Economics Exam 2
If the owners of a business are receiving total revenues just sufficient to cover all of their explicit and implicit costs, then they are A) doing better than their next best alternative. B) doing worse than their next best alternative. C) earning a normal profit. D) earning an economic loss.
C
A market equilibrium is only efficient if: A) all relevant costs and benefits are reflected in the market supply and demand curves. B) output is distributed equitably among consumers. C) consumer surplus and producer surplus are both zero. D) the consumer surplus and the producer surplus associated with a given transaction are equal.
A
Individual supply curves generally slope ______ because ______. A) upward; of increasing opportunity costs B) upward; profits increase with quantity C) downward; inputs are cheaper when purchased in high volume D) downward; sellers become more efficient with practice
A
Suppose Juliana owns a small business making handbags. Each month she makes 18 handbags, which she sells for $100 each. The materials used to make each handbag cost $50. In addition, Juliana uses a spare room in her house to make the handbags and store her supplies. If she were not using the spare room for her business, she would use it as a guest room, an option that Juliana would value at $250 per month. If Juliana weren't making handbags, she would work at Trader Joe's earning $800 per month. What is Juliana's economic profit each month? A) −$150 B) $750 C) $900 D) $650
A
Because monopolists charge a price in excess of marginal cost, it must be the case that monopolists A) earn a negative economic profit. B) produce less than the socially optimal level of output. C) earn a positive economic profit. D) produce more than the socially optimal level of output.
B
To produce 150 units of output per day, a firm must use 3 employees. To produce 300 units of output per day, the firm must use 8 employees. Apparently, the firm is A) producing in the long run. B) experiencing diminishing returns. C) not using any fixed factors of production. D) experiencing negative returns.
B
When a pharmaceutical company introduces a new drug, its research and development costs are ______, and the cost of the chemicals used in manufacturing the drug are ______. A) start-up costs; variable costs B) start-up costs; fixed costs C) fixed costs; start-up costs D) marginal costs; variable costs
A
The last time you went on a road trip, you noticed that there were several fastfood outlets clustered near some freeway exits, but none at the others. Now that you are familiar with Hotelling's model, you know that the reason for this is A) zoning laws. B) firms vying for a favorable location. C) the existence of fast-food cartels. D) failure by the firms to correctly distribute themselves.
B
Which of the following firms is most likely to be a pure monopolist? A) A clothing retailer with the best location in a mall B) The only gas station in a small, isolated town C) A grocery store in a large city D) The most popular hot dog vendor on a city street corner
B
For perfectly competitive firms, marginal revenue ______ price; for monopolists, marginal revenue ______ price. A) equals; equals B) is less than; equals C) equals; is less than D) equals; is greater than
C
If you were to start your own business, your implicit costs would include the A) interest that you pay on your business loans. B) profit you earn over and above your normal profit. C) opportunity cost of the time you spend working at the business. D) rent that you have paid
C
Taylor used to work as a yoga instructor at the local gym earning $35,000 a year. Taylor quit that job and started working as a personal trainer. Taylor makes $50,000 in total annual revenue. Taylor's only out-of-pocket costs are $12,000 per year for rent and utilities, $1,000 per year for advertising and $3,000 per year for equipment. Taylor's explicit costs are ______, and Taylor's implicit costs are ______. A) $36,000; $15,000 B) $35,000; $16,000 C) $16,000; $35,000 D) $15,000; $36,000
C
The dilemma in a prisoner's dilemma is that: A) only one player has a dominant strategy, but the other player is uncertain about what to do. B) the outcome is random, so players are uncertain about which strategy to play. C) the players would be better off if they both played a dominated strategy. D) the players may be trapped in a game they don't know how to play.
C
Consider a monopolist who charges a single price to all of its customers. If this monopolist starts price discriminating, its output will ______ and its profit will ______. A) fall; rise B) rise; fall C) fall; fall D) rise; rise
D
Suppose there are two small island countries: Avarice, which is populated by people who are completely self-interested, and Altruism, which is populated by people who have adopted social norms of generosity and cooperation. Commitment problems will be A) prevalent on both islands. B) largely avoided on both islands. C) largely avoided in Avarice, but prevalent in Altruism. D) largely avoided in Altruism, but prevalent in Avarice.
D