Question 1

If a technological advance lowers a firm's production costs, why do prices typically fall? Shouldn't the firm maintain the same price and earn economic profit?

Accepted Answer

The answer of If a technological advance lowers a firm's...

Question 2

Tom, a math major, examines Jane's economics class notes and observes that when price-taking firms earn economic profit, they do not seem to produce a quantity that minimizes their costs. Is he correct? Is there significance to this observation?

Accepted Answer

The answer of Tom, a math major, examines Jane's economics...

Question 3

Figure 9-17 
-Which of the following statements about the competitive price-taker firm represented in Figure 9-17 is false?

Accepted Answer

The answer of Figure 9-17 
-Which of the following statements...

Question 4

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

Accepted Answer

Profit is a reward for businesses that efficiently allocate resources to produce goods that consumers value more than the cost of the resources used, indicating successful value creation.

Question 5

If the demand for pizza falls, pizza suppliers will suffer economic losses, and some firms will leave the industry. Why is this considered good? Shouldn't we feel sorry for these business owners?

Accepted Answer

The answer of If the demand for pizza falls, pizza...

Question 6

Regarding costs of production, can a firm ever be at a point that is not on the marginal cost curve? Explain.

Accepted Answer

The answer of Regarding costs of production, can a firm...

Question 7

If the model of price-taking firms is so unrealistic and restrictive, why study it?

Accepted Answer

The answer of If the model of price-taking firms is...

Question 8

Even if a firm is optimistic about the future, why should it shut down if it cannot cover its variable cost? If it does shut down, are there ramifications not mentioned in the textbook?

Accepted Answer

The answer of Even if a firm is optimistic about...

Question 9

The competitive price-taker model is usually used to illustrate the competitive process. If firms cannot choose their price, where is the competition?

Accepted Answer

The answer of The competitive price-taker model is usually used...

Question 10

Why is it considered "ideal" for price to just equal marginal cost?

Accepted Answer

The answer of Why is it considered "ideal" for price...

Question 11

Amy runs a business in a market where all firms are price takers. Bill suggests that she lower her price to attract even more business. Should Amy follow Bill's suggestion, or should she even consider raising her price?

Accepted Answer

The answer of Amy runs a business in a market...

Question 12

The ability of price-taker firms to freely expand or contract their businesses and to enter or exit the market means that

Accepted Answer

Free entry and exit in a market ensures that resources can move to where they are most valued, preventing them from being trapped in less productive uses.

Question 13

Figure 9-15  
-At which price and quantity is profit maximized for the competitive price-taker firm represented in Figure 9-15?

Accepted Answer

In a competitive market, a price-taker firm maximizes profit where marginal cost equals marginal revenue. At $8 and 70 units, this condition is met.

Question 14

When competition is present, self-interested business decision makers have a strong incentive to

Accepted Answer

Competition forces businesses to produce efficiently to offer better prices and quality to attract customers, as failing to do so would result in losing market share to competitors.

Question 15

When the demand for a product falls, why do costs of production go down in an increasing cost industry?

Accepted Answer

The answer of When the demand for a product falls,...

Question 16

Figure 9-14 
-Consider Figure 9-14. At which quantity will this firm maximize profit?

Accepted Answer

The answer of Figure 9-14 
-Consider Figure 9-14. At which...

Question 17

The competitive market process tends to promote economic prosperity because it

Accepted Answer

The competitive market process promotes economic prosperity by aligning self-interested actions with the production of goods and services that are valued more than their cost, thus efficiently allocating resources.

Question 18

Which of the following is a residual reward that accrues to business decision makers who use resources so as to increase their value?

Accepted Answer

Economic profit is the residual reward for business decision makers after accounting for all costs, including opportunity costs, indicating the value added by their decisions.

Question 19

Figure 9-16 
-If the price-taker firm in Figure 9-16 is currently producing 6 units, then to maximize profit in the short run, it should

Accepted Answer

The answer of Figure 9-16 
-If the price-taker firm in...

Question 20

If a price taker in a competitive market is going to maximize profits, he must

Accepted Answer

A price taker maximizes profits by minimizing per-unit costs, as they cannot influence the market price.

Quiz 9: Price Takers and the Competitive Process