West Virginia University

ASP 220

CH. 9

REVIEW QUESTIONS

1)Which of the following is a primary difference between price searchers and price takers?

1. 1. Price searchers maximize profits, but price takers do not.
   2. Price searchers have to cut their price to sell additional output, but price takers do not.
   3. The market demand for goods produced by price searchers is downward sloping, while the market demand for goods produced by price takers is horizontal.
   4. Profit-maximizing price searchers will expand output to the quantity where marginal revenue equals marginal cost, but price takers will not.
2. In competitive price-taker markets, firms
   1. can sell all of their output at the market price.
   2. produce differentiated products.
   3. can influence the market price by altering their output level.
   4. are large relative to the total market.
3. When we say that a firm is a price taker, we are indicating that the
   1. firm takes the price established in the market then tries to increase that price through advertising.
   2. firm can change output levels without having any significant effect on price.
   3. demand curve faced by the firm is perfectly inelastic.
   4. firm will have to take a lower price if it wants to increase the number of units that it sells.

4. In price-taker markets, individual firms have no control over price. Therefore, the firm’s marginal revenue curve is
   1. a downward-sloping curve.
   2. indeterminate.
   3. constant at the market price of the product.
   4. precisely the same as the firm’s total revenue curve.
5. If marginal revenue exceeds marginal cost, a price-taker firm should
   1. expand output.
   2. reduce output.
   3. lower its price.
   4. do both a and c.
6. When firms in a price-taker market are temporarily able to charge prices that exceed their production costs,
   1. the firms will earn long-run economic profit.
   2. additional firms will be attracted into the market until price falls to the level of per-unit production cost.
   3. the firms will earn short-run economic profits that will be offset by long-run economic losses.
   4. the existing firms must be colluding or rigging the market, otherwise, they would be unable to charge such high prices.
7. When market conditions in a price-taker market are such that firms cannot cover their production costs,
   1. the firms will suffer long-run economic losses.
   2. the firms will suffer short-run economic losses that will be exactly offset by long-run economic profits.
   3. some firms will go out of business, causing prices to rise until the remaining firms can cover their production costs.
   4. all firms will go out of business, since consumers will not pay prices that enable firms to cover their production costs.
8. When the price of a product rises, the increase in quantity supplied will generally be greater in the long run than the short run because
   1. producers maximize short-run, not long-run, profits.
   2. over time, new firms will enter the industry and old firms will expand their operations in response to the price increase.
   3. consumers are less resistant to higher prices in the long run than in the short run because they have fewer options in the long run.
   4. consumer income will expand in the long run, causing resource prices to rise, which will induce producers to increase output.
9. If occupational safety laws were changed so that firms no longer had to take expensive steps to meet regulatory requirements, we would expect
   1. the demand for the products of this industry to increase.
   2. the market price of the products of this industry to decrease in the short run but not in the long run.
   3. the firms in the industry to make long-run economic profit.
   4. competition to force producers to pass the lower production costs on to consumers in the long run.