Economics Chapter 23—Price-Searcher Markets with Low Entry Barriers
MULTIPLE CHOICE
1. In a competitive price-searcher market, the firms will
a.
be able to choose their price, and the entry barriers into the market will be low.
b.
be able to choose their price, and the entry barriers into the market will be high.
c.
have to accept the market price for their product, and the entry barriers into the market will
be low.
d.
have to accept the market price for their product, and the entry barriers into the market will
be high.
2. A profit-maximizing price searcher will expand output to the point where
a.
total revenue equals total cost.
b.
marginal revenue equals marginal cost.
c.
price equals average total cost.
d.
price equals marginal cost.
3. In the long run, neither competitive price takers nor competitive price searchers will be able to earn
economic profits because
a.
entry barriers into these markets are high, raising the costs of each firm.
b.
the government will dictate moderate prices for these firms.
c.
competition will force prices down to the level of per-unit production costs.
d.
marginal revenue is always less than marginal cost when barriers to entry are low.
4. If firms in a competitive price-searcher market are currently earning economic losses, then in the long
run,
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.
5. As long as a market is contestable, then even if it has only a few sellers, the
a.
threat of new entrants will prevent the prices from rising above the competitive level.
b.
producers will be able to charge prices that are high enough to produce long-run economic
profits.
c.
producers will not face new competition because the barriers to entry are high.
d.
market will never be expected to come close to the competitive result.
6. Entrepreneurial judgment
a.
is necessary to make business decisions when no fixed decision rule can be used.
b.
is fully incorporated into modern economic models of business behavior.
c.
requires decision makers to follow carefully defined rules regarding uncertainty,
discovery, and business judgment.
d.
requires government advice and regulation.
7. Compared to the outcome when the firms are price takers, competitive price-searcher markets will
result in
a.
a wider variety of products and higher prices.
b.
less product variety and higher prices.
c.
a wider variety of products and lower prices.
d.
less product variety and lower prices.
8. If a market is in long-run equilibrium, which of the following conditions will be present in a
competitive price-taker market but absent from a competitive price-searcher market?
a.
P = ATC
b.
MR = MC
c.
P = MC
d.
MR < P
9. The strategy underlying price discrimination is
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.
10. If a government wanted to increase the prosperity of a nation, it could best serve this goal by
a.
protecting domestic industries from international trade, thus encouraging domestic growth.
b.
regulating the way in which firms can operate.
c.
reducing barriers that restrict the ability of potential competitors to enter markets.
d.
subsidizing firms that are in danger of going out of business.
11. Competitive price-searcher markets are common in
a.
retail selling.
b.
farming.
c.
basic manufacturing.
d.
electric power generation.
12. When a new firm enters a competitive price-searcher market, the demand curves faced by all existing
firms in that market will
a.
shift to the left.
b.
shift to the right.
c.
shift in a direction that is unpredictable without further information.
d.
remain unchanged. It is the supply curve that will shift.
13. When a firm exits a competitive price-searcher market, the individual demand curves faced by all
remaining firms in that market will
a.
shift in a direction that is unpredictable without further information.
b.
shift to the right.
c.
shift to the left.
d.
remain unchanged. It is the supply curve that will shift.
14. 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,
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.
15. 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
a.
the firm is currently maximizing its profit.
b.
the profits of the firm are positive.
c.
firms are likely to enter this market in the long run.
d.
the firm would earn more profit by expanding output
16. 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
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.
17. Cecilia’s Café is in a competitive price-searcher market. Cecilia’s is currently producing where average
total cost is at its minimum, and Cecilia’s is earning a positive economic profit. In the long run we
would expect Cecilia’s output to
a.
decrease and average total cost to be higher.
b.
decrease and average total cost to be lower.
c.
remain unchanged as Cecilia’s is doing the best it can.
d.
increase and average total costs to be lower.
18. A competitive price-searcher market is best described as
a.
many firms with some control over price, and some product differentiation.
b.
many firms with no control over price, producing identical products.
c.
a few firms with some control over price, producing highly differentiated products.
d.
a few firms with no control over price, producing similar products.
e.
a single firm producing all of the output for the industry, with strong control over price.
19. Which of the following is a true statement?
a.
A price-taker firm can sell additional units of output without having to lower its price,
while a price-searcher firm must lower its price in order to sell additional units.
b.
A price-searcher firm can sell additional units of output without having to lower its price,
while a price-taker firm must lower its price in order to sell additional units.
c.
Both price searchers and price takers can sell additional units of output without having to
lower their price.
d.
Both price searchers and price takers must lower their price in order to sell additional units
of output.
20. Which of the following is not a characteristic of a competitive price-searcher market?
a.
Each firm produces a differentiated product.
b.
The entry barriers are high.
c.
Each firm faces a downward-sloping demand curve.
d.
The number of firms in the market is large.
21. Which of the following most closely approximates the conditions of a competitive price-searcher
market?
a.
the market for Grade A eggs, which is characterized by a large number of firms producing
a homogeneous product
b.
the restaurant industry, which is characterized by firms producing a differentiated product
in a market with low entry barriers
c.
local cable television service, where a licensed supplier competes with firms offering
satellite service
d.
the market for jumbo aircraft, where one major domestic firm competes with one major
foreign firm
22. Firms that are price searchers
a.
will eventually find and charge the highest price at which consumers will purchase any
units.
b.
face inelastic demand curves for their products.
c.
do not confront rival sellers like price takers do.
d.
face a downward-sloping demand curve.
23. The term price searcher applies to all firms that
a.
face a downward-sloping demand curve.
b.
face an upward-sloping demand curve.
c.
operate in a purely competitive environment.
d.
purchase resources in a noncompetitive market.
24. A firm in a competitive price-searcher market can raise its price without losing all of its customers.
This is a result of
a.
low entry barriers.
b.
a perfectly elastic market demand.
c.
the small number of firms in the market.
d.
product differentiation.
25. Which of the following is characteristic of a firm that is a competitive price searcher?
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.
26. A competitive price-searcher market is characterized by firms
a.
being able to choose their price and by low barriers preventing firms from entering or
leaving the market.
b.
being able to choose their price and by high barriers preventing firms from entering or
leaving the market.
c.
having to accept the market price for their product and by high barriers preventing firms
from entering or leaving the market.
d.
having to accept the market price for their product and by low barriers preventing firms
from entering or leaving the market.
27. Which of the following is a term that is sometimes used to describe markets with low entry barriers
and firms that are price searchers?
a.
pure competition
b.
monopoly
c.
monopolistic competition
d.
oligopoly
28. If a firm in a competitive price-searcher market raises its price, it will
a.
lose all of its sales.
b.
increase its sales.
c.
lose only some of its sales.
d.
have to go out of business.
29. When a firm is a price searcher, its marginal revenue is
a.
equal to price because the firm’s demand curve is perfectly elastic.
b.
equal to price if, and only if, the firm is maximizing profits.
c.
less than price when the firm is maximizing profits.
d.
equal to average total cost at the long-run equilibrium output rate.
30. Which of the following is true for a price-searcher firm?
a.
Its marginal revenue curve will lie below its demand curve.
b.
Its marginal revenue curve will lie above its demand curve.
c.
Its marginal revenue curve is equal to its demand curve.
d.
Its marginal revenue curve is horizontal at the market equilibrium price.
31. In a competitive price-searcher market, the marginal revenue of the firm will always be
a.
a horizontal line.
b.
greater than price.
c.
less than price.
d.
equal to price.
32. Suppose a price-searcher firm faces the following demand curve data for its product.
Price
Quantity
$10
5
$9
6
$8
7
What is the firm’s marginal revenue from selling the sixth unit?
a.
$4
b.
$9
c.
$10
d.
$54
33. If a price-searcher firm can sell nine units at a price of $6, or it can sell ten units at a price of $5.75,
what is the marginal revenue of the tenth unit?
a.
$1
b.
$3.50
c.
$5.75
d.
$6
34. If a price searcher is producing at a level of output such that its marginal cost is $16 and its marginal
revenue is $9, the firm should
a.
increase output in order to reduce per-unit costs.
b.
decrease the price of its product and expand output.
c.
increase price and reduce its rate of output.
d.
reduce both price and output.
35. 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
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.
36. If a firm in a competitive price-searcher market finds that its marginal cost exceeds its marginal
revenue at the current rate of output, it should
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.
37. A profit-maximizing price searcher will expand output to the point where
a.
total revenue equals total cost.
b.
marginal revenue equals marginal cost.
c.
price equals average total cost.
d.
price equals marginal cost.
38. A price-searcher firm will expand output until
a.
marginal revenue falls to equal the rising marginal cost.
b.
marginal revenue rises to equal the falling marginal cost.
c.
marginal revenue falls below marginal cost.
d.
marginal cost rises above marginal revenue.
39. In the short run, a price searcher wishing to maximize profits or minimize losses should produce the
output that
a.
equates marginal cost with marginal revenue.
b.
equates marginal cost with price.
c.
corresponds to the lowest point on the average variable cost curve.
d.
corresponds to the lowest point on the average total cost curve.
40. If Dell Computer finds that its marginal cost exceeds its marginal revenue on a model of laptop, then
to maximize profit, it will
a.
increase output if it is a price searcher, but this may not be proper if it is a price taker.
b.
increase output if it is a price taker, but this may not be proper if it is a price searcher.
c.
decrease output, regardless of whether it is a price taker or a price searcher.
d.
increase output, regardless of whether it is a price taker or a price searcher.
41. If marginal cost exceeds marginal revenue, a profit-maximizing firm should
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.
42. Which of the following must be true if a price-searcher firm is operating at the profit-maximizing
output rate?
a.
The marginal cost of producing the last unit is greater than the marginal revenue derived
from its sale.
b.
The marginal cost of producing the last unit is no greater than the marginal revenue
derived from its sale.
c.
The total cost of producing all units is no greater than the total revenue derived from the
sale of the units.
d.
The total cost of producing all units is less than the total revenue derived from the sale of
the units.
43. Which of the following would be most likely if firms in a competitive price-searcher market were
earning economic profit?
a.
Production inefficiencies would persist until the profit was eliminated.
b.
Firms would decrease their rate of output in the short run, causing a decline in profitability
in the market.
c.
New firms would enter the market, resulting in fewer sales by existing firms.
d.
All firms in the market would continue to produce at their current levels and continue to
charge the same price.
44. In the long run the prices charged by a firm in a competitive price-searcher market will be
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.
45. Long-run equilibrium in a competitive price-searcher market requires that
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.
46. If firms in a competitive price-searcher market are earning economic profits, which of the following
scenarios would best describe the change existing firms would face as the market adjusts to long-run
equilibrium?
a.
An increase in demand for each firm and lower prices.
b.
A decrease in demand for each firm and lower prices.
c.
An increase in demand for each firm and higher prices.
d.
A decrease in demand for each firm and higher prices.
47. If firms in a competitive price-searcher market are incurring economic losses, which of the following
scenarios would best describe the change existing firms (who are able to stay in the market) would
face as the market adjusts to long-run equilibrium?
a.
An increase in demand for each firm and lower prices.
b.
A decrease in demand for each firm and lower prices.
c.
An increase in demand for each firm and higher prices.
d.
A decrease in demand for each firm and higher prices.
48. As new firms enter a competitive price-searcher market, profits of existing firms
a.
rise and product diversity in the market increases.
b.
rise and product diversity in the market decreases.
c.
decline and product diversity in the market increases.
d.
decline and product diversity in the market decreases.
49. As firms exit a competitive price-searcher market, profits of remaining firms
a.
decline and product diversity in the market decreases.
b.
decline and product diversity in the market increases.
c.
rise and product diversity in the market decreases.
d.
rise and product diversity in the market increases.
50. The free entry and exit of firms in a competitive price-searcher market guarantees that
a.
both economic profits and economic losses can persist in the long run.
b.
both economic profits and economic losses disappear in the long run.
c.
economic profits, but not economic losses, can persist in the long run.
d.
economic losses, but not economic profits, can persist in the long run.
51. Suppose that competitive price-searcher firms are earning positive profits. In the transition from this
initial situation to a long-run equilibrium,
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.
52. Suppose that competitive price-searcher firms are experiencing losses. In the transition from this initial
situation to a long-run equilibrium,
a.
the number of firms in the market decreases.
b.
each existing firm experiences a decrease in demand for its product.
c.
each firm experiences an upward shift to its marginal cost and average total cost curves.
d.
each existing firm’s average total cost falls to bring economic profit back to zero.
53. Assume a competitive price-searcher firm is earning an economic profit. The marginal revenue from
selling an additional unit is $30 and the marginal cost of producing that additional unit is $23. The firm
should
a.
change neither its price nor its output level
b.
reduce its price and increase its output level
c.
increase its price and reduce its output level
d.
reduce both its price and its output level
e.
increase both its price and its output level
54. If the firms in a competitive price-searcher market are suffering short-run losses, which of the
following will occur in the long run?
a.
New firms will enter the industry.
b.
Customers of firms that leave the industry will switch to remaining firms.
c.
Firms that remain in the industry will face reduced demand.
d.
Firms will continue to incur losses.
55. 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
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.
56. Tombstones are produced in a competitive price-searcher market. One producer, Rolling Stones, sells
20 tombstones a week at a price of $500 each. Its average total cost is $600. From this information, we
can conclude
a.
new tombstone firms will want to enter.
b.
this producer is losing $2,000 a week.
c.
this producer is making an economic profit of $400.
d.
this producer is setting MR = MC.
e.
this producer should increase production.
57. As new firms enter a competitive price-searcher market, it can be expected that
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 decrease
58. Because barriers to entry are low in competitive price-searcher markets, in the long run, a firm’s price
will be equal to
a.
marginal revenue.
b.
average total cost.
c.
average variable cost.
d.
average fixed cost.
59. Which of the following is true of a competitive price-searcher firm when the market is in a long-run
equilibrium?
a.
MR < MC < price
b.
MR < MC = price
c.
MR = MC < price
d.
MR = MC = price
60. The fact that barriers to entry are low in competitive price-searcher markets means that if current firms
are making economic losses,
a.
these losses will remain in the long run because no firms can exit the market.
b.
current firms will exit the market, causing the demand curves that face the remaining firms
to increase.
c.
new firms will enter the market, causing the demand curves that face the existing firms to
decrease.
d.
new firms will enter the market, causing no change in the demand curves that face the
existing firms in the market.
61. If firms in a competitive price-searcher market are currently experiencing economic profits, then over
time,
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.
62. When profits exist in a competitive price-searcher market,
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.
63. Which of the following is true for firms that produce in markets where there are no barriers to entry?
a.
The firms will always make positive economic profits in the long run.
b.
The firms will always make positive economic profits in the short run.
c.
The firms will always make zero economic profits in the short run.
d.
The firms will always make zero economic profits in the long run.
64. If the firms in a competitive price-searcher market are earning zero economic profit, this indicates that
the
a.
market is not in long-run equilibrium.
b.
firms are earning the normal rate of return.
c.
firms are performing worse than the firms in other markets.
d.
firms are performing better than firms in other markets.
65. When a profit-maximizing firm in a competitive price-searcher market is in long-run equilibrium,
price equals
a.
marginal cost, and profits are positive.
b.
average total cost, and profits are zero.
c.
marginal cost, and profits are zero.
d.
average total cost, and profits are positive.
66. Which of the following is true when long-run equilibrium conditions are present in price-taker and
competitive price-searcher markets?
a.
MR = ATC in both price-taker and competitive price-searcher markets.
b.
P = ATC in price-taker markets; P = MC in competitive price-searcher markets.
c.
P = MC in both price-taker and competitive price-searcher markets.
d.
P = ATC in both price-taker and competitive price-searcher markets.
67. In the long run, a competitive price-searcher firm will
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 budget
68. Given the following schedule, what price and output level would a profit-maximizing price searcher
choose?
Units of
Sale Price
Total
Output
(per unit)
Cost
1
$60
$60
2
$45
$66
3
$35
$70
4
$30
$72
5
$25
$75
6
$20
$80
a.
price, $45; output, 2 units
b.
price, $35; output, 3 units
c.
price, $30; output, 4 units
d.
price, $25; output, 5 units
69. Given the following price and output schedule, how many units should this price-searcher firm
produce in order to maximize profits?
Units of
Sale Price
Total
Output
(per unit)
Cost
1
$22
$25
2
$20
$35
3
$18
$50
4
$16
$63
a.
1
b.
2
c.
3
d.
4
70. 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
a.
monopolistic markets.
b.
price-taker markets.
c.
contestable markets.
d.
convertible markets.
71. A contestable market is a market
a.
that is highly contested by two, and only two, rival firms.
b.
in which the costs of entry and exit are low.
c.
characterized by high profitability and government regulation.
d.
characterized by a large number of firms; in essence, the term means the same thing as
pure competition.
72. If a contestable market has only one seller, which of the following will keep the seller from producing
inefficiently and charging a price that generates long-run economic profits?
a.
government regulations
b.
low costs of entry into and exit from the market
c.
substantial economies of scale that provide a competitive advantage to large firms in such
markets
d.
the threat of a government takeover of the firms in these markets
73. In a market that is contestable, but has only a few sellers, the
a.
threat of new entrants will prevent prices from rising above the competitive level.
b.
producers will be able to charge prices that are high enough to produce long-run economic
profits.
c.
producers will not face new competition because the barriers to entry are high.
d.
market will never be expected to come close to the competitive result.
74. Sellers in competitive price-searcher markets
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.
75. If a new entrant (or an established firm) wants to leave a contestable market,
a.
all, or nearly all of, the invested capital values can be recovered.
b.
another firm will always enter to take its place.
c.
it must accept large losses in its capital investment, so it is unlikely to exit.
d.
its leaving will be contested by regulators in the market who seek to prevent exit.
76. If a market is contestable, the market will be characterized by
a.
minimum-cost production methods and a competitive (normal) profit rate.
b.
high barriers to entry and a small number of suppliers.
c.
prices in excess of production costs and mergers leading to monopoly.
d.
a large number of suppliers offering a homogeneous product.
77. Which of the following statements best describes the price, output, and profit conditions of
competitive price-searcher markets?
a.
Price will equal marginal cost at the profit-maximizing level of output; profits will be
positive in the long-run.
b.
Price will always equal average variable cost in the short run and either profits or losses
may result in the long run.
c.
Marginal revenue will equal marginal cost at the short run, profit-maximizing level of
output; in the long run, economic profit will be zero.
d.
Marginal revenue will equal average total cost in the short run; long-run economic profits
will be zero.
78. Some economists argue that competitive price-searcher markets are inefficient because
a.
the firms earn economic profits in the long run.
b.
the firms’ marginal costs and marginal revenues are not always equal.
c.
firms do not produce the output rate that would minimize their average total costs.
d.
barriers to entry are high.
79. When a competitive price-searcher market is in long-run equilibrium, the firms will
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.
80. When a competitive price-searcher market is in long-run equilibrium, the firms in the market will earn
a.
substantial economic profits.
b.
zero economic profits.
c.
significant economic losses.
d.
an above-normal accounting rate of return.
81. Compared to the outcome when the firms are price takers, competitive price-searcher markets will
result in
a.
a wider variety of products and higher prices.
b.
less product variety and higher prices.
c.
a wider variety of products and lower prices.
d.
less product variety and lower prices.
82. The traditional view of competitive price-searcher markets holds that this type of market structure is
inefficient because
a.
there are too few firms to reach an efficient level of competition.
b.
barriers to entry are high.
c.
excessive advertising is encouraged.
d.
consumers are not allowed a sufficient amount of choice in which to express their
individual preferences.
83. Which of the following conditions is most essential if a firm is going to earn long-run economic
profits?
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 industry
84. In competitive price-searcher markets, short-run economic profits will lead to
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.
85. In competitive price-searcher markets, short-run economic losses will lead to
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.
86. In both price-taker and competitive price-searcher markets, when an increase in market demand
disrupts a long-run equilibrium, it will lead to
a.
higher short-run prices and long-run profits.
b.
higher short-run prices, short-run profits, and the entry of additional firms into the market.
c.
higher short-run prices and the exit of firms from the market due to economies of scale.
d.
no change in prices in the short run, but new firms will enter in the long run.
87. In both price-taker and competitive price-searcher markets, the long-run market price of a good will be
equal to the
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.
88. In long-run equilibrium, output is expanded to the minimum long-run average total cost by
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.
89. Suppose housing construction is a price-searcher market with low barriers to entry. Which of the
following will be true for this market?
a.
The output of the housing construction firms will be produced inefficiently.
b.
Consumers would be better off if there were fewer firms and less variety in the housing
market.
c.
If firms produced larger quantities but less variety, they could reduce the per-unit costs.
d.
Consumers do not have to pay for variety in the housing construction market.
90. Which of the following provides the strongest evidence that a firm operating in the highly competitive
retail sector is supplying goods and services that consumers value highly relative to their cost?
a.
The top-level managers of the firm are paid high salaries.
b.
The firm is on the verge of bankruptcy.
c.
The firm is a large corporation.
d.
The firm is highly profitable, and its sales have grown rapidly.
91. Which of the following provides the strongest evidence that a firm operating in the highly competitive
retail sector is failing to provide goods and services that consumers value highly relative to their cost?
a.
The firm is making losses, and its sales are declining.
b.
The top-level managers of the firm are paid high salaries.
c.
The wages earned by the employees of the firm are low.
d.
The firm is a large corporation.
e.
The firm is highly profitable, and its sales have grown rapidly.
92. 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
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.
93. Firms that engage in price discrimination
a.
will earn less profit than those that do not discriminate.
b.
will earn more profit than those that do not discriminate.
c.
are biased against certain buyers in the market.
d.
will always produce less output than firms that do not discriminate.
94. A major fruit juice manufacturer failed in its attempt to engage in price discrimination between
students and all other consumers. What is the most likely explanation for this failure?
a.
There was nothing to prevent the students from reselling the fruit juice to other consumers.
b.
The two groups of consumers have different demand elasticities for fruit juice.
c.
The cost of producing the product is relatively high.
d.
Market demand for fruit juice is inelastic.
95. Suppose that a price-discriminating firm divides its market into two segments. If the firm sells its
product for a price of $22 in the market segment where demand is relatively less elastic, the price in
the market segment whose customers’ demand is more elastic will be
a.
$22.
b.
greater than $22.
c.
less than $22.
d.
$22 plus average fixed costs