S.6 Economics/ Price-taker Market/ P.1
S.6 Price-taker Market
[87.5] When economists say that a competitive firm faces a perfectly elastic demand curve, the
mean
A.
B.
C.
D.
[87.25
]
the firm will sell an infinite quantity of output at the going price.
the law of demand is rejected.
all variations in output the firm can make will leave the price unaffected.
the good is not a necessity because the quantity demanded will be zero at a higher price.
Suppose in a price-taking industry, the market price of a product is $6. A firm is
producing output at the point where the average total cost equals the marginal cost, both
of which are $8. The average variable cost is $5. In order to maximize wealth, the firm
will
A.
B.
C.
D.
[90.6]
keep on producing but reduce its output.
produce zero output.
leave its output unchanged.
increase its selling price.
The long-run equilibrium of a price-takers’ market is characterized by
A. no price fluctuation from time to time.
B. a lower price at the margin than under a price-searcher’s market, irrespective of the
pricing structure.
C. no entry of new firms into the market.
D. All of the above.
[91.6] In a price-takers’ market,
A. a firm will produce at an output level when its marginal revenue is greater than its price.
B. a firm faces a perfectly elastic demand curve at a price determined in the market.
C. the wealth maximizing output for a firm occurs when the total revenue and total cost
curves intersect.
D. all firms are selling homogeneous products.
92.25. The imposition of a lump-sum tax on each firm in a price-takers market will
A decrease the number of firms in the market.
B increase the output of each firm that remains in business.
C increase the market price of the output.
D All of the above.
93.23.
If the average variable costs constant, the firm’s short run supply curve is
A A horizontal line.
B The rising portion of the marginal cost curve.
C The rising portion of the average cost curve.
D The rising portion of the marginal cost curve above the minimum point of the
average cost curve.
95.10. Under competitive market equilibrium, all firms have the same
A Marginal cost of production.
B
C
Total cost of production.
Imputed rent.
D
Level of output.
S.6 Economics/ Price-taker Market/ P.2
95.14.
When all markets are perfectly competitive, resource allocation is said to be efficient because
A The marginal use value equals the marginal rate of substitution.
B The marginal use value equals the marginal cost of production.
C The marginal use value for the last dollar spent on each good is equal for all consumers.
97.16.
D The economy is producing on its production possibility frontier.
An increase in demand for a product in a price-takers’ market will lead to
A The expansion of production of existing firms.
B An increase in the number of firm in the industry.
C A higher market price in an increase-cost industry.
D All of the above.
98.29.
99.13.
The demand curve facing a price-taker is perfectly elastic. This implies that
A
The market price will not change.
B
C
The law of demand cannot be applied in the price-takers industry.
The market price will not decrease even when a seller increases his input.
D
All of the above.
For a constant-cost industry in a long-run competitive equilibrium, an increase in the market
demand for its product.
A Increase only the quantity supplied.
B
C
01.29.
03’11.
Increase only the market price.
Increase both the market price and the quantity supplied.
D Decreases the market price but increases the quantity supplied.
Which of the following comes closest to a product sold in a price-takers’ market?
A
B
Jade
Gold
C
D
Diamond
Pearl
In production, resource allocation is said to be efficient when
A
The marginal cost of production equals the marginal use value.
B
C
The marginal use value equals the product price.
The marginal cost of production equals the marginal revenue.
D The marginal cost of production equals the average cost of production.
04’12. A firm is said to be a price-taker if
A It has the same cost curves as other competing firms.
B It cannot alone decide on its output level.
C It cannot ask a price higher than the market price and expect to survive.
D It receives no rent.
S.6 Economics/ Price-taker Market/ P.3
06.16. In long run competitive equilibrium where not all firms are identical, none of the firms in an
industry will be earning anything above cost. This is because
A. some firms are earning rents, and rent is a part of cost.
B.
C.
some intramarginal firms are making profits.
the supply curve of the industry is horizontal.
D.
All of the above.
07.14 Which of the following statement is correct?
A. A price taker stays in the market so long as price equals marginal cost.
B. A price taker may earn a positive rent.
C. A price searcher earns a monopoly rent as long as it produces at the inelastic region of the market
demand curve.
D. A price searcher tends to make more money than a price taker.
84.9 In long-run competitive equilibrium, a firm operates at the lowest point of the average cost curve;
that is, where P=MR=MC=AC.
(a) Why should this firm continue in business since it makes no profit? (8)
(b) Suppose the market demand for this industry rises. Assuming that factor prices remain constant,
what happens to market supply if
(i) there is no entry of new firms?
(ii) there is entry of new firms?
87.4
91.8
Under long-run competitive equilibrium, a marginal firm operates at a point when the price
of the product equals the average cost. Why does this firm stay in business? (8 marks)
For each of the following, say whether it is True, False, or Uncertain. You must explain your
choice, otherwise you will receive no mark at all.
(b) If at a prevailing equilibrium price every firm in a competitive industry is earning zero profit,
then a fall of this price means that all firms will go out of business. (8 marks)
00.9
At present, most medical practitioners (doctor) in Hong Kong provide consultation as well as
medicine(drugs) to patients and charge each patient a lump-sum payment. However, in many
western countries, doctors usually provide consultation alone; patient have to buy medicines from
pharmacists or drugstores. It has been suggested that Hong Kong should follow the practice of
these western countries.
(a)
If the western practice is adopted, will there be any difference in a patient’s total medical
expense on both doctor’s consultations and medicine
(i)
If doctor are price-takers?
01.9 The jimmy Lai paradox
Hong Kong businessman Jimmy Lai operated adM@rt, which sold and delivered goods to
S.6 Economics/ Price-taker Market/ P.4
customers after they placed orders by telephone or through the Internet. After experiencing heavy
losses, adM@rt tries to cut losses by reducing the level of operation, and was faced with the
following paradox: the total loss roughly equalled the total revenue regardless of the level of sales.
What is paradoxical here is not that total loss equalled total revenue, but the ration of loss to
revenue, i.e., the loss ratio, remained roughly constant over a wide range of sales volume: adM@rt
lost $1.00 for $1.00 of revenue, and other major similar operator in the United States lost 40 cents
on the dollar, also at varying levels of sales.
(a)
Grouping together the good adM@rt sold or treating them as one good, draw its average and
marginal cost curves, and the demand curve and the marginal revenue curve facing adM@rt to
(b)
show the constant loss ratio as described.
(4 marks)
Did adM@rt come closer to being a competitive firm than a monopolistic firm? Why? What
(c)
was the nature of the products adM@rt was selling? (3 marks)
In its range of sales volume, was adM@rt operating at constant, increasing or decreasing cost?
Why?
(3 marks)