Price-searcher markets with low entry barriers

Price-searcher markets refer to firms competing based on price and quality rather than advertising, promotion, or brand recognition. These markets are characterized by low barriers to entry, which means that firms can quickly enter and exit the market, and new firms can quickly establish themselves.

One of the key benefits of price-searcher markets is that they promote competition, which leads to lower prices and higher quality for consumers. In these markets, firms have to compete with each other to win customers, and as a result, they have to continuously innovate and improve their products to stay ahead of the competition. This creates a virtuous cycle of innovation, improvement, and increased consumer satisfaction.

Another benefit of price-searcher markets is that they provide consumers with more choices. When there are low barriers to entry, new firms can quickly enter the market and offer new products or services, giving consumers more options. This can also drive down prices as firms compete to offer the best deals.

However, price-searcher markets can also have some drawbacks. For example, in some cases, the intense competition can lead to lower profit margins for firms, making it more difficult for them to invest in research and development or maintain their operations. This can ultimately reduce the quality of products and services in the market and limit the number of choices available to consumers.

In conclusion, price-searcher markets are characterized by low barriers to entry, which promote competition, lower prices, and increased quality for consumers. While these markets can have some drawbacks, they provide a valuable model for competition that can drive innovation and benefit consumers. It is essential for policymakers to consider the benefits and drawbacks of price-searcher markets when developing regulations and policies that affect these markets.

1.Firms in a competitive price-searcher market:

face a downward-sloping firm demand curve

produce identical products

face high barriers to entry and exit

sell at a market-determined price they cannot change

2.The process by which the creation of a new product leads to the obsolescence of one or more existing products is called:

creative destruction

systematic regeneration

invigoration dynamics

strategic failure

3.The profit-maximizing price for a price searcher is found by the:

height of the marginal cost curve at the output level where price equals average total cost

height of the demand curve at the output level where marginal cost equals marginal revenue

height of the marginal revenue curve at the output level where price equals marginal cost

point where the demand curve intersects the vertical axis

4.Contestable markets are ones in which:

firms may enter and exit easily with minimal cost due to low entry barriers

a monopoly results due to the inability of other firms to enter

firms earn positive long-run economic profits

a contest is held by a government agency to see which firms are allowed to enter with the licenses it grants

5.The long-run equilibrium price for a firm in a competitive price-searcher market is:

equal to the average total cost of production

higher than the average total cost of production

lower than the marginal cost of production

equal to the marginal cost of production

6.Firms in a competitive price-searcher market:

face high barriers to market entry and exit

produce identical (homogeneous) products

produce differentiated products that are close substitutes

earn positive economic profits in the long run

7.Which of the following conditions will allow a firm in a contestable market to enter and exit the market with relative ease?

Easy transfer and mobility of the resources used in production to other uses

High barriers to entry such as government licensing

Increasing returns to scale in production

High fixed cost of production

8.Which of the following is true for both price-taker and competitive price-searcher markets?

Firms in both these markets face a highly inelastic demand curve

Firms in both these markets charge a price that is higher than marginal revenue

Firms in both these markets earn zero economic profit in the long run

Firms in both these markets earn positive economic profit in the long-run

9.In a contestable market in the long run

a single firm will always dominate the market

firms will earn positive economic profit

increasing returns to scale will always be present

zero economic profit will be present

10.Which of the following strategies could a competitive price-searcher firm use to possibly increase the demand for (and sales of) its product?

Raising price

Advertising

Restricting output

Exiting the market

11.A price searcher will be unable to benefit from price discrimination if:

it cannot prevent consumers charged a lower price from reselling their products to consumers charged a higher price

different easily identifiable consumer groups have different price elasticities of demand

it cannot expand output in response to an increase in market demand

it cannot prevent consumers charged a lower price from buying substitute products from a rival firm

12.The best example of a contestable market among those listed is the market for:

hospitals

restaurants

nuclear power generation

airplane manufacturing

13.Another term sometimes used for a competitive price-searcher market is:

pure competition

duopoly

oligopoly

monopolistic competition

14.An example of price discrimination would be:

an auto dealer charging a higher price for a new car than a used car with high mileage of the same model

higher prices for larger sized drinks than smaller sized drinks at a fast food restaurant

colleges offering scholarships to students with high grades or who play sports

companies offering higher wages to employees with higher levels of education and productivity

15.15. An example of a competitive price-searcher firm would be:

a local fine-dining restaurant in a large city

a local electric company that is the only supplier of electric power in a county

a small wheat farmer who produces the same wheat as other farmers

an alcohol distributor in a state that controls and limits entry and exit into the industry through government licensing

16.Movie theaters often price discriminate by selling tickets at lower prices for groups such as senior citizens, students, military, and children. Which of the following is true if this is a profit maximizing strategy?

The groups receiving the lower price must have a higher price elasticity of demand

It must be hard to identify which customers belong to these groups and which do not

Total revenue to the movie theater must be lower than it would be if they charged everyone the same price

Movie theaters must be price-taker firms

17.Price discrimination is beneficial because:

it reduces allocative efficiency

it increases market demand for a product

it reduces the total cost of production

it increases the total number of exchanges in a market

18.In the long run, firms in a contestable market:

face a perfectly inelastic demand curve

earn positive economic profit

charge a price that is equal to the average total cost of production

experience economies of scale

19.The demand curve faced by a firm in a competitive price-searcher market:

lies above the marginal revenue curve

is highly price inelastic

is equal to the marginal revenue curve

is the same as the marginal cost curve

20.Which of the following is true when comparing the outcomes for profit-maximizing price taker and competitive price-searcher firms?

Price takers earn positive economic profits in the long run but competitive price searchers only earn zero economic profit

Price takers equate marginal revenue and marginal cost to maximize profit, competitive price searchers do not

Price takers receive a price equal the marginal cost of production, competitive price searchers have a price higher than marginal cost

Price takers do not produce where ATC is minimized but competitive price searchers do in the long run

21.The practice in which a seller charges different consumers different prices for the same product or service is called

arbitrage

lobbying

predatory pricing

price discrimination

22.When a price searcher is in long-run equilibrium, the firm’s output will be:

less than the level that minimizes the average total cost of production

less than the level that equates marginal cost and marginal revenue

equal to the level that minimizes the average total cost of production

more than the level that minimizes the average total cost of production

23.Which of the following holds true in a contestable market?

In such a market, price must be above average total cost at all output levels

In such a market, production must exhibit increasing returns to scale

In such a market, economic profit will be zero in the long run

In such a market, marginal revenue must be more than marginal cost at all output levels

24.An important characteristic of contestable markets is:

government regulated prices

high economic profits for sellers in the long run

the licensing of firms by government agencies

efficient production and zero economic profits in the long run

25.A firm sells 5 units of output at a price of $8 per unit. If it desires to sell 6 units it must lower price to $7 per unit. The marginal revenue of the sixth unit is:

$42

26.In the long run, the equilibrium price level in both price-taker and competitive price-searcher markets is equal to:

the average total cost of production

the total variable cost of production

the total fixed cost of production

the marginal cost of production

27.Which of the following will happen in the long run if firms in a competitive price-searcher market are earning positive short-run economic profit?

Some of the existing firms will exit the market in the long run due to losses

They will continue to earn positive economic profit in the long run

The excess profit will be spent on advertising expenditures

New rival firms will enter the market in the long run

28.A price searcher will benefit from price discrimination if:

it can produce at the minimum average total cost

the supply curve for its product is perfectly inelastic

it experiences economies of scale in production

it can identify consumer groups with different elasticities of demand

29.If a price searcher charges a higher price to a consumer group with an inelastic demand, and a lower price to a consumer group with a more elastic demand for its product, its:

marginal revenue will decrease

total revenue will increase

economic profit will fall to zero

fixed cost of production will increase

30.For consumers, competitive price-searcher markets likely result in higher prices than if the good was produced in a price taker market. Which of the following is a potentially offsetting benefit of production in a competitive price-searcher market?

A greater variety and diversity of products available to consumers

Higher stock prices for shareholders due to higher rates of long-run economic profit

Fewer firms and types of products to choose from making it less time consuming for consumers to comparison shop across firms

Only competitive price searchers experience economies of scale in production

31.A firm can either sell 100 units of output at a single price of $20 to all customers, or it can price discriminate selling 40 units at a price of $40 to one group of customers and 80 units at $10 to a second group. By price discriminating:

total revenue decreases by $400 and total output decreases by 20 units

total revenue decreases by $400 and total output increases by 20 units

total revenue increases by $400 and total output increases by 20 units

total revenue increases by $400 and total output decreases by 20 units

32.A price searcher maximizes its profits in the short run by producing an output for which:

total revenue is equal to total cost

average revenue is equal to average cost

marginal revenue is equal to marginal cost

marginal revenue is equal to average revenue

33.A firm in a competitive price-searcher market:

produces products identical to other firms in the industry

will lose all of its sales if it raises price even slightly

cannot exit the industry easily due to barriers to market exit

can raise or lower price, but its sales will decrease or increase in response to the price change

34.The demand curve faced by a price taker is:

vertical, while that faced by a competitive price searcher is upward sloping

vertical, while that faced by a competitive price searcher is downward sloping

horizontal, while that faced by a competitive price searcher is upward sloping

horizontal, while that faced by a competitive price searcher is downward sloping

35.Which of the following is true for firms in a competitive price-searcher market but not those in a price-taker market in the long run?

Price higher than marginal cost

Marginal revenue equal to marginal cost

Zero economic profit

Price higher than average total cost

36.The marginal revenue for a price searcher will always be:

less than the level of output

more than total revenue

less than marginal cost

less than the price it charges

37.An entrepreneur:

monitors the work of other employees as directed by the management of a company

manages the financial risks of a company but does not participate in the central decision-making process of the company

holds a few stocks of a company and is entitled to a share of the company profits, but does not participate in daily operations and management

finds new combinations of resources and creates products and production methods that did not previously exist

38.Which of the following is not one of the things that must be true for a firm to be able to successfully price discriminate?

The firm must be able to prevent those who buy at the low price from reselling to the customers charged higher prices

The firm can identify and separate at least two groups of customers with differing elasticities of demand

The firm is a price taker who must take the market price as given but can sell all output at the market price

The firm must be a price searcher and face a downward sloping demand curve for its product

39.Which of the following is true for the competitive price-searcher firm illustrated in the accompanying figure?

The firm is earning an economic loss, and some firms in the industry will likely shut down in the long run

The firm is earning a short run economic profit of $600

The firm will produce 180 units of output to maximize profit

The firm is earning zero economic profit and the market is in long run equilibrium

40.Which of the following will be true for a profit-maximizing price taker firm but not a competitive price-searcher firm in long run equilibrium?

Price higher than marginal cost

Marginal revenue equal to marginal cost

Output at the level where ATC is minimized

Price equal to average total cost

41.The failure of movie rental stores such as Blockbuster because of the introduction of streaming digital video such as Netflix is an example of:

rent seeking

lifestyle entrepreneurship

creative destruction

crony capitalism

42.Suppose a firm in a competitive price-searcher model can sell 5 units of output at a price of $10 per unit. To sell 6 units of output the firm must lower its price to $9 per unit. The potential marginal revenue from the sixth unit is:

$54

$10

43.In both price-taker and competitive price-searcher markets, an increase in market demand will lead to:

short-run economic profits and the entry of firms in the long run

price higher than marginal revenue when short-run profits are maximized

a reduction in the prices firms receive for their products

output contraction and firms going out of business in the long run

44.Which of these is a valid difference between firms in competitive price-searcher and price-taker markets?

Price takers earn economic profit in the short run, while price searchers do not

Price-taker firms advertise their products, while price-searcher firms do not

Price-searcher firms advertise their products, while price-taker firms do not

Price searchers earn economic profit in the long run, while price takers do not

45.In a market economy whether additional resources flow into an industry or out of the industry for other uses are generally directed by:

short-run profits and losses

government central planning

whether technological advances occur in the industry or not

the income elasticity of supply

Price-searcher markets with low entry barriers

Price-searcher markets with low entry barriers

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