MICRO CHAPTER 10

Even though firms in competitive price-searcher markets do not produce at minimum ATC, competitive price-searcher markets may still be consistent with economic efficiency because A. strict government regulations force the firms in these markets to keep their costs low. B. they provide consumers with a greater diversity of products. C. they encourage more advertising in both price-searcher and price-taker markets. D. special legal protections for price searchers make it possible for them to more efficiently use resources.

B.

If a contestable market has only one seller, which of the following will keep the seller from producing inefficiently and charging a price that generates long-run economic profits? A. government regulations B. low costs of entry into and exit from the market C. substantial economies of scale that provide a competitive advantage to large firms in such markets D. the threat of a government takeover of the firms in these markets

B.

Price discrimination occurs when A. firms maximize their profit by setting price equal to marginal cost. B. a seller charges different prices to different consumers for the same product or service. C. a seller charges the same price to consumers for a different product or service. D. a seller charges different prices to consumers, discriminating by race or gender of the consumer.

B.

Which of the following is a necessary condition for price discrimination to be profitable? A. All consumers must have an identical demand for the product. B. Groups of consumers with different demand elasticities must be easily distinguishable. C. The market demand for the product must be highly elastic. D. It must be possible for buyers to resell the product at a low cost.

B.

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

C.

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

C.

Part of the entrepreneurial process in a competitive market economy involves A. obtaining governmental control over the market so that a new product has some chance of being successful. B. knowing from the start the proper output and price to set for each new product. C. choosing the best structure, size, and scope of production for the firm to produce a new product. D. knowing in advance with certainty what products consumers will want to buy.

C.

Some economists argue that competitive price-searcher markets are inefficient because A. the firms earn economic profits in the long run. B. the firms' marginal costs and marginal revenues are not always equal. C. firms do not produce the output rate that would minimize their average total costs. D. barriers to entry are high.

C.

The strategy underlying price discrimination is to A. charge higher prices to customers who have better access to substitutes. B. charge everyone the same price but limit the quantity they are allowed to buy. C. increase total revenue by charging higher prices to those with the most inelastic demand for the product and lower prices to those with the most elastic demand. D. reduce per-unit cost to the firm by charging higher prices to those with the most inelastic demand and lower prices to those with the most elastic demand.

C.

The traditional view of competitive price-searcher markets holds that this type of market structure is inefficient because A. there are too few firms to reach an efficient level of competition. B. barriers to entry are high. C. excessive advertising is encouraged. D. consumers are not allowed a sufficient amount of choice in which to express their individual preferences.

C.

A major fruit juice manufacturer failed in its attempt to engage in price discrimination between students and all other consumers. What is the most likely explanation for this failure? A. There was nothing to prevent the students from reselling the fruit juice to other consumers. B. The two groups of consumers have different demand elasticities for fruit juice. C. The cost of producing the product is relatively high. D. Market demand for fruit juice is inelastic.

A.

If a movie theater is going to gain by charging students a dollar less than other customers, A. the demand of students must be more elastic than that of other customers. B. the demand of students must be less elastic than that of other customers. C. students must have higher incomes than other customers. D. other customers must enjoy movies more than students.

A.

In a market economy, profits A. encourage productive projects and losses weed out unproductive ones. B. discourage productive projects and losses encourage unproductive ones. C. reduce the value of resources while losses increase their value. D. indicate that producers gain at the expense of consumers.

A.

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. B. producers will be able to charge prices that are high enough to produce long-run economic profits. C. producers will not face new competition because the barriers to entry are high. D. market will never be expected to come close to the competitive result.

A.

The term price searcher applies to all firms that A. face a downward-sloping demand curve. B. face an upward-sloping demand curve. C. operate in a purely competitive environment. D. purchase resources in a noncompetitive market.

A.

When profits exist in a competitive price-searcher market, A. rival firms will be attracted into the market. B. high barriers to entry will prevent rival firms from entering the market. C. product differentiation will prevent new firms from making a profit. D. the profits will persist because the firms face a downward-sloping demand curve.

A.

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 consumers with an inelastic demand. B. A firm must face a horizontal demand curve for its product in order to engage in effective price discrimination in a market. C. Price discrimination always harms consumers and helps sellers in the short run but in the long run, consumers benefit at the expense of sellers. D. A seller must have a monopoly in order to gain from price discrimination.

A.

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. change neither its price nor its output level B. reduce its price and increase its output level C. increase its price and reduce its output level D. reduce both its price and its output level E. increase both its price and its output level

B.

Which of the following variables is left out of the simple economic model of the firm? A. the marginal cost of production B. consumer tastes and preferences C. the fact that many firms actually earn profits D. the entrepreneurial decision-making process

D.