Chapter 7 - 15 econ questions

(Figure: The Market for Skateboards) Use Figure: The Market for Skateboards. If the government imposes a $60 tax on skateboards (collected from producers), the price of skateboards will rise to _____, and the government will collect _____. $140; $90 million $100; $120 million $160; $120 million $120; $90 million

$160; $120 million

Avery's total fixed cost at the bakery is $3,600 per month. Avery employs 20 workers, paying each $8 per hour. The marginal product of the 20th worker is 12 iced brownies per hour. What is the marginal cost of the last brownie produced by the last worker Avery hires? a. $0.66 b. $0.26 c. $8.00 d. $3.81

a. $0.66

Gwen sells ice-making machines. She can sell five per week at a price of $2,000 per machine. If she charges $2,100 per machine, she will sell only four per week. The marginal benefit of selling the fifth ice-making machine is: a. $1,600. b. $2,000. c. $2,100. d. $8,000.

a. $1,600.

(Scenario: Duopoly for Identical Firms in the Market for Surfboards) Use Scenario: Duopoly for Identical Firms in the Market for Surfboards. When the firms collude and produce the profit-maximizing output, what is the profit earned by each firm if they split production equally? Scenario: Duopoly for Identical Firms in the Market for Surfboards Two identical firms compose the surfboard industry. The market demand curve is Q = 5,000 - 4P, where Q is quantity demanded, and P is price per unit. Marginal cost is constant at $650, and fixed cost is zero. a. $180,000 b. $360,000 c. $25,000 d. $15,000

a. $180,000

Suppose the premier of British Columbia decides to initiate a provincial income tax. The first $50,000 of household income is tax-free, while any income above $50,000 is taxed at 10%. The tax rate for a household earning $75,000 is: a. 3.3%. b. 0%. c. 10%. d. 5%.

a. 3.3%.

A firm produces at the output level at which its average total cost is minimized. At this output, the firm's average total cost does NOT equal: a. AVC. b. MC. c. price. d. MR.

a. AVC.

The golf ball market is in long-run equilibrium. From this, we know that firms: a. allocate all their resources efficiently. b. combine their variable and fixed resources inefficiently. c. are not in short-run equilibrium. d. earn more than zero economic profits.

a. allocate all their resources efficiently

You must pay a fee every time you use your public library. This is an example of the _____ principle. a. benefits b. regressive tax c. ability-to-pay d. progressive tax

a. benefits

Monopolistic competition is characterized by: a. each firm producing a differentiated product. b. barriers to entry. c. few producers. d. economic profit in the long run.

a. each firm producing a differentiated product.

In 1992, the Canadian Radio-Television and Telecommunications Commission ruled that Unitel (among other long distance carriers) would be allowed to offer long-distance services, effectively removing Bell Canada's long-term monopoly on telecommunications. Assuming that Bell Canada has a linear demand curve and that it is maximizing its profits at its current level of output, we may conclude that if Bell Canada were to increase its price, its total revenue would: a. fall. b. remain unchanged. c. There is insufficient information to make a determination. d. rise.

a. fall.

The marginal revenue received by a firm in a perfectly competitive market: a. is the change in total revenue divided by the change in output. b. is greater than the market price. c. is unrelated to the market price. d. is less than the market price.

a. is the change in total revenue divided by the change in output.

Assuming that diminishing marginal utility applies to both pineapples and pears, if Carolina buys more pineapples and fewer pears, the _____ utility of pineapples will _____, and the _____ utility of pears will _____. a. marginal; fall; marginal; rise b. marginal; rise; total; rise c. total; fall; marginal; rise d. marginal; rise; marginal; fall

a. marginal; fall; marginal; rise

If there are two hardware stores in a very small town, then the hardware store business there is probably BEST characterized as: a. oligopolistic. b. monopolistically competitive. c. perfectly competitive. d. monopolistic.

a. oligopolistic.

Which of the following market types has the largest number of firms? a. perfect competition b. monopolistic competition c. monopoly d. oligopoly

a. perfect competition

The Mile End Deli serves traditional delicatessen food in Montreal, Québec. Which input is MOST likely fixed at the deli? a. the chairs customers sit on b. the rye bread used to make smoked meat sandwiches c. the staff d. the tomato sauce used to make soups

a. the chairs customers sit on

Suppose you own a small café that sells sandwiches, salads, and fancy coffees. Which factor is an implicit cost of the business? a. the job offer you did not accept at a hotel restaurant b. your monthly electricity bill c. bread, meat, vegetables, and supplies used to produce the items on your menu d. the salaries paid to part-time employees

a. the job offer you did not accept at a hotel restaurant

A perfectly price-discriminating monopolist produces: a. the same amount as a perfectly competitive industry. b. more than a non-price-discriminating monopolist but less than a perfectly competitive industry. c. less than a non-price-discriminating monopolist. d. less than a monopolist that practices price discrimination but not perfect price discrimination.

a. the same amount as a perfectly competitive industry.

(Table: Total Cost and Output for All-Natural Frozen Yogurt) Use Table: Total Cost and Output for All-Natural Frozen Yogurt, which describes Sasha's total costs for his perfectly competitive all-natural frozen yogurt firm. If the market price of a tub of frozen yogurt is $67.50, how much is Sasha's profit at the profit-maximizing output? Table: Total Cost and Output for All-Natural Frozen Yogurt Output. Total cost 0 $10 1 60 2 80 3 110 4. 170 5 245 a. $680.00 b. $100.00 c. $102.50 d. $270.00

b. $100.00

Suppose your local Walmart has explicit costs of $5 million per year and implicit costs of $174,000 per year. If the store earned an economic profit of $202,000 last year, the store's accounting profit was: a. $28,000. b. $376,000. c. $5.202 million. d. $5.174 million.

b. $376,000.

Table: The Utility of California Rolls) Use Table: The Utility of California Rolls. The marginal utility of the fifth roll is: Table: The Utility of California Rolls Number of California rolls. 0 1 2 3 4 5 6 7 Total utility. 0. 20. 35. 45 50 50 45 35 a. 5. b. 0. c. 15. d. 10.

b. 0.

______ economics is a branch of economics that combines economic modeling with insights from human psychology to better understand how people actually—instead of theoretically—make economic choices. a. Rational b. Behavioural c. International d. Irrational

b. Behavioural

If a monopolistically competitive firm is producing the profit-maximizing output and is earning an economic profit in the short run: a. MR < MC. b. MR = MC. c. P = ATC. d. P < MC.

b. MR = MC.

For Stefania, the line representing all possible combinations of two goods that she can purchase over a specified time period, given the market prices of the two goods and her income, is a(n): a. income consumption curve. b. budget line. c. indifference curve. d. consumption line.

b. budget line.

Some economists think that advertising is a waste of resources because: a. advertising increases the output of goods and services. b. consumers may buy things they do not need. c. rational consumers end up spending too little on brand names. d. advertising leads to excess capacity.

b. consumers may buy things they do not need.

If an excise tax is imposed on vodka and collected from consumers, the _____ curve will shift _____ by the amount of the tax. a. demand; upward b. demand; downward c. supply; downward d. supply; upward

b. demand; downward

In a long-run equilibrium, firms in a monopolistically competitive industry sell at a price: a. greater than average total cost. b. greater than marginal cost. c. equal to marginal cost. d. less than marginal cost.

b. greater than marginal cost.

In monopolistic competition, each firm: a. will follow a marginal cost pricing rule in the long run. b. has some ability to set the price of its differentiated good. c. can produce a quantity of output whereby marginal revenue is greater than price. d. cannot influence the price of the good.

b. has some ability to set the price of its differentiated good

Andrea is a sous-chef at Le Club Chasse et Pêche, a gourmet French restaurant in Montreal, Québec. She has been offered a position just down the road as head chef at Toqué (working with renowned chef Normand Laprise), a move that would double her income. From this, we can surmise that for every normal good Andrea now buys, her: a. marginal utility per dollar will be greater than before her income increase. b. marginal utility per dollar will be smaller than before her income increase. c. total utility will be smaller than before her income increase. d. marginal utility per dollar will stay the same as before her income increase.

b. marginal utility per dollar will be smaller than before her income increase.

An excise tax that the government collects from the producers of a good: a. shifts the demand curve upward. b. shifts the supply curve upward. c. shifts the demand curve downward. d. decreases tax revenue for the government.

b. shifts the supply curve upward.

In an oligopoly: a. there are no barriers to entry. b. the actions of one firm depend on the actions of other firms c. there are many sellers. d. firms produce an output at which MR > P.

b. the actions of one firm depend on the actions of other firms

Tacit collusion is more difficult to achieve in practice: a. if customers have little or no bargaining power. b. the more firms there are in the industry. c. the more information is readily available on the internet. d. the more similar are the cost structures of the colluding firms.

b. the more firms there are in the industry.

Scenario: Jillian's Cupcake Shop) Use Scenario: Jillian's Cupcake Shop. Given the information provided, Jillian's explicit costs are: Scenario: Jillian's Cupcake Shop Jillian runs a cupcake shop where she sells cupcakes for $1 each. She employs five people, each of whom worked a total of 500 hours last year; she paid them $10 per hour. Her costs of equipment and raw materials add up to $75,000. Her business ability is legendary, and other companies have offered to pay Jillian $100,000 to come to work for them. She also knows she could sell her cupcake shop for $150,000. The bank in town pays an annual interest rate of 3% on all funds deposited with it. a. $80,000. b. $250,000. c. $100,000. d. $264,000.

c. $100,000.

Table: Marginal Benefit of Sweaters) Use Table: Marginal Benefit of Sweaters. The marginal benefit of producing the fourth sweater is: Table: Marginal Benefit of Sweaters Quantity of sweaters. Total benefit 0. $0 1. 16 2. 31 3. 45 4. 58 5. 70 a. $14. b. $58. c. $13. d. $12.

c. $13.

Erika operates a perfectly competitive firm. If she decreases output from 110 units to 100 units, and the market price is $30 per unit, total revenue will be: a. $300.00 b. $3,100.00 c. $3,000.00 d. -$300.

c. $3,000.00

Scenario: Accounting and Economic Profit) Use Scenario: Accounting and Economic Profit. Scenario: Accounting and Economic Profit Casey recently inherited $100,000 from her grandmother. Rather than invest the money in a mutual fund that earns 5% per year, she quit her job as a translator for the C.D. Howe Institute, which paid $60,000 per year, and started Casey's Coffee Crush, a small café in Baldwin Village, Toronto. The location she rented cost $20,000 for the year. The equipment, café furniture, and coffee machines cost another $60,000. Staff, sales help, and advertising cost yet another $40,000. In her first year, her revenue was $150,000. What is the implicit cost of Casey's Coffee Crush? a. $69,000 b. $7,000 c. $65,000 d. $60,000

c. $65,000

The utility-maximizing principle of marginal analysis implies that, if Katerina maximizes her utility by spending all of her income on Leafs tickets and Uber rides, with prices equal to PTickets and PRides, respectively, then it must be the case that: a. MUTickets/MURides < PTickets/PRides. b. MUTickets/MURides > PTickets/PRides. c. MUTickets/PTickets = MURides /PRides. d. MUTickets/PRides = MURides /PTickets.

c. MUTickets/PTickets = MURides /PRides.

The sources of product differentiation do NOT include: a. differences in quality. b. differences in location. c. consumers' dislike of having options. d. the perception by consumers that products are different, even if they are physically identical.

c. consumers' dislike of having options.

A monopoly responds to a decrease in marginal cost by _____ price and _____ output. a. increasing; decreasing b. decreasing; decreasing c. decreasing; increasing d. increasing; increasing

c. decreasing; increasing

A perfectly competitive industry with constant costs initially operates in long-run equilibrium. When demand decreases: a. prices and profits will be higher than before the demand decrease in both the long run and the short run. b. in the short run, prices and profits will be higher, but in the long run, price will fall back to its original level, and firms will again earn zero economic profit. c. in the short run, prices and profits will fall, but in the long run, price will rise back to its initial level, as will profits. d. prices and profits will be lower than before the demand decrease in both the long run and the short run.

c. in the short run, prices and profits will fall, but in the long run, price will rise back to its initial level, as will profits.

The short-run supply curve for a perfectly competitive firm is its: a. demand curve above its marginal revenue curve. b. marginal cost curve above price. c. marginal cost curve above its average variable cost curve. d. average total cost curve below its marginal cost curve.

c. marginal cost curve above its average variable cost curve.

When economists refer to a decision made at the margin, they mean a decision that is based on: a. a value that is most appropriately identified in a footnote. b. the value of an unimportant, or marginal, activity. c. the value of one more unit of a good or activity. d. a value entered as an explanatory item in the margin of a balance sheet or other account.

c. the value of one more unit of a good or activity.

(Table: Variable Costs for Pool Cleaning) Use Table: Variable Costs for Pool Cleaning. During the summer, Elijah runs a pool cleaning service, and pool cleaning is a perfectly competitive industry. Assume that costs are constant in each interval; so, for example, the marginal cost of cleaning each pool from 1 through 10 is $10. Also assume that he can only clean the quantities of pools given in the table (and not numbers in between). His only fixed cost is $1,000 for the pool cleaning equipment. His variable costs include fuel, his time, and other everyday pool supplies. If the price of cleaning a pool is $60, how much is Elijah's total revenue at the profit-maximizing output? Table: Variable Costs for Pool Cleaning Quantity of pools. Variable costs 0 $0 10 100 20 300 30 500 40 1,100 50 1,800 60 2,900 a. $2,100 b. $60 c. $1,100 d. $2,400

d. $2,400

Which scenario BEST illustrates an oligopolistic industry? a. The University of Regina has one bookstore that caters to all students across all campuses. b. Thousands of quinoa farmers sell their output in global commodities markets. c. A single cell phone provider services the entire province of Manitoba. d. The Coca-Cola Company and PepsiCo (the companies that make Coke and Pepsi, respectively) sell most of the soft drinks consumed around the world.

d. The Coca-Cola Company and PepsiCo (the companies that make Coke and Pepsi, respectively) sell most of the soft drinks consumed around the world.

A decrease in the price of a good, holding income and the prices of all other goods constant, is associated with: a. a negative substitution effect, since consumers decrease their consumption of the good as the marginal utility per dollar spent of the good decreases. b. an inward shift of the budget line. c. the consumer purchasing fewer of all goods in the consumption bundle. d. a positive substitution effect, since consumers increase their consumption of the good as the marginal utility per dollar of the good increases.

d. a positive substitution effect, since consumers increase their consumption of the good as the marginal utility per dollar of the good increases.

Suppose the government is considering imposing an excise tax on protective gear for cycling. Additionally, suppose that the government doesn't know whether supply and demand are elastic or inelastic but does know that the imposition of the tax will cause output to decrease relative to the no-tax equilibrium. The government can thus be assured that the tax will result in: a. increases in both consumer surplus and producer surplus. b. an increase in consumer surplus. c. an increase in producer surplus. d. deadweight loss.

d. deadweight loss.

A firm that can use its inputs more efficiently as it increases its production over the long run BEST demonstrates: a. labour-intensive production. b. capital-intensive production. c. diseconomies of scale. d. economies of scale.

d. economies of scale.

Under perfect competition, consumers experience _____ than under monopoly. a. larger quantities b. higher quality c. more choices d. lower prices

d. lower prices

Abigail, a lawyer at Borden Ladner Gervais LLP in Toronto, charges different prices to different clients for the same service without any corresponding differences in costs. Abigail thereby practices: a. privatization. b. output prioritization. c. monopolization. d. price discrimination.

d. price discrimination.

Suppose an income tax is levied on 0% of the first $10,000 in income, 10% of the next $20,000, and 20% of remaining earnings. This type of tax can be defined as: a. proportional. b. equitable. c. regressive. d. progressive.

d. progressive.

In practice, true monopolies are hard to find in the modern Canadian economy, partly because of legal obstacles and partly because of: a. merger dominance. b. oligopolistic practices. c. government bureaucracy. d. the Competition Act.

d. the Competition Act.

The demand for tacos is very inelastic compared to the supply of tacos, so if a tax is imposed on producers of tacos, the tax incidence: a. cannot be determined without more information. b. will fall on producers more than consumers. c. will fall equally on consumers and producers. d. will fall on consumers more than producers.

d. will fall on consumers more than producers.