Question 1

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

Accepted Answer

A)   to maximize profits, you should remain open in December.
B)   to maximize profits, you should shut down in December.
C)   you will be able to avoid making a loss by shutting down in December.
D)   you should go out of business in the long run if there is any single month in which you do not earn a profit.

Question 2

If a price taker in a competitive market is going to maximize profits, he must

Accepted Answer

A)   increase the price of his product.
B)   minimize his fixed costs of production.
C)   minimize the per-unit cost of producing the good.
D)   use the highest valued set of resources to produce his product.

Question 3

If a single firm in a price-taker market lowers its price below the market equilibrium price,

Accepted Answer

A)   it will get a larger share of the market.
B)   it will lose revenue without increasing the quantity it can sell.
C)   other firms will lower their prices.
D)   other firms will be driven out of the industry.

Question 4

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.

Question 5

Suppose a restaurant that is highly profitable during the summer months is unable to cover its total cost during the winter months. If it wants to maximize profits, the restaurant should

Accepted Answer

A)   shut down during the winter, even if it is able to cover its variable costs during that period.
B)   continue operating during the winter months if it is able to cover its variable costs.
C)   go a out of business immediately; losses should never be tolerated.
D)   lower its prices during the summer months.

Question 6

Use the figure to answer the following question(s) .
Figure 9-6

The average total cost ( ATC )  and marginal costs ( MC )  of a firm producing in a price-taker industry are depicted in Figure 9-6. If the current market price of the firm's product is $15, what output should this firm produce?

Accepted Answer

A)   10
B)   15
C)   20
D)   25

Question 7

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

Accepted Answer

A)   raise its prices during the winter months.
B)   lower its prices during the summer months.
C)   operate during the summer but shut down during the winter months.
D)   operate during all months of the year as long as its profits during the summer exceed its losses during the winter.

Question 8

Profit-maximizing firms enter a competitive market when, for existing firms in that market,

Accepted Answer

A)   total revenue exceeds fixed costs.
B)   total revenue exceeds total variable costs.
C)   average total cost exceeds average revenue.
D)   price exceeds average total cost.

Question 9

If a price-taker firm selling in a competitive market offers its product at a higher price than others, it will

Accepted Answer

A)   increase its profits.
B)   maintain its profit base if the demand for the product is inelastic.
C)   be able to expand output.
D)   not be able to sell any output.

Question 10

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

When the market price is $60 in Figure 9-9, the firm's maximum daily profit will be approximately

Accepted Answer

A)   zero.
B)   $100.
C)   $900.
D)   $1,200.

Question 11

Competitive price-taker markets are characterized by

Accepted Answer

A)   firms that all produce the same product.
B)   a small number of firms in the market.
C)   firms that are large relative to the size of the market.
D)   widespread use of advertising as a competitive weapon.

Question 12

When entry barriers into a market are low, firms will tend to earn zero economic profit in the long run because

Accepted Answer

A)   low entry barriers lead to rising costs.
B)   profit-seeking entrepreneurs will not enter a market when entry barriers are low.
C)   short-run profit attracts additional suppliers and drives down the market price.
D)   consumers will refuse to pay more than the cost of producing a good once they find out the producer's per-unit costs.

Question 13

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.

Question 14

If the model of price-taking firms is so unrealistic and restrictive, why study it?

Accepted Answer

It may be somewhat unrealistic, but it d...

Question 15

The marginal revenue of a price taker is

Accepted Answer

A)   equal to price.
B)   less than price.
C)   more than price.
D)   unrelated to price.

Question 16

Suppose that price is below the minimum average total cost (ATC)  but above the minimum average variable cost (AVC)  and that the market price is expected to rise at least to ATC in the near future. In the short run, a firm that is a price taker would

Accepted Answer

A)   immediately shut down and get out of the industry.
B)   continue to produce a quantity such that marginal revenue equals marginal cost.
C)   shut down temporarily, in hopes of restarting in the near future.
D)   cut price and expand output in hopes of achieving economies of scale

Question 17

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

Accepted Answer

A)   will shut down in the long run but not the short run.
B)   will also be earning zero accounting profit.
C)   is doing as well as typical firms in other markets.
D)   will shut down in the short run.

Question 18

Use the figure to answer the following question(s) .
Figure 9-3

Figure 9-3 depicts the cost curves of a firm in a price-taker industry. At what output would the firm's per-unit cost be at a minimum?

Accepted Answer

A)   100
B)   125
C)   150
D)   an output greater than 150

Question 19

The main difference between a firm that is a price searcher and a firm that is a price taker is that a

Accepted Answer

A)   price searcher produces products that are identical to its competitors' products.
B)   price taker can decide what price to charge for its product.
C)   price searcher cannot decide what price to charge for its product.
D)   price searcher will still be able to sell some of its product if it increases its price.

Question 20

Which of the following is a reason to study the decisions of price takers?

Accepted Answer

A)   While there are not many price-taker markets, these few markets dominate the economy.
B)   The decision making of both price searchers and price takers is identical.
C)   The price-taker model enhances our knowledge of competition as a dynamic process.
D)   Price takers are the most common type of business in the real world.

Exam 9: Price Takers and the Competitive Process

The marginal revenue of a price taker is

Correct Answer
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Use the figure to answer the following question(s) . Figure 9-9 When the market price is $60 in Figure 9-9, the firm's maximum daily profit will be approximately

Correct Answer
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Use the figure to answer the following question(s) . Figure 9-6 The average total cost ( ATC ) and marginal costs ( MC ) of a firm producing in a price-taker industry are depicted in Figure 9-6. If the current market price of the firm's product is $15, what output should this firm produce?

Correct Answer
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Use the figure to answer the following question(s) . Figure 9-3 Figure 9-3 depicts the cost curves of a firm in a price-taker industry. At what output would the firm's per-unit cost be at a minimum?

Correct Answer
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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

Correct Answer
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The main difference between a firm that is a price searcher and a firm that is a price taker is that a

Correct Answer
verified

If a price taker in a competitive market is going to maximize profits, he must

Correct Answer
verified

Suppose that price is below the minimum average total cost (ATC) but above the minimum average variable cost (AVC) and that the market price is expected to rise at least to ATC in the near future. In the short run, a firm that is a price taker would

Correct Answer
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If a price-taker firm selling in a competitive market offers its product at a higher price than others, it will

Correct Answer
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Which of the following is a reason to study the decisions of price takers?

Correct Answer
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Profit-maximizing firms enter a competitive market when, for existing firms in that market,

Correct Answer
verified

Correct Answer
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If a single firm in a price-taker market lowers its price below the market equilibrium price,

Correct Answer
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If the model of price-taking firms is so unrealistic and restrictive, why study it?

Correct Answer
verified
It may be somewhat unrealistic, but it d...
View Answer

Competitive price-taker markets are characterized by

Correct Answer
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When entry barriers into a market are low, firms will tend to earn zero economic profit in the long run because

Correct Answer
verified

Suppose a restaurant that is highly profitable during the summer months is unable to cover its total cost during the winter months. If it wants to maximize profits, the restaurant should

Correct Answer
verified

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

Correct Answer
verified

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

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

Exam 9: Price Takers and the Competitive Process

The marginal revenue of a price taker is

Correct AnswerverifiedShow Answer

Use the figure to answer the following question(s) . Figure 9-9 When the market price is $60 in Figure 9-9, the firm's maximum daily profit will be approximately

Correct AnswerverifiedShow Answer

Use the figure to answer the following question(s) . Figure 9-6 The average total cost ( ATC ) and marginal costs ( MC ) of a firm producing in a price-taker industry are depicted in Figure 9-6. If the current market price of the firm's product is $15, what output should this firm produce?

Correct AnswerverifiedShow Answer

Use the figure to answer the following question(s) . Figure 9-3 Figure 9-3 depicts the cost curves of a firm in a price-taker industry. At what output would the firm's per-unit cost be at a minimum?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The main difference between a firm that is a price searcher and a firm that is a price taker is that a

Correct AnswerverifiedShow Answer

If a price taker in a competitive market is going to maximize profits, he must

Correct AnswerverifiedShow Answer

Suppose that price is below the minimum average total cost (ATC) but above the minimum average variable cost (AVC) and that the market price is expected to rise at least to ATC in the near future. In the short run, a firm that is a price taker would

Correct AnswerverifiedShow Answer

If a price-taker firm selling in a competitive market offers its product at a higher price than others, it will

Correct AnswerverifiedShow Answer

Which of the following is a reason to study the decisions of price takers?

Correct AnswerverifiedShow Answer

Profit-maximizing firms enter a competitive market when, for existing firms in that market,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If a single firm in a price-taker market lowers its price below the market equilibrium price,

Correct AnswerverifiedShow Answer

If the model of price-taking firms is so unrealistic and restrictive, why study it?

Correct AnswerverifiedIt may be somewhat unrealistic, but it d...View AnswerShow Answer

Competitive price-taker markets are characterized by

Correct AnswerverifiedShow Answer

When entry barriers into a market are low, firms will tend to earn zero economic profit in the long run because

Correct AnswerverifiedShow Answer

Suppose a restaurant that is highly profitable during the summer months is unable to cover its total cost during the winter months. If it wants to maximize profits, the restaurant should

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

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

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It may be somewhat unrealistic, but it d...
View Answer

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