1. The short-run supply curve is more inelastic than the
long-run supply curve
a. resources are generally cheaper in the short run.
b. in the short run new firms will enter the industry, driving up the prices of
c. consumers are willing to pay higher prices to obtain the commodity now, rather
than wait until prices fall.
d. firms have less time to plan and vary all of their productive inputs in the
short run; thus, per-unit costs will be higher.
2. In competitive price-taker markets, firms are assumed to be producing
a. identical products.
b. small products.
c. large products.
d. differentiated products.
3. When we say that a firm is a price taker, we are indicating that
a. the firm takes the price established in the market then tries to increase that
price through advertising.
b. the firm can increase or decrease its rate of production and sales without
having any significant effect on the price of the product it sells.
c. the demand curve faced by the firm is perfectly inelastic.
d. the 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
b. a downward-sloping curve.
c. constant at the market price of the product.
d. precisely the same as the firm's total revenue curve.
5. If marginal cost exceeds marginal revenue, a price-taker firm should
a. expand output.
b. reduce output.
c. lower its price.
d. Both a and c are correct.
6. When firms in a price-taker market are temporarily charging prices that exceed
their production costs, the firms
a. will earn long-run economic profit.
b. will expand the scale of their operation and additional firms will enter the
industry until price falls to the level of per-unit production cost.
c. will earn short-run economic profits that will be offset by long-run economic
d. must be colluding or rigging the market, or 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, then
a. the firms will suffer long-run economic losses.
b. the firms will suffer short-run economic losses that will be exactly offset by
long-run economic profits.
c. some firms will go out of business, causing prices to rise until the remaining
firms can cover their production costs.
d. 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
a. producers maximize short-run, but not long-run, profits.
b. over time, new firms will enter the industry and old firms will expand their
operations in response to the price increase.
c. consumers are less resistant to higher prices in the long run than in the short
d. 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 that
a. the demand for the products of this industry would increase.
b. the market price of the products of this industry would decrease in the short
run but not in the long run.
c. the firms in the industry would make long-run economic profit.
d. competition would force producers to pass the lower production costs on to
consumers in the long run.
10. "Our marginal revenue exceeds our marginal costs at current factor prices." This
statement indicates that
a. an expansion in output will increase revenues more than costs.
b. the firm is maximizing its profit.
c. a larger output will reduce the firm's profit.
d. the firm is better at marketing its goods than it is at producing efficiently.