Question 1

Many small U.S.cities are served by only one or two airlines.If a price increase in these markets allows other airlines to quickly and easily enter the market and compete,economists would call these markets

Accepted Answer

A)  contestable markets.
B)  high entry markets.
C)  conventional markets.
D)  monopolistic markets.

Question 2

In both price-taker and competitive price-searcher markets,the long-run market price of a good will be equal to the

Accepted Answer

A)  average total cost of producing the good.
B)  average variable cost of producing the good.
C)  average fixed cost of producing the good plus a normal return on that cost.
D)  marginal revenue derived from the sale of an additional unit of the good.

Question 3

If firms in a competitive price-searcher market are currently experiencing economic profits,then over time,

Accepted Answer

A)  new firms will enter the market,and the current firms will experience a decrease in demand for their products until zero economic profit is again restored.
B)  new firms will enter the market,and the current firms will experience an increase in demand for their products until zero economic profit is again restored.
C)  some existing firms will exit the market,and the remaining firms will experience an increase in demand for their products until zero economic profit is again restored.
D)  some existing firms will exit the market,and the remaining firms will experience a decrease in demand for their products until zero economic profit is again restored.

Question 4

When Cabbage Patch Dolls were introduced,they were extremely popular at Christmas,and most stores sold out.By the next year,there were plenty still available at Christmas.What happened?

Accepted Answer

We might conclude that the manufacturer ...

Question 5

Which of the following is the major reason why most economists are reluctant to charge price searcher markets with allocative inefficiency?

Accepted Answer

A)  Consumers value the wider variety of quality and styles in competitive price-searcher markets.
B)  Advertising costs are typically so small that they are irrelevant.
C)  Competitive price searchers always operate that the lowest point on their average total cost curve.
D)  Competitive price searchers charge a price equal to marginal cost.

Question 6

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.

Question 7

In long-run equilibrium,output is expanded to the minimum long-run average total cost by

Accepted Answer

A)  price takers but not by competitive price searchers.
B)  competitive price searchers but not by price takers.
C)  both competitive price searchers and price takers.
D)  neither price takers nor competitive price searchers.

Question 8

A market in which the costs of entry and exit are low is called a

Accepted Answer

A)  regulated market.
B)  monopoly market.
C)  market with high barriers to entry.
D)  contestable market.

Question 9

The marginal revenue curve lies below the demand curve for a competitive price searcher because

Accepted Answer

A)  in order for a competitive price searcher to sell an extra unit,it must cut the price on all units.The lowered price offsets the additional revenue from the extra unit sold,so the marginal revenue is lower than the price.
B)  in order for a competitive price searcher to sell an extra unit,it must increase its advertising.The cost of advertising offsets the extra revenue generated by the extra sales,so the marginal revenue is lower than the price.
C)  whenever a competitive price searcher discovers a profit-maximizing pricing policy,the economic profit it generates attracts new competitors into the industry,driving marginal revenue below the price.
D)  none of the above apply.The marginal revenue curve is the demand curve for a competitive price searcher.

Question 10

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.

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.

Question 12

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

Accepted Answer

A)  substantial economic profits.
B)  zero economic profits.
C)  significant economic losses.
D)  an above-normal accounting rate of return.

Question 13

A picture frame company operates in a competitive price-searcher market.Its short-run equilibrium price is $80 and its ATC is $65.It sells 100 picture frames a week.From this we can conclude

Accepted Answer

A)  this firm is making a normal profit.
B)  other picture frame companies will want to exit the market.
C)  there are no other picture frame companies in the area.
D)  economic profits are $1,500.
E)  total profits are being maximized.

Question 14

To gain from price discrimination,price searchers

Accepted Answer

A)  must charge a higher price to those with a more inelastic demand.
B)  must be pure monopolists.
C)  must have small economies of scale
D)  must have access to widely available natural resources.

Question 15

Even though firms in competitive price-searcher markets do not produce at minimum ATC,competitive price-searcher markets may still be consistent with economic efficiency because

Accepted Answer

A)  strict government regulations force the firms in these markets to keep their costs low.
B)  they provide consumers with a greater diversity of products.
C)  they encourage more advertising in both price-searcher and price-taker markets.
D)  special legal protections for price searchers make it possible for them to more efficiently use resources.

Question 16

Figure 10-4
 
-What is the maximum economic profit this firm depicted in Figure 10-4 will be able to earn?

Accepted Answer

A)  $200 loss
B)  zero profit
C)  $250 profit
D)  $700 profit

Question 17

Figure 10-2
 
-What price should a competitive price-searcher firm with the cost and demand conditions depicted in Figure 10-2 charge if it wants to maximize its profit?

Accepted Answer

A)  $5
B)  $7
C)  $8
D)  $10

Question 18

Neither price takers nor competitive price searchers will be able to earn long-run economic profit because

Accepted Answer

A)  with low entry barriers,the entry and exit of firms result in prices that are equal to per-unit costs in the long run.
B)  competition from new firms will result in higher prices in the market,which offset any economic losses they earn.
C)  in both markets,firms charge a price equal to marginal cost.
D)  in both markets,firms produce products that are identical to the products produced by their competitors.

Question 19

Why do airlines often charge students and vacationers a lower price than business travelers?

Accepted Answer

A)  It is cheaper to provide airline service to students and vacationers than to business travelers.
B)  The demand of business travelers is generally more elastic than the demand of students and vacationers.
C)  The demand of students and vacationers is generally more elastic than the demand of business travelers.
D)  Airlines prefer to deal with students and vacationers rather than business travelers.

Question 20

Even when there are only a few firms in a market,the market can still be competitive as long as barriers to entry are low.Markets of this type are called

Accepted Answer

A)  monopolistic markets.
B)  price-taker markets.
C)  contestable markets.
D)  convertible markets.

Exam 23: Price-Searcher Markets With Low Entry Barriers

In both price-taker and competitive price-searcher markets,the long-run market price of a good will be equal to the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

(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.

Correct AnswerverifiedShow Answer

A picture frame company operates in a competitive price-searcher market.Its short-run equilibrium price is $80 and its ATC is $65.It sells 100 picture frames a week.From this we can conclude

Correct AnswerverifiedShow Answer

Figure 10-2 -What price should a competitive price-searcher firm with the cost and demand conditions depicted in Figure 10-2 charge if it wants to maximize its profit?

Correct AnswerverifiedShow Answer

Why do airlines often charge students and vacationers a lower price than business travelers?

Correct AnswerverifiedShow Answer

Many small U.S.cities are served by only one or two airlines.If a price increase in these markets allows other airlines to quickly and easily enter the market and compete,economists would call these markets

Correct AnswerverifiedShow Answer

In long-run equilibrium,output is expanded to the minimum long-run average total cost by

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

To gain from price discrimination,price searchers

Correct AnswerverifiedShow Answer

The marginal revenue curve lies below the demand curve for a competitive price searcher because

Correct AnswerverifiedShow Answer

Even when there are only a few firms in a market,the market can still be competitive as long as barriers to entry are low.Markets of this type are called

Correct AnswerverifiedShow Answer

Neither price takers nor competitive price searchers will be able to earn long-run economic profit because

Correct AnswerverifiedShow Answer

Even though firms in competitive price-searcher markets do not produce at minimum ATC,competitive price-searcher markets may still be consistent with economic efficiency because

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If firms in a competitive price-searcher market are currently experiencing economic profits,then over time,

Correct AnswerverifiedShow Answer

When Cabbage Patch Dolls were introduced,they were extremely popular at Christmas,and most stores sold out.By the next year,there were plenty still available at Christmas.What happened?

Correct AnswerverifiedWe might conclude that the manufacturer ...View AnswerShow Answer

Which of the following is the major reason why most economists are reluctant to charge price searcher markets with allocative inefficiency?

Correct AnswerverifiedShow Answer

A market in which the costs of entry and exit are low is called a

Correct AnswerverifiedShow Answer

Figure 10-4 -What is the maximum economic profit this firm depicted in Figure 10-4 will be able to earn?

Correct AnswerverifiedShow Answer

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We might conclude that the manufacturer ...
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