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ECO2023 Chapter 10 Study Guide Questions
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1For the competitive price searcher,
- Aprice will exceed marginal cost at the profit-maximizing level of output.
- Bprice will equal average total cost in the long run.
- Ceconomic profit will be driven to zero in the long run by the entry and exit of firms.
- Dall of the above are correct.
2Only undertaking an activity when it adds more to revenue than to cost is the decision rule a profit maximizing firm will use when deciding upon
- Athe level of output to produce.
- Bthe amount of advertising to undertake.
- Cthe level of product quality (for example, how many years it is designed to last).
- Dall of the above.
3A competitive price-searcher market is characterized by firms
- Abeing able to choose their price and no barriers preventing firms from entering or leaving the market.
- Bbeing able to choose their price and high barriers preventing firms from entering or
leaving the market. - Cbeing able to accept the market price for their product and high barriers preventing firms from entering or leaving the market.
- Dhaving to accept the market price for their product and no barriers preventing firms from entering or leaving the market.
4The fact that barriers to entry are low in competitive price-searcher markets means that if current firms are making economic losses,
- Athese losses will remain in the long run because firms will not exit the market.
- Bsome current firms will exit the market, causing the demand curves that face the remaining firms to increase.
- Cnew firms will enter the market, causing the demand curves that face the existing firms to decrease.
- Dnew firms will enter the market, causing no change in the demand curves that face the
existing firms in the market.
5Which of the following is true when long-run equilibrium conditions are present in price-taker and
competitive price-searcher markets?- AMR = MC in both price-taker and competitive price-searcher markets
- BP = ATC in both price-taker and competitive price-searcher markets
- CP = MC in both price-taker and competitive price-searcher markets
- DBoth a and b, but not c are true.
6A market in which the costs of entry and exit are low is called a
- Aregulated market.
- Bmonopoly market.
- Cmarket with high barriers to entry.
- Dcontestable market.
7In both price-taker and competitive price-searcher markets, short-run economic profits will lead to
- Afirms being able to sustain those economic profits into the long run.
- Bthe exit of firms from the market and the eventual restoration of zero long-run economic profits.
- Cthe entry of additional firms into the market and the eventual restoration of zero long-run economic profits.
- Dnone of the above.
8In order for a firm to be able to engage in price discrimination, it must be able to
- Aidentify and separate groups with different price elasticities of demand.
- Bprevent resale of the product between customer groups.
- Cmaximize profits at the point where average total cost is minimized.
- Ddo both a and b, but not c.
9If economic profits were present in a competitive price-searcher industry,
- Aproduction inefficiency would develop, causing costs to increase until the profits had been eliminated.
- Bfirms would operate in the short run, but they would be forced out of business in the long run as competition eliminated the economic profit.
- Ccompetition from new entrants would occur until the economic profits had been
eliminated. - Dthe firms would eventually find these profits offset by long-run economic losses.
10The practice of price discrimination has which of the following effects?
- AGroups with the higher elasticity of demand will pay higher prices.
- BGroups with the lower elasticity of demand will pay higher prices.
- CWith price discrimination, total output and allocative efficiency will fall.
- DGroups will pay identical prices that are exactly equal to the firm's marginal cost.
11Neither price takers nor competitive price searchers will be able to earn long-run economic profit because
- Awith low entry barriers, the entry and exit of firms result in prices that are equal to per-unit costs in the long run.
- Bcompetition from new firms will result in higher prices in the market, which offset any
economic losses they earn. - Cin both markets, firms charge a price equal to marginal cost.
- Din both markets, firms produce products that are identical to the products produced by their competitors.
12Refer to Figure 10-13. This firm will maximize profits by producing a quantity of output equal to
- AE and charging a price equal to A.
- BE and charging a price equal to D.
- CF and charging a price equal to H.
- DF and charging a price equal to C.
13Refer to Figure 10-13. The firm is currently earning an economic
- Aprofit equal to the area CKGA.
- Bprofit equal to the area DJGA.
- Closs equal to the area CKGA.
- Dloss equal to the area DJGA.
14Refer to Figure 10-13. In the long run, we would expect the firm's
- AATC curve to fall as firms enter the industry, forcing the firm to increase its efficiency.
- Bdemand curve to decrease as firms enter the industry due to the presence of positive
economic profits. - Cdemand curve to increase as firms exit the industry due to the presence of economic
losses. - Ddemand curve to shift such that marginal revenue and marginal cost intersect at quantity F--the point where average total cost is at a minimum.
15Refer to Figure 10-14. This firm will maximize profits by producing a quantity of output equal to
- AI and charging a price equal to A.
- BI and charging a price equal to C.
- CI and charging a price equal to D.
- DJ and charging a price equal to B.
16Refer to Figure 10-14. The firm is currently earning an economic
- Aprofit equal to the area AHFC.
- Bprofit equal to the area CFED.
- Closs equal to the area AHED.
- Dloss equal to the area CFED.
17Refer to Figure 10-14. In the long run, we would expect
- Amore firms to enter this industry until zero economic profits are restored.
- Bfirms to exit this industry until zero economic profits are restored.
- Cthe number of firms to remain constant and existing firms will continue to suffer economic losses in the long run.
- Dthe number of firms to remain constant and existing firms will continue to earn economic profits in the long run.
18Given the data shown in the table, what price and output level would a profit-maximizing price searcher
choose?
- Aprice of $8, output of 3 units
- Bprice of $7, output of 4 units
- Cprice of $6, output of 5 units
- Dprice of $5, output of 6 units
19The idea that business failure is a positive force for progress in a market economy is often summarized by the term "creative destruction." Which of the following best states the central idea of this principle?
- AWhen a business fails, the assets and resources from that business become unemployed, resulting in higher government subsidies.
- BBusiness failure allows the assets and resources from that business to move into other
areas where those resources are now more productive and highly valued. - COnly through frequent business failure will it be possible to avoid income being
concentrated in a few rich entrepreneurs. - DThe new, rival businesses that drive out old competitors tend to be less efficient and less creative than the older established businesses.
20(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.- AI is true; II is false.
- BI is false; II is true.
- CBoth I and II are true.
- DBoth I and II are false.
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- Quiz on ECO2023 Chapter 10 Study Guide Questions, created by Natalie de Gracia on 04/08/2016.
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