Microeconomics Test 4

question

The dynamic process of competition

answer

provides consumers with alternative suppliers and thus a mechanism with which they can discipline sellers

question

In the short run, a profit-maximizing price taker will expand output as long as the market price exceeds

answer

marginal cost

question

Competitive price-taker markets are characterized by

answer

low entry barriers and a large number of firms selling a homogeneous product

question

Which of the following products would most closely fit the competitive price-taker model

answer

Eggs-there are many producers of this relatively homogeneous product.

question

The short-run market supply curve in a price-taker industry equals the horizontal sum of the individual firm's

answer

MC curves above AVC

question

When a firm is operating in a price-taker market, marginal revenue is

answer

equal to price

question

Suppose wheat farmers are price takers. If wheat farmers are currently making economic profits, over time we would expect that

answer

existing wheat farmers would plant more acres of wheat and farmers growing other crops would switch some of their land from these crops to the growing of wheat

question

When an economist states that a firm is earning zero economic profit, this statement implies that the firm

answer

is doing as well as it could in any other line of business

question

When a competitive price-taker market is in long-run equilibrium

answer

the firms in the market will earn zero economic profit, the average total cost of the firms in the market will be minimized, and every unit of the relevant good that is valued more than its opportunity costs will be produced and sold.

question

In some industries, like insurance, both small and very large firms coexist and compete quite effectively in the market. This indicates that the long-run average total cost curve in these industries

answer

exhibits constant returns to scale over a wide range of output

question

"I'm losing money, but having invested so much in equipment, I simply cannot afford to shut down." If the firm were attempting to maximize profit, this decision may be

answer

correct if the firm is covering its variable costs and expects the price of its product to rise in the near future

question

In a competitive price taker market, a firm's short-run supply curve is its

answer

marginal cost curve above its average variable cost curve

question

In a competitive market, profit can be considered a reward to businesses that

answer

produce a good that consumers value more highly than its component resources

question

The competitive market process tends to promote economic prosperity because it

answer

directs self-interested action toward the production of goods that are highly valued relative to their cost

question

The firms in a competitive price-searcher market produce goods and services that are

answer

different from one another

question

A price searcher confronts a downward sloping demand curve because

answer

products in the market are differentiated

question

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

answer

Consumers value the wider variety of quality and styles in competitive price-searcher markets.

question

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

answer

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

question

Which of the following statements about price discrimination is correct

answer

A price discriminating firm will want to charge a higher price to the consumer group with the more inelastic demand

question

Which of the following statements is correct

answer

To maximize profit, a price discriminator distinguishes groups with different demands and charges higher prices to those with the more inelastic demand.

question

Entrepreneurial judgment requires

answer

the ability to discover new approaches or solutions to complex problems

question

Which is the best example of price discrimination

answer

airline ticket prices

question

Price searchers can be expected to charge a price that

answer

maximizes their profit

question

When entry barriers are low, firms in a competitive price-searcher market

answer

can expect competing firms to enter the market if the activity is profitable

question

Whenever firms can freely enter and exit a market

answer

profits and losses play an important role in determining the size of the industry

question

Which of the following is a characteristic of a contestable market

answer

Minimum-cost production methods

question

Which of the following is most vital if the firms in an industry are going to earn economic profit in the long run

answer

High barriers to entry into the industry

question

To gain from price discrimination, price searchers

answer

must charge a higher price to those with a more inelastic demand

question

A market will tend to be more competitive when

answer

similar products are available from alternative sellers

question

Licensing is a process in which a firm wanting to enter a market must

answer

obtain permission from the government to enter the market

question

Patent laws that allow the inventor to maintain monopoly rights to an invention increase the price of the product and

answer

increase the profitability of inventive activities, thereby speeding up technological developments.

question

Which of the following is true for a firm that is a monopolist

answer

The firm will produce a smaller quantity of output than what would be best from the viewpoint of ideal economic efficiency

question

Which of the following statements is true for a monopolist

answer

Unregulated monopolists can gain by producing their chosen output at a low cost

question

Which of the following is a characteristic of an oligopolistic industry

answer

Interdependence of a firm's price and output decisions

question

An oligopolistic firm that is deciding the price to charge, the output to produce, or the quality of product to offer, must consider

answer

the potential reactions of rivals in the market

question

Even though a cartel is often profitable for its members, cartel arrangements contain the seeds of their own disintegration because

answer

price maintained above each cartel member's marginal cost provides each member with an incentive to offer secret price reductions to attract additional customers; the profits earned by cartel members will induce others to enter the industry; and cartel members will attempt to garner more of the total profit for themselves by cheating on their agreement with other members

question

As Adam Smith indicated, the trouble with monopoly is that

answer

the monopolist "understocks" the market and charges too high a price

question

Which of the following is the best explanation of why a lack of information is a problem when the government wants to impose price regulation on a monopolist

answer

Regulators do not have information about the demand and marginal costs of the firms that they regulate

question

Which of the following is true under natural monopoly

answer

The marginal cost curve will lie below the average total cost curve.

question

If a local community has only one doctor, the monopoly power of the physician will

answer

be minimal if the entry barriers restricting competition from other physicians are low

question

Which of the following explains why firms in competitive price-searcher and competitive price-taker markets will both have zero economic profits in the long run but a monopoly will not

answer

In both competitive price-searcher and competitive price-taker markets, the barriers to entry are low; this is not true under a monopoly

question

In which of the following industries would we expect collusion to be most effective

answer

Crude oil production, where most oil is sold by a small number of large sellers

question

From the viewpoint of allocative efficiency, which of the following is a defect of pure monopoly

answer

the monopolist undersupplies the market and charges too high a price; The monopolist is a revenue maximizer not a profit maximizer; and A monopolist has little incentive to produce efficiently (at a low cost).

question

Under what conditions can a monopolist have potentially lower costs and possibly charge a lower price than would exist if the market were competitive

answer

When substantial economies of scale are present

question

a measure of costs that firms incur when all inputs vary

answer

long run costs

question

the condition of declining long run average costs
Fixed costs are less;Buy bigger factory to do more; Finding ways to do things more economically to save money, reduce waste, and maximize profit

answer

economies of scale

question

firms become too large to manage effectively

answer

diseconomies of scale

1 of 47

question

The dynamic process of competition

answer

provides consumers with alternative suppliers and thus a mechanism with which they can discipline sellers

question

In the short run, a profit-maximizing price taker will expand output as long as the market price exceeds

answer

marginal cost

question

Competitive price-taker markets are characterized by

answer

low entry barriers and a large number of firms selling a homogeneous product

question

Which of the following products would most closely fit the competitive price-taker model

answer

Eggs-there are many producers of this relatively homogeneous product.

question

The short-run market supply curve in a price-taker industry equals the horizontal sum of the individual firm's

answer

MC curves above AVC

question

When a firm is operating in a price-taker market, marginal revenue is

answer

equal to price

question

Suppose wheat farmers are price takers. If wheat farmers are currently making economic profits, over time we would expect that

answer

existing wheat farmers would plant more acres of wheat and farmers growing other crops would switch some of their land from these crops to the growing of wheat

question

When an economist states that a firm is earning zero economic profit, this statement implies that the firm

answer

is doing as well as it could in any other line of business

question

When a competitive price-taker market is in long-run equilibrium

answer

question

In some industries, like insurance, both small and very large firms coexist and compete quite effectively in the market. This indicates that the long-run average total cost curve in these industries

answer

exhibits constant returns to scale over a wide range of output

question

"I'm losing money, but having invested so much in equipment, I simply cannot afford to shut down." If the firm were attempting to maximize profit, this decision may be

answer

correct if the firm is covering its variable costs and expects the price of its product to rise in the near future

question

In a competitive price taker market, a firm's short-run supply curve is its

answer

marginal cost curve above its average variable cost curve

question

In a competitive market, profit can be considered a reward to businesses that

answer

produce a good that consumers value more highly than its component resources

question

The competitive market process tends to promote economic prosperity because it

answer

directs self-interested action toward the production of goods that are highly valued relative to their cost

question

The firms in a competitive price-searcher market produce goods and services that are

answer

different from one another

question

A price searcher confronts a downward sloping demand curve because

answer

products in the market are differentiated

question

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

answer

Consumers value the wider variety of quality and styles in competitive price-searcher markets.

question

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

answer

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

question

Which of the following statements about price discrimination is correct

answer

A price discriminating firm will want to charge a higher price to the consumer group with the more inelastic demand

question

Which of the following statements is correct

answer

To maximize profit, a price discriminator distinguishes groups with different demands and charges higher prices to those with the more inelastic demand.

question

Entrepreneurial judgment requires

answer

the ability to discover new approaches or solutions to complex problems

question

Which is the best example of price discrimination

answer

airline ticket prices

question

Price searchers can be expected to charge a price that

answer

maximizes their profit

question

When entry barriers are low, firms in a competitive price-searcher market

answer

can expect competing firms to enter the market if the activity is profitable

question

Whenever firms can freely enter and exit a market

answer

profits and losses play an important role in determining the size of the industry

question

Which of the following is a characteristic of a contestable market

answer

Minimum-cost production methods

question

Which of the following is most vital if the firms in an industry are going to earn economic profit in the long run

answer

High barriers to entry into the industry

question

To gain from price discrimination, price searchers

answer

must charge a higher price to those with a more inelastic demand

question

A market will tend to be more competitive when

answer

similar products are available from alternative sellers

question

Licensing is a process in which a firm wanting to enter a market must

answer

obtain permission from the government to enter the market

question

Patent laws that allow the inventor to maintain monopoly rights to an invention increase the price of the product and

answer

increase the profitability of inventive activities, thereby speeding up technological developments.

question

Which of the following is true for a firm that is a monopolist

answer

The firm will produce a smaller quantity of output than what would be best from the viewpoint of ideal economic efficiency

question

Which of the following statements is true for a monopolist

answer

Unregulated monopolists can gain by producing their chosen output at a low cost

question

Which of the following is a characteristic of an oligopolistic industry

answer

Interdependence of a firm's price and output decisions

question

An oligopolistic firm that is deciding the price to charge, the output to produce, or the quality of product to offer, must consider

answer

the potential reactions of rivals in the market

question

Even though a cartel is often profitable for its members, cartel arrangements contain the seeds of their own disintegration because

answer

question

As Adam Smith indicated, the trouble with monopoly is that

answer

the monopolist "understocks" the market and charges too high a price

question

Which of the following is the best explanation of why a lack of information is a problem when the government wants to impose price regulation on a monopolist

answer

Regulators do not have information about the demand and marginal costs of the firms that they regulate

question

Which of the following is true under natural monopoly

answer

The marginal cost curve will lie below the average total cost curve.

question

If a local community has only one doctor, the monopoly power of the physician will

answer

be minimal if the entry barriers restricting competition from other physicians are low

question

Which of the following explains why firms in competitive price-searcher and competitive price-taker markets will both have zero economic profits in the long run but a monopoly will not

answer

In both competitive price-searcher and competitive price-taker markets, the barriers to entry are low; this is not true under a monopoly

question

In which of the following industries would we expect collusion to be most effective

answer

Crude oil production, where most oil is sold by a small number of large sellers

question

From the viewpoint of allocative efficiency, which of the following is a defect of pure monopoly

answer

question

Under what conditions can a monopolist have potentially lower costs and possibly charge a lower price than would exist if the market were competitive

answer

When substantial economies of scale are present

question

a measure of costs that firms incur when all inputs vary

answer

long run costs

question

the condition of declining long run average costs
Fixed costs are less;Buy bigger factory to do more; Finding ways to do things more economically to save money, reduce waste, and maximize profit

answer

economies of scale

question

firms become too large to manage effectively

answer

diseconomies of scale

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Microeconomics Test 4

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