Question 1

As new firms enter a competitive price-searcher market, profits of existing firms

Accepted Answer

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.E) A) and D)
F) A) and C)

Question 2

Which of the following conditions is most essential if a firm is going to earn long-run economic profits?

Accepted Answer

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 industryE) B) and D)
F) C) and D)

Question 3

Which of the following statements about price discrimination is correct?

Accepted Answer

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.E) A) and B)
F) None of the above

Question 4

Proved reserves of natural gas and oil

Accepted Answer

A)   will last only another five years at the current worldwide consumption rate.
B)   reveal little about whether the world is about to run out of these resources since they are calculated at present levels of price and technology.
C)   are just another way of measuring how many years civilization will continue.
D)   indicate that the supply of petroleum will be depleted by the year 2020 unless governments adopt price controls and energy rationing.E) None of the above
F) A) and B)

Question 5

Researcher Terry Anderson claims that with respect to the supply of water, trading it would be

Accepted Answer

A)   wrong and counter-productive.
B)   essentially impossible due to lack of technologies to move the water.
C)   highly productive and bring cooperation among the traders.
D)   a problem, since monopolists would come to own too much.E) A) and B)
F) A) and C)

Question 6

When water cannot be traded among current and potential users, then

Accepted Answer

A)   each user will take more care to conserve, because added water cannot be obtained.
B)   users have a strong incentive to conserve because they are now protected from price increases imposed by greedy entrepreneurs.
C)   efficiency improves, as dry years can be better anticipated and planned for, and every user knows the quantity that will be available.
D)   water will not flow to its highest valued uses, and some users will use water for relatively low-valued uses, because they cannot gain by selling it to others.E) B) and C)
F) A) and D)

Question 7

If the firms in a competitive price-searcher market are suffering short-run losses, which of the following will occur in the long run?

Accepted Answer

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.E) C) and D)
F) All of the above

Question 8

Predictions that natural resources such as oil will be essentially used up in the next few decades

Accepted Answer

A)   have been frequently made for the past century but have always proven to be false.
B)   have usually been based on the quantity of proved reserves.
C)   have ignored the role of price in governing the quantities demanded and supplied.
D)   All of the above are correct.E) A) and B)
F) B) and C)

Question 9

In order to prosper, entrepreneurs must

Accepted Answer

A)   have their own wealth with which to finance projects that they want to undertake.
B)   slow technological change and development of new products in their industry.
C)   undertake projects that create wealth and increase the value of resources.
D)   undertake projects that use resources that are more valuable than the output they produce.E) All of the above
F) B) and C)

Question 10

A firm in a competitive price-searcher market can raise its price without losing all of its customers. This is a result of

Accepted Answer

A)   low entry barriers.
B)   a perfectly elastic market demand.
C)   the small number of firms in the market.
D)   product differentiation.E) All of the above
F) B) and C)

Question 11

When private ownership rights are clearly defined and well enforced, owners of resources

Accepted Answer

A)   have no incentive to consider the desires of others or the potential future value of the resource.
B)   have an incentive to develop and expand resources that are expected to be valuable in the future.
C)   have an incentive to consume the resource as quickly as possible before others seize it.
D)   have little incentive to take care of the resource or conserve it for the future.E) All of the above
F) B) and D)

Question 12

As firms exit a competitive price-searcher market, profits of remaining firms

Accepted Answer

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.E) B) and C)
F) C) and D)

Question 13

If a new entrant (or an established firm)  wants to leave a contestable market,

Accepted Answer

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.E) C) and D)
F) B) and D)

Question 14

Use the figure to answer the following question(s) .
Figure 10-10 
-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?

Accepted Answer

A)   20
B)   30
C)   40
D)   50E) A) and D)
F) A) and C)

Question 15

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.E) A) and B)
F) A) and C)

Question 16

Use the figure to answer the following question(s) .
Figure 10-3 
-If the cost and demand conditions of this competitive price-searcher firm depicted in Figure 10-3 are representative of the market, what will happen in the future?

Accepted Answer

A)   Firms will go out of business, and the market price will rise.
B)   The current market price will tend to persist into the future.
C)   New firms will enter the market, and the market price will decline.
D)   The firms in this industry probably will collude in order to increase their profitability.E) B) and C)
F) None of the above

Question 17

Supply and demand analysis suggests that a sharp increase in the price of gasoline will cause the

Accepted Answer

A)   price of fuel-efficient compact cars to decrease.
B)   supply of gasoline to decrease.
C)   demand for large luxury cars to increase.
D)   demand for fuel-efficient cars to increase.E) None of the above
F) A) and B)

Question 18

"If China and India continue their economic expansion, the world cannot provide enough raw materials without terrible shortages worldwide." Evaluate this statement.

Accepted Answer

A)   True, increased demand from developing countries will swamp the existing supply of resources.
B)   True, increased demand from China and India will lead to large shortages in the North America and Europe.
C)   False, the shortage will be limited to China and India.
D)   False, increasing scarcity will result in higher prices and the deployment of new technologies that increase the efficiency of production, and together these markets forces will help to balance demand and supply worldwide.E) B) and C)
F) B) and D)

Question 19

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.E) All of the above
F) B) and D)

Question 20

Because barriers to entry are low in competitive price-searcher markets, in the long run, a firm's price will be equal to

Accepted Answer

A)   marginal revenue.
B)   average total cost.
C)   average variable cost.
D)   average fixed cost.E) A) and B)
F) A) and C)

Exam 10: Price-Searcher Markets With Low Entry Barriers

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

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"If China and India continue their economic expansion, the world cannot provide enough raw materials without terrible shortages worldwide." Evaluate this statement.

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When private ownership rights are clearly defined and well enforced, owners of resources

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

If a new entrant (or an established firm) wants to leave a contestable market,

Correct AnswerverifiedShow Answer

Researcher Terry Anderson claims that with respect to the supply of water, trading it would be

Correct AnswerverifiedShow Answer

Predictions that natural resources such as oil will be essentially used up in the next few decades

Correct AnswerverifiedShow Answer

A firm in a competitive price-searcher market can raise its price without losing all of its customers. This is a result of

Correct AnswerverifiedShow Answer

As firms exit a competitive price-searcher market, profits of remaining firms

Correct AnswerverifiedShow Answer

Which of the following statements about price discrimination is correct?

Correct AnswerverifiedShow Answer

When water cannot be traded among current and potential users, then

Correct AnswerverifiedShow Answer

In order to prosper, entrepreneurs must

Correct AnswerverifiedShow Answer

Supply and demand analysis suggests that a sharp increase in the price of gasoline will cause the

Correct AnswerverifiedShow Answer

If the firms in a competitive price-searcher market are suffering short-run losses, which of the following will occur in the long run?

Correct AnswerverifiedShow Answer

Use the figure to answer the following question(s) . Figure 10-10 -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?

Correct AnswerverifiedShow Answer

Use the figure to answer the following question(s) . Figure 10-3 -If the cost and demand conditions of this competitive price-searcher firm depicted in Figure 10-3 are representative of the market, what will happen in the future?

Correct AnswerverifiedShow Answer

Because barriers to entry are low in competitive price-searcher markets, in the long run, a firm's price will be equal to

Correct AnswerverifiedShow Answer

As new firms enter a competitive price-searcher market, profits of existing firms

Correct AnswerverifiedShow Answer

Which of the following conditions is most essential if a firm is going to earn long-run economic profits?

Correct AnswerverifiedShow Answer

Proved reserves of natural gas and oil

Correct AnswerverifiedShow Answer

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