration of zero long-run economic profits.
C)   the entry of additional firms into the market and the eventual restoration of zero long-run economic profits.
D)   the entry of additional firms into the market, which increases the demand for the product of each firm in the market.E) C) and D)
F) A) and D)

Question 11

(I)  The entrepreneurial discovery and development of improved products and production processes is a central element of economic progress. (II)  Traditional economic models of the firm accurately capture the role of the entrepreneur.

Accepted Answer

A)   I is true; II is false.
B)   I is false; II is true.
C)   Both I and II are true.
D)   Both I and II are false.E) A) and B)
F) B) and D)

Question 12

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

Accepted Answer

A)   produce a greater variety of goods than do firms in other market structures
B)   produce a greater output level than would a perfectly competitive firm
C)   produce where price equals average total cost
D)   earn an economic profit
E)   suffer a loss because of its advertising budgetF) A) and E)
G) None of the above

Question 13

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) A) and D)
F) None of the above

Question 14

Which of the following is a characteristic of a contestable market?

Accepted Answer

A)   long-run economic profit
B)   many firms that are small relative to the market
C)   high costs for entry and exit
D)   minimum-cost production methodsE) B) and D)
F) A) and D)

Question 15

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

Accepted Answer

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

Question 16

What role do losses play in a competitive price-searcher market?

Accepted Answer

A)   They penalize a firm for producing a differentiated product.
B)   They signal that more resources are needed in a particular market.
C)   They show firms that barriers to entry are high.
D)   They send a message that more value would be created if the resources were used to produce other goods.E) C) and D)
F) All of the above

Question 17

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

Accepted Answer

A)   firms being able to sustain those economic profits into the long run.
B)   the exit of firms from the market and the eventual restoration of zero long-run economic profits.
C)   the entry of additional firms into the market and the eventual restoration of zero long-run economic profits.
D)   none of the above.E) A) and D)
F) B) and C)

Question 18

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

Accepted Answer

A)   low entry barriers.
B)   a perfectly elastic market demand.
C)   the small number of firms in the market.
D)   product differentiation.E) None of the above
F) A) and B)

Question 19

Some economists have argued that competitive price-searcher industries are allocatively inefficient relative to price-taker industries because

Accepted Answer

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

Question 20

Sellers in competitive price-searcher markets

Accepted Answer

A)   face competition both from existing firms and potential new entrants.
B)   face competition from existing firms but not from potential new entrants.
C)   face competition only from potential new entrants and only in the long run.
D)   can compete only by product quality since product prices are set by market forces.E) A) and B)
F) A) and C)

Exam 23: Price-Searcher Markets With Low Entry Barriers

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

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

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

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

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

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

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What role do losses play in a competitive price-searcher market?

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Which of the following statements about price discrimination is correct?

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

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Some economists have argued that competitive price-searcher industries are allocatively inefficient relative to price-taker industries because

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

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

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Figure 10-14 The following question(s) refer(s) to the figure below, which depicts the demand, marginal revenue, and cost curves facing a firm in a competitive price-searcher industry. -Refer to Figure 10-14. This firm will maximize profits by producing a quantity of output equal to

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When profits exist in a competitive price-searcher market,

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

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Which of the following is a characteristic of a contestable market?

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Figure 10-4 -What price should a competitive price-searcher firm with the cost and demand conditions depicted in Figure 10-4 charge if it wants to maximize its profit?

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

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(I) The entrepreneurial discovery and development of improved products and production processes is a central element of economic progress. (II) Traditional economic models of the firm accurately capture the role of the entrepreneur.

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Sellers in competitive price-searcher markets

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