140. Given that the short-run cost and demand conditions shown in Figure 10-6 for the competitive
price-searcher firm are representative for all firms in the industry, what will happen in this industry in
the long run?
a.
The firm will make long-run economic profits.
b.
The firm will face competition from new entrants into the industry, causing this firm’s
demand to decline until zero economic profits are restored.
c.
The firm will see some of its competitors exit from the industry, causing this firm’s
demand to increase until zero economic profits are restored.
d.
This industry is in long-run equilibrium and will not experience any new entry or exit of
firms.
Figure 10-7
141. Given the cost and demand conditions shown in Figure 10-7 for the competitive price-searcher firm,
what price should it charge, and what quantity should it produce in order to maximize profit?
a.
It should produce 10 units and charge a price of $5 per unit.
b.
It should produce 10 units and charge a price of $8 per unit.
c.
It should produce 10 units and charge a price of $10 per unit.
d.
It should produce 18 units and charge a price of $7 per unit.
Figure 10-8
142. Figure 10-8 presents the demand, marginal revenue, and cost curves for a typical firm in a market.
This figure illustrates
a.
short-run equilibrium in a competitive price-taker market.
b.
long-run equilibrium in a competitive price-taker market.
c.
short-run equilibrium in a competitive price-searcher market.
d.
long-run equilibrium in a competitive price-searcher market.
Use the figure to answer the following question(s).
Figure 10-9
143. What price should a competitive price-searcher firm charge with the cost and demand conditions
depicted in Figure 10-9 if it wants to maximize its profit?
a.
$12
b.
$16
c.
$20
d.
$24
144. What is the maximum economic profit this firm depicted in Figure 10-9 will be able to earn?
a.
zero profit
b.
$200 profit
c.
$400 profit
d.
$600 profit
Use the figure to answer the following question(s).
Figure 10-10
145. Given the cost and demand conditions depicted in Figure 10-10 for the competitive price-searcher
firm, what is the price that the firm should charge if it wants to maximize its profit?
a.
20
b.
30
c.
40
d.
50
146. What is the approximate maximum economic profit this firm depicted in Figure 10-10 will be able to
earn per month?
a.
zero profit
b.
$50,000 profit
c.
$200,000 profit
d.
$400,000 profit
Figure 10-11
147. Refer to Figure 10-11. Which of the graphs shown would be consistent with a firm in a competitive
price-searcher market that is earning a positive profit?
a.
Panel a
b.
Panel b
c.
Panel c
d.
Panel d
148. Refer to Figure 10-11. Which of the graphs shown would be consistent with a firm in a competitive
price-searcher market that is maximizing profit but profit is still negative?
a.
Panel a
b.
Panel b
c.
Panel c
d.
Panel d
Figure 10-12
149. Refer to Figure 10-12. Panel (a) shows a profit-maximizing competitive price-searcher firm that is
a.
earning zero economic profit.
b.
likely to exit the market in the long run.
c.
producing its efficient scale of output.
d.
not maximizing its profit.
150. Refer to Figure 10-12. Panel (b) is consistent with a firm in a competitive price-searcher market that is
a.
not in long-run equilibrium.
b.
in long-run equilibrium.
c.
producing its efficient scale of output.
d.
earning a positive economic profit.
151. Refer to Figure 10-12. Which of the panels depicts a firm in a competitive price-searcher market
earning positive economic profits?
a.
Panel a
b.
Panel b
c.
Panel c
d.
Panel d
152. The firms in a competitive price-searcher market produce goods and services that are
a.
identical to one another in quality and price.
b.
identical to one another in quality but not in price.
c.
identical to one another in price but not in quality.
d.
different from one another.
153. A price searcher confronts a downward sloping demand curve because
a.
products in the market are differentiated.
b.
there is no close competitor in the market.
c.
the market is essentially monopolized.
d.
the firm gains nothing if it lowers its price.
154. Which of the following is a true statement about the difference between a price-taker firm and a
competitive price-searcher firm in the long run?
a.
Both will sell their products at a price equal to average total cost, but only the price taker
will produce at minimum average total cost.
b.
Both will sell their products at a price equal to average total cost, but only the competitive
price searcher will produce at minimum average total cost.
c.
Only the price taker will sell its product at a price equal to average total cost.
d.
Only the competitive price searcher will sell its product at a price equal to average total
cost.
155. Which of the following statements about price discrimination is correct?
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.
156. Which of the following statements about price discrimination is correct?
a.
Price discrimination is always more profitable than charging a single price.
b.
A price discriminator would want to charge the highest price to those customers with the
most elastic demand for his product.
c.
To be successful, a price discriminator must assure that items can be resold between high-
and low-price groups.
d.
To maximize profit, a price discriminator distinguishes groups with different demands and
charges higher prices to those with the more inelastic demand.
157. Entrepreneurial judgment requires
a.
the ability to use perfect information about the suture to your advantage.
b.
the ability to discover new approaches or solutions to complex problems.
c.
the use of government regulations to prevent competition
d.
that a firm make a profit.
158. Price searchers can be expected to charge a price that
a.
is the highest at which consumers will purchase any units.
b.
they expect to provide the largest possible flow of gross revenue.
c.
minimizes their per-unit costs of production.
d.
maximizes their profit.
159. When entry barriers are low, firms in a competitive price-searcher market
a.
can expect many new rivals to enter regardless of current profitability.
b.
can expect competing firms to enter the market if the activity is profitable.
c.
can never earn economic profit.
d.
will always be able to earn economic profit.
160. Whenever firms can freely enter and exit a market,
a.
firms can never earn a profit.
b.
prices will be the same for all firms in the market.
c.
products will be identical for all firms in the market.
d.
profits and losses play an important role in determining the size of the industry.
161. Which of the following is a characteristic of a contestable market?
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 methods
162. Which of the following is most vital if the firms in an industry are going to earn economic profit in the
long run?
a.
an inelastic demand for the product produced by the firms
b.
an elastic demand for the product produced by the firms
c.
managerial efficiency
d.
high barriers to entry into the industry
163. To gain from price discrimination, price searchers
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.
164. A market will tend to be more competitive when
a.
there are a small number of firms in the market.
b.
similar products are available from alternative sellers.
c.
entry barriers into the market are high.
d.
governments require firms to meet strict regulatory standards.
ESSAY
165. What type of model would be best if we wanted to analyze the market for fast food? Why?
166. When you go to a grocery store, most candy bars of a given size sell for virtually the same price. Can
we conclude that this is evidence of collusion on the part of candy bar manufacturers?
167. 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?
168. What type of industry is the market for grocery products? Is over-capacity present?
169. The market for home-delivered pizza is extremely competitive in Introville, Utah, and prices continue
to fall. Assume they have fallen so low that the 20 pizza delivery firms are all suffering economic
losses. What will likely happen in the long run?
170. Why do the airlines charge less for passengers who stay over Saturday night and purchase their tickets
two weeks in advance?
171. Niceville, Ohio, only has two dentists, while the surrounding communities have many more on a per
capita basis. The demand for dental services is such that these two dentists could agree to raise their
prices (they play golf together every Saturday) and earn economic profit. Instead, they choose to price
competitively and earn what other dentists earn. What might explain this?
172. Evaluate the following statement: “Competitive price-searcher markets are inefficient relative to purely
competitive markets since prices are higher and firms don’t produce an output rate that minimizes
average total cost. As a result, government action should be undertaken to remedy this situation.”