Chapter 6 Microeconomics
The government promises to buy ventilators at an above-market price. Will ventilator production increase? A. No, the government promising to buy ventilators at an above-market price will have no impact on production. B. Yes, when prices rise, the quantity supplied rises as well. C. No, if the government pays an above-market price, it will result in a decrease in production.
B
Earlier in the day you found a $10 bill on the ground, which makes you feel less guilty about wasting $30. A. This extra money decreases the opportunity cost of studying, making you more likely to skip the show. B. This does not impact your decision since it is still a sunk cost. C. This extra money will make you more likely to attend the show.
B
If the firm were facing MR2, then we know that this firm should __________. A. shut down, since it is incurring a loss that is greater than the fixed costs that must be paid if it shuts down. B. keep producing, even though it is incurring a loss it is less than the fixed costs that must be paid if it shuts down. C. keep producing, since it is making a profit at the profit-maximizing output. D. shut down, since it is incurring a loss and when a firm earns less than zero profit, it should shut down.
B
Under which of the following examples is it likely that the accounting profit is positive and the economic profit is negative? A. Opening a McDonald's franchise in a college town. B. If you open an amusement park in the middle of New York City. C. Using a store in the mall to sell clothes instead of shoes. D. Such a scenario, where accounting cost is positive and economic profit is negative, is not possible.
B
Assume that the market for chocolates is perfectly competitive. Which of the following statements would be true in this case? A. Jill starts to produce chocolates today, but the addition of her supply into the market does not decrease the market price. B. Pam wants to produce chocolates but she is unable to as Roy controls all the cocoa farms in the region. C. Jessica, a chocolate seller, sometimes sets her price lower or higher than the price at which other sellers sell their chocolates. D. Terry uses soy milk for producing his chocolates, while Donna uses almond milk for producing hers.
A
Via tax subsidies, the government reduces the cost of labor and parts. Will ventilator production increase? A. Yes, the subsidy will lower cost and encourage entry into the market, causing production to increase. B. No, the subsidy will change how many units consumers demand, but it will not impact production. C. No, if the government subsidizes production, it will incentive firms to save money and cut production.
A
Town B is considering imposing a $1 tax on each hamburger sold; the tax is to be paid by the hamburger stands in the town. Assuming that the market for hamburgers is perfectly competitive, which of the following are true? (Check all that apply.) A. It would change a hamburger stand's short-run profit-maximizing choice of the number of hamburgers to produce. B. The tax would shift a hamburger stand's marginal cost curve. C. The tax would shift a hamburger stand's short-run average variable cost curve. D. The tax would shift a hamburger stand's short-run average fixed cost curve.
A, B, and C
If it costs a firm $3,000 to produce400 shirts and $6,500 to produce 900 shirts, then: A. the firm is experiencing constant returns to scale. B. the firm is experiencing diseconomies of scale. C. the firm is experiencing economies of scale. D. the firm is experiencing long-run efficiency problems.
C
Is it possible for accounting profit to be positive and economic profit to be negative? A. Yes, this could occur if implicit costs were modest and explicit costs were high. B. No, economic profit and accounting profit will always end up being the same. C. No, economic profit must always be larger than accounting profit. D. Yes, this could occur if explicit costs were modest and implicit costs were high.
D
The long-run supply curve is the portion of the MC curve: A. above the AVC curve. B. below the ATC curve. C. below the AVC curve. D. above the ATC curve.
D
All firms in a perfectly competitive market are said to be __________. A. price neutral. B. price takers. C. profitable in the long run. D. price leaders.
B
How would the introduction of legal or technical barriers to entry affect the long-run equilibrium in a perfectly competitive market? A. It would make all firms in the market less competitive, since any artificial barrier hurts the market overall. B. It would reduce any downward pressure on prices from entry and allow economic profits in the long run. C. It would create downward pressure on prices, causing firms to exit the market. D. There would be no effect on the market, since there are no barriers to entry in perfectly competitive markets.
B
Months ago you spent $30 on a ticket to see your favorite musician. However, you start having doubts the day of the show because you do not feel prepared for an exam the following day. Which of the following bits of information should (according to the ideas about sunk costs discussed in the chapter) influence your final decision? You notice a mistake on your credit card statement! You paid $20 for the ticket, not $30. A. This lower cost will make you more likely to attend the show. B. This does not impact your decision since it is still a sunk cost. C. This lower cost decreases the opportunity cost of studying, making you more likely to skip the show.
B
Suppose one firm accounts for 55 percent of the global market share for a product, while 147 other firms account for the remaining 45 percent of the market. With such a large number of buyers and sellers, is this market likely to be competitive? A. Yes, markets are only competitive if there is at least one firm large enough to act as a price setter for all other firms. B. No, even though there are many firms in the market, there is one firm large enough to influence the market price. C. Yes, a competitive market is characterized by having many firms, regardless of size. D. No, even with such a large number of buyers and sellers, there must be barriers to entry for this market to stay competitive.
B
Suppose ventilator manufacturers are profit-maximizing firms with costs outlined in this chapter (large fixed cost and increasing marginal costs). These firms typically operate in a competitive market, though the government is considering the following policies to boost production. For each policy, explain whether production will in fact increase. The government gives each firm a large sum of money with no strings attached. Will ventilator production increase? A. No, the large sum of money will increase marginal revenue, making it profitable for firms to decrease production. B. No, a no-strings attached sum of money will not impact marginal revenue or marginal cost, so production will remain unchanged. C. Yes, the large sum of money will induce all firms to increase production.
B
Do firms 1 and 2 experience economies of scale? Or do they experience diseconomies of scale? A. Both firms are experiencing economies of scale. B. Both firms are experiencing diseconomies of scale. C. Firm 1 is experiencing economies of scale, while firm 2 is experiencing diseconomies of scale. D. Firm 1 is experiencing diseconomies of scale, while firm 2 is experiencing economies of scale.
C
If the firm were facing MR3, then we know that this firm should __________. A. keep producing, since it is making a profit at the profit-maximizing output. B. shut down, since it is incurring a loss and when a firm earns less than zero profit, it should shut down. C. shut down, since it is incurring a loss that is greater than the fixed costs that must be paid if it shuts down. D. keep producing, even though it is incurring a loss it is less than the fixed costs that must be paid if it shuts down.
C
In a competitive market, if economic profits exist, then: A. the market supply curve will shift leftward and the price will decrease. B. the market supply curve will shift rightward and the price will increase. C. the market supply curve will shift rightward and the price will decrease. D. the market supply curve will shift leftward and the price will increase.
C
In the long run, the supply curve for a perfectly competitive firm is represented by __________. A. the portion of the marginal cost curve above average variable cost. B. the portion of the average variable cost curve above marginal cost. C. the portion of the marginal cost curve above average total cost. D. the portion of the average variable cost curve below marginal cost.
C
The graph on the right shows the short-run cost curves and three possible marginal revenue curves for a perfectly competitive firm. If the firm were facing MR1, then we know that this firm should __________. A. keep producing, even though it is incurring a loss it is less than the fixed costs that must be paid if it shuts down. B. shut down, since it is incurring a loss that is greater than the fixed costs that must be paid if it shuts down. C. keep producing, since it is making a profit at the profit-maximizing output. D. shut down, since it is incurring a loss and when a firm earns less than zero profit, it should shut down
C
The long-run supply curve in a perfectly competitive market states that _____. A. both the long-run quantity and the equilibrium price increase B. the long-run quantity remains the same while the equilibrium price varies C. the long-run quantity can vary while the equilibrium price returns to the price at the minimum of the average total cost D. both the long-run quantity and the equilibrium price decrease
C
Therefore, the short-run supply curve for a perfectly competitive firm is represented by __________. A. the portion of the marginal cost curve above average total cost. B. the portion of the average variable cost curve above marginal cost. C. the portion of the marginal cost curve above average variable cost. D. the portion of the average variable cost curve below marginal cost.
C
What is the difference between accounting profit and economic profit? A. Economic profit only subtracts implicit costs from total revenue, while accounting profit only subtracts explicit costs. B. Accounting profit subtracts both explicit and implicit costs from total revenue, while economic profit only subtracts explicit costs. C. Economic profit subtracts both explicit and implicit costs from total revenue, while accounting profit only subtracts explicit costs. D. Accounting profit only subtracts implicit costs from total revenue, while economic profit only subtracts explicit costs.
C
Which of the following is true about how a firm in a competitive market decides what level of output to produce in order to maximize its profit? A. Produce until marginal cost is furthest below average total cost. B. Produce up to the point where price equals average total cost. C. Produce until the additional revenue from one extra unit equals the additional cost of each unit. D. All of the above.
C
You learn there will be free pizza at the concert; thus, you will no longer have to spend $10 on dinner. A. This does not impact your decision since it is still a sunk cost. B. This lowers the opportunity cost of studying, making you more likely to skip the show. C. This lowers the cost of attending the concert, making you you more likely to attend the show.
C
You thought there was no hope of reselling the ticket, though your roommate just offered to buy it for $10. A. This does not impact your decision since it is still a sunk cost. B. The ability to resell the ticket means it is no longer a sunk cost and skipping the show only brings you an additional $10, making you more likely to attend the show. C. The ability to resell the ticket means it is no longer a sunk cost and skipping the show brings you an additional $10 in benefit, making you more likely to skip the show.
C
Minimum efficient scale is the lowest level of output where long-run average total cost is minimized. Firm 3's minimum efficient scale occurs when the output is ______ unit(s). A. 1. B. 4. C. 2. D. 3.
D
Town A is considering imposing a lump-sum tax of $300 on each hamburger stand in the town. Assuming that the market for hamburgers is perfectly competitive, which of the following would occur? A. The tax would shift a hamburger stand's short-run average variable cost curve. B. The tax would shift a hamburger stand's marginal cost curve. C. It would change a hamburger stand's short-run profit-maximizing choice of the number of hamburgers to produce. D. The tax would shift a hamburger stand's short-run average fixed cost curve.
D
Which of the following expressions correctly describes economic profits? A. Marginal revenues−implicit costs−explicit costs. B. Marginal revenues−explicit costs. C. Total revenues−explicit costs. D. Total revenues−implicit costs−explicit costs.
D