Chapter 10 Study Guide

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CHAPTER 10
PRICE-SEARCHER MARKETS WITH LOW ENTRY BARRIERS
QUESTIONS 1 THROUGH 10 ARE A SUGGESTED CHAPTER QUIZ.
1.In a competitive price-searcher market, the firms will
a.be able to choose their price, and the entry barriers into the market will be low.
b.be able to choose their price, and the entry barriers into the market will be high.
c.have to accept the market price for their product, and the entry barriers into the market will be low.
d.have to accept the market price for their product, and the entry barriers into the market will be high. 2.A profit-maximizing price searcher will expand output to the point where
a.total revenue equals total cost.
b.marginal revenue equals marginal cost.
c.price equals average total cost.
d.price equals marginal cost.
3.In the long run, neither competitive price takers nor competitive price searchers will be able to earn economic profits because
a.entry barriers into these markets are high, raising the costs of each firm.
b.the government will dictate moderate prices for these firms.
c.competition will force prices down to the level of per-unit production costs.
d.marginal revenue is always less than marginal cost when barriers to entry are low. 4.If firms in a competitive price-searcher market are currently earning economic losses, then in the long run,

a.new firms will enter the market, and the current firms will experience a decrease in demand for their products until zero economic profit is again restored.
b.new firms will enter the market, and the current firms will experience an increase in demand for their products until zero economic profit is again restored.
c.some existing firms will exit the market, and the remaining firms will experience an increase in demand for their products until zero economic profit is again restored.
d.some existing firms will exit the market, and the remaining firms will experience a decrease in demand for their products until zero economic profit is again restored. 5.As long as a market is contestable, then even if it has only a few sellers, the

a.threat of new entrants will prevent the 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. 6.Entrepreneurial judgment
a.is necessary to make business decisions when no fixed decision rule can be used.
b.is fully incorporated into modern economic models of business behavior.
c.requires decision makers to follow carefully defined rules regarding uncertainty, discovery, and business judgment.
d.requires government advice and regulation.
7.Compared to the outcome when the firms are price takers, competitive price-searcher markets will result in
a.a wider variety of products and higher prices.
b.less product variety and higher prices.
c.a wider variety of products and lower prices.
d.less product variety and lower prices.
8.If a market is in long-run equilibrium, which of the following conditions will be present in a competitive price-taker market but absent from a competitive price-searcher market?
a.P = ATC
b.MR = MC
c.P = MC
d.MR < P
9.The strategy underlying price discrimination is
a.to charge higher prices to customers who have good substitutes available to them and lower prices to customers without many substitutes available to them..
b.to charge everyone the same price but limit the quantity they are allowed to buy.
c.to 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.to reduce per-unit cost by charging higher prices to those with the most inelastic demand and lower prices to those with the most elastic demand. 10.If a...
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