Chapter 10
Q: 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.
Q: In order to prosper, entrepreneurs must
A: undertake projects that create wealth and increase the value of resources.
Q: Price discrimination refers to a system of pricing
A: where consumer groups with a more elastic demand for the product are charged lower prices.
differentiated products
Products distinguished from similar products by characteristics like quality, design, location, and method of promotion.
Q: Which of the following variables is left out of the simple economic model of the firm?
A: the entrepreneurial decision-making process
Q: 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: reduce its price and increase
monopolistic competition
A term often used by economists to describe markets characterized by a large number of sellers that supply differentiated products to a market with low barriers to entry. Essentially, it is an alternative term for a competitive price-searcher market.
Q: Which of the following about price discrimination is true?
A: A price-discriminating seller will charge consumers with an elastic demand a lower price than
Q: Which of the following is a necessary condition for price discrimination to be profitable?
A: Groups of consumers with different demand elasticities must be easily distinguishable.
Q: Which of the following would be most likely if firms in a competitive price-searcher market were earning economic profit?
A: New firms would enter the market, resulting in fewer sales by existing firms.
Q: Why do airlines often charge students and vacationers a lower price than business travelers?
A: The demand of students and vacationers is generally more elastic than the demand of business travelers.
Q: 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 zero economic profits in the long run.
Q: Price discrimination occurs when
A: a seller charges different prices to different consumers for the same product or service.
Q: Economic analysis suggest that in a competitive market economy, when an entrepreneur has made a large profit,
A: economic progress for society as a whole has normally been enhanced.
Q: In a market economy, profits
A: encourage productive projects and losses weed out unproductive ones.
Q: The term price searcher applies to all firms that
A: face a downward-sloping demand curve
Q: Some economists argue that competitive price-searcher markets are inefficient because
A: firms do not produce the output rate that would minimize their average total costs
Q: A contestable market is a market
A: in which the costs of entry and exit are low.
Q: 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 price and reduce its rate of output
Q: 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: less than $22
Q: A competitive price-searcher market is best describe
A: many firms with some control over price, and some product differentiation.
Q: 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: monopolistic competition
Q: A practice whereby a seller charges different prices to different consumers of the same product or service is called
A: price discrimination
Q: Competitive price-searcher markets are common in
A: retail selling
competitive price-searcher markets
encourage productive projects and losses weed out unproductive ones.