Question 1

When market conditions in a price-taker market are such that firms cannot cover their production costs,

Accepted Answer

A)   the firms will suffer long-run economic losses.
B)   the firms will suffer short-run economic losses that will be exactly offset by long-run economic profits.
C)   some firms will go out of business, causing prices to rise until the remaining firms can cover their production costs.
D)   all firms will go out of business, since consumers will not pay prices that enable firms to cover their production costs.

Question 2

Suppose wheat farmers are price takers. If wheat farmers are currently making economic profits, over time we would expect that

Accepted Answer

A)   existing wheat farmers would plant more acres of wheat.
B)   farmers growing other crops would switch some of their land from these crops to the growing of wheat.
C)   the wheat farmers will continue to earn economic profits because they would be driven out of business without such profit.
D)   both a and b are correct.

Question 3

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 4

When a firm in a price-taker industry is in long-run equilibrium, the market price equals

Accepted Answer

A)   marginal cost but may be greater or less than average total cost.
B)   both average total cost and marginal cost.
C)   average total cost but may be greater or less than marginal cost.
D)   marginal revenue but may be greater or less than both average total cost and marginal cost.

Question 5

A former union employee states: "We were on strike for two years. I know the eventual wage increase we received will never make up for the wages I lost, but I think the strike was worth it. We forced the company to give in to our demands." Evaluate these comments.

Accepted Answer

If income were the only thing that matte...

Question 6

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. B

Question 7

If the ice cream industry is a competitive price-taker market and all ice cream producers are earning zero economic profit, what will be the impact of an increase in the demand for ice cream?

Accepted Answer

A)   Firms will exit the ice cream industry in the long run since they are earning zero economic profit.
B)   The firms will now be able to earn long-run economic profit assuming that barriers to entry remain low and new firms can enter the market.
C)   A shortage of ice cream will develop.
D)   The price of ice cream will rise initially, inducing the existing firms to expand output and new firms to enter the industry.

Question 8

Karlos sells his product for $40 each in a competitive price-taker market. At his present rate of output, his marginal cost is $39, average variable cost is $25, and average total cost is $45. To improve his profit/loss situation, Karlos should

Accepted Answer

A)   increase output
B)   reduce output but not to zero
C)   maintain the present rate of output
D)   shut down
E)   raise the price

Question 9

When a union successfully raises the wages of its members, it will also

Accepted Answer

A)   increase total productivity, which must rise in proportion to the wage rate.
B)   encourage employers to find a substitute for the union labor.
C)   raise the wages of nonunion workers.
D)   increase the share of income allocated to labor as opposed to capital.

Question 10

If a competitive price-taker firm is currently producing a level of output at which marginal revenue exceeds marginal cost, then

Accepted Answer

A)   a one-unit increase in output will increase the firm's profit.
B)   a one-unit decrease in output will increase the firm's profit.
C)   total revenue exceeds total cost.
D)   total cost exceeds total revenue.

Question 11

When we say that a firm is a price taker, we are indicating that the

Accepted Answer

A)   firm takes the price established in the market then tries to increase that price through advertising.
B)   firm can change output levels without having any significant effect on price.
C)   demand curve faced by the firm is perfectly inelastic.
D)   firm will have to take a lower price if it wants to increase the number of units that it sells.

Question 12

In the price-taker model, what impact does the individual firm have on the price of its product?

Accepted Answer

A)   The firm must accept the price determined in the market if it is going to sell its product.
B)   The firm may raise or lower its price to a small extent, but sales revenues will tend to be the same regardless of price.
C)   The firm may raise its price and, thereby, increase its revenues.
D)   The firm may raise or lower its price to a considerable extent, but sales revenues will tend to be the same regardless of price.

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

Union membership as a share of the work force is ____ in states with right-to-work laws. (Fill in the blank)

Accepted Answer

A)   above the national average.
B)   below the national average.
C)   greater than 50 percent.
D)   close to 100 percent.

Question 15

Which of the following business decisions will be made by firms that are price searchers but not those that are price takers?

Accepted Answer

A)   What combination of resources should be used to produce a product that is supplied?
B)   What output should be produced?
C)   What price should be charged?
D)   What legal structure of business organization (for example, a proprietorship or corporation)  should be used?

Question 16

If a firm is making zero economic profit, it

Accepted Answer

A)   will be forced to shutdown and leave the market.
B)   will also generally be making zero accounting profit.
C)   is doing as well as typical firms in other markets.
D)   will not survive in the long run.

Question 17

In the competitive price-taker model, individual firms exert no effect on the market price. Therefore, the firm's marginal revenue curve is

Accepted Answer

A)   indeterminate.
B)   an upward-sloping curve.
C)   a downward-sloping curve.
D)   the same as the firm's demand curve. D

Question 18

The share of the labor force that was unionized increased from approximately 10 percent in 1930 to more than 30 percent in 1955. During these 25 years, the share of national income allocated to labor (in contrast to capital)

Accepted Answer

A)   remained virtually constant.
B)   increased approximately 10 percent.
C)   increased between 15 and 25 percent.
D)   increased 17.6 percent. A

Question 19

In price-taker markets, individual firms have no control over price. Therefore, the firm's marginal revenue curve is

Accepted Answer

A)   a downward-sloping curve.
B)   indeterminate.
C)   constant at the market price of the product.
D)   precisely the same as the firm's total revenue curve.

Question 20

Which of the following will tend to lower the ability of a union to increase the wages of its members?

Accepted Answer

A)   Strong competition from nonunion labor.
B)   Threat of a strike.
C)   Increased demand for union labor.
D)   All of the above.

Exam 9: Price Takers and the Competitive Process

When market conditions in a price-taker market are such that firms cannot cover their production costs,

Correct AnswerverifiedShow Answer

Suppose wheat farmers are price takers. If wheat farmers are currently making economic profits, over time we would expect that

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

When a firm in a price-taker industry is in long-run equilibrium, the market price equals

Correct AnswerverifiedShow Answer

A former union employee states: "We were on strike for two years. I know the eventual wage increase we received will never make up for the wages I lost, but I think the strike was worth it. We forced the company to give in to our demands." Evaluate these comments.

Correct AnswerverifiedIf income were the only thing that matte...View AnswerShow 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 AnswerverifiedB

If the ice cream industry is a competitive price-taker market and all ice cream producers are earning zero economic profit, what will be the impact of an increase in the demand for ice cream?

Correct AnswerverifiedShow Answer

Karlos sells his product for $40 each in a competitive price-taker market. At his present rate of output, his marginal cost is $39, average variable cost is $25, and average total cost is $45. To improve his profit/loss situation, Karlos should

Correct AnswerverifiedShow Answer

When a union successfully raises the wages of its members, it will also

Correct AnswerverifiedShow Answer

If a competitive price-taker firm is currently producing a level of output at which marginal revenue exceeds marginal cost, then

Correct AnswerverifiedShow Answer

When we say that a firm is a price taker, we are indicating that the

Correct AnswerverifiedShow Answer

In the price-taker model, what impact does the individual firm have on the price of its product?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Union membership as a share of the work force is ____ in states with right-to-work laws. (Fill in the blank)

Correct AnswerverifiedShow Answer

Which of the following business decisions will be made by firms that are price searchers but not those that are price takers?

Correct AnswerverifiedShow Answer

If a firm is making zero economic profit, it

Correct AnswerverifiedShow Answer

In the competitive price-taker model, individual firms exert no effect on the market price. Therefore, the firm's marginal revenue curve is

Correct AnswerverifiedD

The share of the labor force that was unionized increased from approximately 10 percent in 1930 to more than 30 percent in 1955. During these 25 years, the share of national income allocated to labor (in contrast to capital)

Correct AnswerverifiedA

In price-taker markets, individual firms have no control over price. Therefore, the firm's marginal revenue curve is

Correct AnswerverifiedShow Answer

Which of the following will tend to lower the ability of a union to increase the wages of its members?

Correct AnswerverifiedShow Answer

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If income were the only thing that matte...
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