Micro Econ Final Exam Practice Questions

Question65 In the long run, monopolistically competitive firms: A. produce at the level that minimizes average total cost. B. cannot earn an economic profit. C. set marginal revenue equal to price. D. produce such that marginal cost equals price.

B

Question68 In monopolistic competition: A. entry of new firms shifts the demand curve for existing firms to the right. B. firms may advertise to increase demand for their product. C. firms earn large economic profits in the long run. D. when some firms exit, the demand curve for the firms that remain in the industry shifts to the left.

B

Question75 An industry with production that generates external costs produces a quantity of output that is: A. smaller than the socially optimal quantity. B. larger than the socially optimal quantity. C. socially optimal. D. socially optimal if a specific subsidy is given to buyers.

B

Question8 Buford Bus Manufacturing installs a new assembly line. As a result, the output per worker increases. The marginal cost of output at Buford: A. will increase (the MC curve will shift up). B. will decrease (the MC curve will shift down). C. is at its maximum. D. will be unchanged.

B

Question81 Which factor is an environmental standard? A. taxes on the level of pollution B. legal limits on sulfur dioxide emissions C. tradable pollution permits D. production subsidies

B

Question85 Which statement is CORRECT? A. If an emissions tax and environmental standards lead to the same total reduction in pollution, then they will also lead to the same reduction in pollution by individual polluters. B. An emissions tax is a more efficient way to reduce pollution than is an environmental standard because an emissions tax equalizes the marginal benefit of pollution from all sources. C. It is easy to set emissions taxes at the "correct" level since the relationship between emissions taxes and the reduction in emissions that they induce has been extensively studied and is well known. D. An environmental standard is a more efficient way to reduce pollution than is an emissions tax because an environmental standard can be structured to equalize the reduction in pollution from all sources.

B

Question96 Which good BEST fits the characteristics of a private good? A. national defense B. a pizza C. clean water D. police protection

B

Question98 A(n) _____ is nonexcludable and nonrival in consumption. A. common resource B. public good C. artificially scarce good D. private good

B

Question100 If a good has a marginal cost of production of zero and an inefficiently low level of consumption, the good must be a(n): A. public good. B. private good. C. artificially scarce good. D. common resource.

C

Question19 Marginal revenue: A. is the price divided by the change in quantity. B. is the slope of the average revenue curve. C. equals the market price in perfect competition. D. is the change in quantity divided by the change in total revenue.

C

Question23 Zoe, the owner of Zoe's Bakery, determines that, at her optimal level of production in the short run, P < ATC and P > AVC. In the short run, Zoe should: A. continue to operate, as she is making an economic profit. B. shut down immediately, as she is taking an economic loss. C. continue to operate, even though she is taking an economic loss. D. raise the price until she has maximized her profits.

C

Question27 If firms are making positive economic profits in the short run, then in the long run: A. the short-run industry supply curve will shift leftward. B. firms will leave the industry. C. new firms will enter the industry. D. industry output will rise and the price will rise.

C

Question31 If your farm had the only known source of a rare cocoa bean needed to make chocolate-covered peanuts, your monopoly would result from: A. increasing returns to scale. B. government-set barriers. C. control of a scarce resource or input. D. technological superiority.

C

Question42 A natural monopoly is one that: A. is based on control of something occurring in nature (such as diamonds). B. typically has low fixed costs, making it easy and "natural" for it to shut out competitors. C. has increasing returns to scale over the entire relevant range of output. D. monopolizes a natural resource such as a mineral spring.

C

Question48 If there are two gas stations in a very small town, then the gas station business there is probably BEST characterized as: A. perfectly competitive. B. monopolistically competitive. C. oligopolistic. D. monopolistic.

C

Question57 The market for soft drinks, which is dominated by Coca Cola and Pepsi, is BEST considered to be an example of: A. perfect competition. B. monopoly. C. oligopoly. D. monopolistic competition.

C

Question58 Many customers will walk right past a diner that serves coffee and go to Starbucks, where they pay more for a cup of java. For these customers, coffee is differentiated by: A. type. B. location. C. quality. D. style.

C

Question59 Firms in monopolistic competition can acquire some market power by: A. increasing their output to the perfectly competitive level. B. producing where MR > MC. C. product differentiation. D. engaging in tacit collusion.

C

Question61 The profit-maximizing rule MC = MR is followed by firms operating in: A. either monopolistic competition or perfect competition, depending on the costs of production. B. perfect competition but not monopolistic competition. C. both monopolistic competition and perfect competition. D. monopolistic competition but not perfect competition.

C

Question64 If a monopolistically competitive firm is in long-run equilibrium, price: A. equals marginal revenue. B. equals marginal cost. C. equals average total cost. D. is greater than average total cost.

C

Question70 A market economy will produce _____ without any government regulation. A. the amount of pollution that maximizes total surplus B. too little pollution C. too much pollution D. the socially optimal amount of pollution

C

Question9 Ashley Bakery expects its marginal cost curve will eventually slope upward because, as with most production processes, baking has: A. decreasing opportunity costs. B. constant opportunity costs. C. diminishing marginal returns. D. a maximum output.

C

Question92 A good is MOST likely to be artificially scarce if: A. it is nonexcludable and nonrival. B. the seller is a monopolist. C. it is excludable but nonrival. D. it is nonexcludable but rival.

C

Question1 The idea of diminishing returns to an input in production suggests that, if a local college adds more custodians, the marginal product of labor for the custodial staff will: A. increase at an increasing rate. B. not change. C. increase at a decreasing rate. D. decrease.

D

Question21 If a perfectly competitive firm sells 10 units of output at $30 per unit, its marginal revenue is: A. $300. B. $10. C. more than $30. D. $30.

D

Question28 Suppose that the market for haircuts in a community is a perfectly competitive constant-cost industry and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the long run, firms will _____ the market, driving the price of haircuts _____ and the profits of individual firms _____. A. enter; up; back to zero B. leave; up; up C. leave; up; back to zero D. enter; down; back to zero

D

Question3 A fixed input is one: A. that can never produce more or less in any period. B. that can be used for one thing only. C. that only exists in nature, and there is only so much of it. D. whose quantity cannot be changed in the short run.

D

Question32 A firm that has economies of scale: A. at any particular level of output is a natural monopoly. B. has a continually rising long-run average cost curve. C. at low output and diseconomies of scale at high output is a natural monopoly. D. over the entire range of output demanded is a natural monopoly.

D

Question39 If the government allowed only one airline to serve the entire U.S. market, there would be a _____ loss associated with _____ output in the airline industry. A. marginal; reduced B. total; increased C. deadweight; increased D. deadweight; reduced

D

Question40 The pricing in monopoly prevents some mutually beneficial trades. The value of these unrealized mutually beneficial trades is called: A. sunk costs. B. opportunity costs. C. inequity. D. deadweight loss.

D

Question43 One government policy for dealing with natural monopoly is to: A. break it up into smaller firms. B. impose a price floor to eliminate the deadweight loss. C. impose fines on the monopolist. D. impose a price ceiling to reduce economic profit.

D

Question46 Which Herfindahl-Hirschman index is MOST likely to indicate a perfectly competitive market? A. 1,800 B. 100,000 C. 10,000 D. 100

D

Question49 In the classic prisoners' dilemma with two accomplices in crime, the Nash equilibrium is for: A. neither to confess. B. This game does not have a Nash equilibrium. C. one to confess and the other not to confess. D. both to confess.

D

Question52 The wedding dress industry is monopolistically competitive. As a result: A. prices tend to be lower than if the dress industry approximated perfect competition. B. it has freedom of entry but not exit. C. thousands of dress suppliers all sell identical products. D. dresses tend to be differentiated among the many sellers serving this market.

D

Question53 Monopolistic competition is similar to perfect competition because firms in both market structures: A. produce goods that are perfect substitutes. B. find it beneficial to advertise. C. are price takers. D. do not face any barriers to entry to the industry in the long run.

D

Question66 Suppose the dry-cleaning market is monopolistically competitive and economically profitable this year. In the long run, the demand for any one firm's dry-cleaning services will _____ as more firms enter the industry, causing economic profits to _____. A. decrease; become economic losses B. increase; increase C. not change; fall D. decrease; fall to zero

D

Question69 General Snacks is a typical firm in a market characterized by the model of monopolistic competition. Initially, the market is initially in long-run equilibrium, and then there is an increase in the market demand for snacks. We expect that: A. there will be a short-run increase in the number of firms, but in the long run, the number of firms will return to the original level. B. firms will leave the market in the long run. C. firms will shut down, but they will not leave the industry in the long run. D. in the long run, new firms will enter the market.

D

Question76 If, at the current amount of pollution, its marginal social benefit is greater than its marginal social cost: A. the externality is minimized. B. society is achieving the optimal amount of pollution. C. there is too much pollution. D. there is too little pollution.

D

Question77 A copper mining operation discharges waste products into a river and causes higher costs and discomfort to downstream users of the water for which they are not compensated. In this case: A. too little of society's resources is being used to produce copper. B. there is an external benefit to society from copper production. C. the optimal amount of society's resources is being used to produce copper. D. too much of society's resources is being used to produce copper.

D

Question78 A familiar example of a negative externality is traffic congestion. In principle, it should be possible to internalize this externality by permitting drivers to negotiate rights to drive during particular times. The most likely reason that these negotiations do NOT happen is that: A. most individuals are unfamiliar with the Coase theorem. B. agreements arising from such negotiations could not be enforced since the Constitution guarantees all individuals freedom of access to all public roads. C. lawyers would find a way to prohibit such negotiations unless they were actively involved, thus making transaction costs prohibitive. D. the transaction costs associated with identifying and establishing communication among the many interested parties would be prohibitive.

D

Question79 An externality is said to be internalized: A. when individuals successfully petition the government to ban or restrict activities that generate negative externalities. B. when the Coase theorem is irrelevant or cannot be applied. C. when individuals learn to adapt to negative externalities through introspection or internal acceptance of what are viewed as unchangeable facts of life. D. when individuals take external costs and benefits into account in their decision making.

D

Question80 A familiar example of a negative externality is loud music on a college campus. In principle, it should be possible to internalize this externality by permitting students to negotiate rights to play music during particular times. The most likely reason that these negotiations do NOT happen is that: A. some students don't view loud music as a negative externality. B. music is an experience, not a good. C. most students are unfamiliar with the Coase theorem. D. the transaction costs associated with identifying and establishing communication with students would be high.

D

Question84 If government officials set an emissions tax too high: A. the marginal social cost of pollution will exceed the marginal social benefit of pollution. B. there will be too much pollution. C. pollution will be unabated. D. there will be too little pollution.

D

Question87 With tradable emissions permits, the price of the permit is determined by: A. the World Trade Organization. B. environmental protection organizations. C. the government. D. the supply of and demand for permits.

D

Question90 Which example is a good or market activity that is associated with a positive externality? A. smoking cigarettes B. an indoor classical music concert with tickets that cost $50 C. listening to a new CD with earbuds D. innovation in the semiconductor industry

D

Question94 Which good is MOST likely a common resource? A. the fire department B. a pair of pants C. the Super Bowl D. a public park

D

Question95 Television programs are nonrival because: A. the supplier cannot prevent consumption by people who do not pay for it. B. the market suffers from inefficiently low consumption. C. individuals ignore the effect of their use on the amount of the resource remaining for others. D. more than one person can consume the same unit of the good at the same time.

D

Question97 Which good is MOST likely a public good? A. an amusement park B. the Internet C. a pair of pants D. fire protection from the fire department in a town

D

Question10 Tankao makes earbuds for mobile devices. When Tankao produces 20 sets of earbuds, its average variable cost is $5 per set and its average total cost is $8 per set. Tankao's: A. average fixed cost is $3 per set. B. marginal cost is less than $3 per set. C. marginal cost is $3 per set. D. marginal cost is equal to its average fixed cost.

A

Question13 It is common in large breweries for the long-run average total cost to decline as output increases. This indicates that many breweries operate with: A. economies of scale. B. constant returns to scale. C. diminishing marginal returns. D. diseconomies of scale.

A

Question16 The market for breakfast cereal contains hundreds of similar products, such as Froot Loops, cornflakes, and Rice Krispies, that are considered to be different products by different buyers. This situation violates the perfect competition assumption of: A. a standardized product. B. ease of entry. C. ease of exit. D. many buyers and sellers.

A

Question2 If two firms are identical in all respects except that one has more of the fixed input capital than another, the total product curve for the firm with more capital: A. will lie above the total product curve for the firm with less capital. B. will lie below the total product curve for the firm with less capital. C. will show no diminishing marginal returns. D. must equal the total product curve for the firm with less capital.

A

Question24 The short-run supply curve for a perfectly competitive firm is its: A. marginal cost curve above its average variable cost curve. B. demand curve above its marginal revenue curve. C. average total cost curve below its marginal cost curve. D. marginal revenue curve to the right of its marginal cost curve.

A

Question25 A perfectly competitive firm will incur an economic loss but will continue to produce a positive quantity of output in the short run if the price is: A. greater than average variable cost and less than average total cost. B. less than average variable cost. C. greater than average total cost. D. less than marginal cost.

A

Question29 In perfectly competitive long-run equilibrium: A. all firms produce at the minimum point of their average total cost curves. B. all firms make positive economic profits. C. all firms face the same price, but the value of marginal cost will vary directly with firm size. D. the industry supply curve must be upward-sloping.

A

Question34 Microsoft and its operating system are often cited as an example of a company that grew into a monopolist through: A. network externalities. B. large economies of scale. C. patents. D. ownership of a resource.

A

Question35 The GoSports Company is a profit-maximizing firm with a monopoly in the production of school team pennants. The firm sells its pennants for $10 each. We can conclude that GoSports is producing a level of output at which: A. marginal cost equals marginal revenue. B. average total cost equals $10. C. average total cost is greater than $10. D. marginal revenue equals $10.

A

Question36 A monopolist generally _____ than does a perfectly competitive industry with the same market demand. A. charges a higher price B. produces a larger quantity C. earns less profit in the long run D. charges a lower price

A

Question38 In a monopoly in the long run: A. entry by other firms will not occur. B. economic profits will be eliminated by the entry of rival firms. C. economic profits will be reduced but not eliminated by the entry of rival firms. D. the price will be the same as if the market were perfectly competitive.

A

Question4 You own a deli. Which input of production is MOST likely fixed at your deli? A. the dining room B. the employees C. the tomato sauce used to make soups D. the bread used to make sandwiches

A

Question44 To calculate the Herfindahl-Hirschman index (HHI), one must _____ market share(s) of _____ in the industry. A. sum the squared; all of the firms B. divide the; the largest firm by the sum of the four largest firms C. sum the; all of the firms D. sum the; the four largest firms

A

Question47 An extreme case of oligopoly in which firms collude to raise joint profits is known as a: A. cartel. B. duopoly. C. dominant producer. D. price war.

A

Question5 Assuming that all other factors of production are held constant, marginal product is the change in _____ output resulting from a one-unit change in _____. A. total; a variable input B. total; total product C. total; a fixed input D. per unit; a fixed input

A

Question50 Suppose that each of two prisoners has the independent choice of confessing to a crime or not confessing to a crime they were both alleged to commit. If neither confesses, both spend two years in prison; if both confess, both spend three years in prison. If one confesses and the other does not, the confessor gets off with one year but the other gets six years. According to game theory, the MOST likely strategy of the prisoners is that: A. both will confess. B. one will confess and the other will not. C. neither will confess. D. both may or may not confess.

A

Question54 A monopolistically competitive industry is characterized by a _____ number of firms producing _____ products with _____ entry. A. large; similar; relatively easy B. small; similar; relatively easy C. large; identical; relatively easy D. small; identical; barriers to

A

Question55 Because most communities have a large number of similar but not identical substitutes, the market for chiropractors is BEST considered to be: A. monopolistically competitive. B. perfect competition. C. an oligopoly. D. a monopoly.

A

Question6 Suppose that when a coal-mining firm hires one, two, three, four, or five workers, the corresponding total outputs are 10, 15, 19, 22, or 24 tons of coal, respectively. The marginal product of the third worker is _____ tons of coal. A. 4 B. 15 C. 19 D. 3

A

Question60 The demand curve for a firm operating in a monopolistically competitive industry is: A. downward sloping. B. U-shaped. C. vertical. D. upward sloping.

A

Question62 If a monopolistically competitive firm is producing the profit-maximizing level of output and is earning an economic profit in the short run: A. marginal revenue equals marginal cost. B. price is less than marginal cost. C. price is less than average total costs. D. marginal revenue is less than marginal cost.

A

Question63 Suppose Susan owns a business that operates in a market characterized by monopolistic competition. Susan's profit-maximizing price is $12, her profit-maximizing output is 900 units per week, and her profits are $1,800 per week. Susan decides that she needs more profits and therefore raises her price to $15. At the new price of $15: A. marginal revenue will be greater than marginal cost. B. profits will remain at $1,800. C. profits will increase. D. marginal revenue will be less than marginal cost.

A

Question67 If monopolistically competitive firms are earning positive economic profits in the short run, then in the long run: A. economic profits will be reduced to zero. B. economic profits will increase. C. the demand curves faced by existing firms will move to the right. D. firms will leave the industry.

A

Question71 Which activity generates a negative externality? A. Your next-door neighbor mows the lawn at 6 A.M. B. After Jane buys health insurance, she begins racing motorcycles on the weekends. C. You buy a new car, then discover it needs a new transmission. D. The only two coffee shops in town conspire to raise prices.

A

Question82 Laws that require vehicles to have catalytic converters or that restrict or prohibit leaf burning are: A. environmental standards. B. transaction costs. C. internalization of externalities. D. Pigouvian taxes.

A

Question83 Many economists believe that there are more efficient ways to deal with pollution than with environmental standards because these standards do NOT : A. allow reductions in pollution to be achieved at minimum cost. B. target behaviors in a way that can be enforced. C. reduce pollution enough. D. specify the behavior that needs to be changed.

A

Question86 Tradable pollution permits are a: A. system of exchangeable licenses that enable the holder to pollute up to a specified amount during a given period. B. system of voluntary negotiations between polluters and damaged parties. C. subsidy system for charging consumers for the use of common property resources. D. tax system for internalizing pollution costs to the market.

A

Question88 Which example BEST describes tradable emissions permits? A. a system of licenses that can be bought and sold and that enable the holder to pollute up to a specified amount during a given period B. a tax system for internalizing emission costs to the market C. a system of voluntary negotiations between polluters and damaged parties D. a subsidy system for encouraging production of goods with positive externalities

A

Question91 When innovations by one firm are quickly emulated and improved on by rival firms in the same industry or in other industries, it is: A. technology spillover. B. illegal under most patents. C. technology takeover. D. industrial espionage.

A

Question99 A common resource is a good or service for which exclusion is _____ and that is _____ in consumption. A. not possible; rival B. possible; rival C. not possible; nonrival D. possible; nonrival

A

Question11 Austin's total fixed cost is $3,600 a month for making 100,000 cupcakes at his cupcake bakery. Austin employs 20 workers and pays each worker $600 a month. If labor is his only variable cost, what is Austin's total cost per month for making 100,000 cupcakes? A. $1,200 B. $15,600 C. $3,600 D. $12,000

B

Question14 Buffalo Aircraft doubles the amount of all of the inputs it uses—the factory doubles in size and twice as many workers are hired. After this expansion, the number of aircraft produced triples. If the price of inputs is unchanged, this means that Buffalo Aircraft is operating with: A. increasing average total cost. B. economies of scale. C. decreasing average variable cost. D. increasing marginal cost.

B

Question15 For the Colorado beef industry to be classified as perfectly competitive, ranchers in Colorado must have _____ on prices and beef must be a _____ product. A. a huge effect; differentiated B. no noticeable effect; standardized C. a huge effect; standardized D. no noticeable effect; differentiated

B

Question30 In contrast with perfect competition, a monopolist: A. produces where MR > MC, and a perfectly competitively firm produces where P = MC. B. may have economic profits in the long run. C. earns zero economic profits in the long run. D. produces more at a lower price.

B

Question37 Bob owns a trout farm with monopoly power in North Carolina. Bob's optimal output occurs where marginal revenue _____ marginal cost. Because of monopoly power, Bob's supply curve _____. A. exceeds; does not exist B. equals; does not exist C. exceeds; is perfectly inelastic D. equals; is upward sloping

B

Question41 In an industry characterized by extensive economies of scale: A. small companies will drive out large companies. B. large companies are more profitable than are small companies. C. small companies are more profitable than are large companies. D. small and large companies are equally profitable.

B

Question45 A monopoly will have a Herfindahl-Hirschman index equal to: A. 1,000. B. 10,000. C. 1. D. 100.

B

Question56 Monopolistic competition is different from monopoly because firms: A. have a downward-sloping demand curve. B. face some competition. C. have some power to set prices. D. have a downward-sloping marginal revenue curve.

B

Question33 Lenoia runs a natural monopoly producing electricity for a small mountain village. The barrier preventing other firms from competing with her is: A. the existence of economies of scale. B. a government-set barrier. C. her control of scarce natural resources. D. her technological superiority.

A

Question73 If an activity generates external costs, the decision makers generating the activity will: A. not be faced with its full costs. B. be faced with no costs. C. be faced with its full costs. D. be faced with excessive costs.

A

Question72 An externality is said to exist when: A. individual actions are affected by government policies (such as taxes) that are externally imposed on the market. B. individuals impose costs or benefits on others but have no incentive to take these costs and benefits into account. C. individual actions are affected by external forces like the loss of U.S. jobs because of competition from abroad. D. individuals impose costs or benefits on others, and the market provides incentives to take these costs and benefits into account.

B

Question117 The U.S. government health insurance program for people aged 65 years and older is: A. the Veterans Administration. B. Medicare. C. health savings accounts. D. Medicaid.

B

Question122 In the United States in 2015, approximately _____% of total income in the economy took the form of compensation of employees. A. 40 B. 70 C. 90 D. 9

B

Question126 José, a corn farmer operating in a perfectly competitive market, pays his workers $8 an hour. At his current level of labor use, the marginal product of an additional hour of labor is three bushels of corn. The market price of corn is $2.75. To maximize his profits, Jose should: A. hire less labor. B. hire more labor. C. This question cannot be answered without knowing the average product of labor. D. not change the amount of labor.

B

Question131 Benny employs people to sell candy bars at intersections. Assume that Benny can obtain candy bars to sell for no cost. The marginal product of the last worker Benny hired is 20 candy bars per hour. Benny pays $7 per worker per hour and sells the candy bars for $1 each. If the price of candy bars rises to $2, then the: A. quantity demanded of labor increases, but the demand for labor curve does not shift. B. demand for labor increases. C. demand for labor decreases. D. quantity demanded of labor decreases, but the demand for labor curve does not shift.

B

Question132 A decrease in the demand for pastry chefs may come about because of an increase in the: A. productivity of pastry chefs. B. concern for healthy living. C. market wage rate for pastry chefs. D. supply of other factors that pastry chefs use.

B

Question133 Louis has invested $1,000 in the stock market. At the end of one year, there is a 30% chance that his stock will be worth only $800 and a 70% chance that it will be worth $1,200. The expected value of his stock at the end of one year is: A. $1,200. B. $1,080. C. $1,000. D. $1,160.

B

Question134 Micah is considering turning pro before his senior year basketball season. If he turns pro, Micah expects a pro contract worth $2 million in present value. If he does not turn pro, there is a 50% chance an injury will prevent him from playing professionally and a 50% chance he will get a pro contract worth $4 million in present value. What is the expected present value of Micah's pro contract if he stays in college for his senior year? A. $3.5 million B. $2 million C. $5 million D. $0

B

Question137 The marginal utility of income for a risk-averse individual will be: A. increasing. B. diminishing. C. constant. D. unknown; the answer depends on the value of income.

B

Question138 We would consider a tornado and a CEO scandal that hit a construction company on the same day as _____ events. A. probable B. independent C. dependent D. premium

B

Question141 Many people smoke and continue poor eating habits because they have health insurance. This example illustrates: A. signaling. B. moral hazard. C. reputation. D. adverse selection.

B

Question17 In a perfectly competitive industry, the market demand curve is usually: A. perfectly elastic. B. downward-sloping. C. relatively elastic. D. perfectly inelastic.

B

Question20 A perfectly competitive firm will maximize profits when the: A. price is lower than marginal cost. B. marginal revenue equals marginal cost. C. marginal revenue is lower than average variable cost. D. price is higher than marginal cost.

B

Question22 If the price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will: A. produce more than the profit-maximizing quantity. B. produce at a profit. C. shut down production. D. produce at a loss.

B

Question26 In the short run, if AVC < P < ATC, a perfectly competitive firm: A. does not produce output and earns zero economic profit. B. produces output and incurs an economic loss. C. produces output and earns an economic profit. D. does not produce output and earns an economic profit.

B

Question7 When a cherry orchard in Oregon adds a worker, the total cost of production increases by $24,000. Adding the worker increases total cherry output by 600 pounds. Therefore, the marginal cost of the last pound of cherries produced is: A. $4,000. B. $40. C. $24,000. D. $19.

B

Question74 Damage to the environment occurs because: A. no one involved in markets cares about the environment. B. pollution results from production of goods and services. C. pollution reduces the social cost of production. D. a nonzero amount of pollution is never socially optimal.

B

Question135 Amanda recently graduated from college, and she has a job offer with uncertain income: there is a 70% probability that she will make $10,000 and a 30% probability that she will make $70,000. The expected value of Amanda's income is: A. $40,000. B. $10,000. C. $28,000. D. $21,000.

C

Question139 A life insurance company will often require an applicant to submit to a brief physical exam to assess that person's basic level of health. This practice is a form of _____ to lessen the problem of _____. A. diversification; moral hazard B. signaling; deductibles C. screening; adverse selection D. reputation; adverse selection

C

Question142 Solutions to moral hazard include: A. offering salespeople in stores a straight salary rather than a commission on sales. B. allowing property owners to over insure their buildings. C. setting up many stores and restaurants that are part of a national chain as franchises, with the owner undertaking quite a lot of risk. D. diversification.

C

Question144 Asymmetric, or private, information: A. is protected by patents or copyrights. B. refers to personal information (e.g., regarding gender or ethnicity) that a person is not obligated to reveal on a job application. C. is relevant for an economic transaction and is known only by some of the people involved in the transaction. D. is an important explanation of the variation (or asymmetric performance) of individuals on standardized tests.

C

Question18 The demand curve faced by a single perfectly competitive firm is: A. perfectly inelastic. B. relatively but not perfectly elastic. C. perfectly elastic. D. downward sloping.

C

Question107 If a good is subject to the free-rider problem and an inefficiently high level of consumption, the good must be a(n): A. artificially scarce good. B. public good. C. private good. D. common resource.

D

Question109 Which example is considered a public good? A. school attendance B. a flu shot C. cigarettes D. national defense

D

Question112 Which program provides in-kind transfers? A. Temporary Assistance for Needy Families B. Social Security C. the Earned Income Tax Credit D. Medicaid

D

Question114 The largest _____ program in the United States is _____. A. means-tested; farmers' aid B. means-tested; Social Security payments to retired persons C. social insurance; Medicaid D. social insurance; Social Security payments to retired persons

D

Question118 Some of the major causes of poverty are lack of education, bad luck, lack of proficiency in English, and: A. geographic region. B. differences in religious preference. C. government restrictions. D. racial and gender discrimination.

D

Question12 At the current level of output, Becca Furniture's marginal cost curve is above the average total cost curve. This means Becca Furniture's average total cost curve: A. must be falling. B. may be rising, falling, or flat depending on other things. C. must be flat. D. must be rising.

D

Question121 Which factor is an input in the production of croissants? A. dough mixers B. pastry chefs C. ovens D. flour

D

Question125 Which formula is CORRECT? A. MPL = VMPL × P. B. VMPL = MC × P. C. VMPL / MC = TR. D. VMPL = MPL × P.

D

Question111 During the past 25 years, the degree of income inequality in the United States has been rising. Which factor is NOT a possible reason for this phenomenon? A. higher divorce rates B. increased imports of labor-intensive products C. increased immigration D. technological progress that has increased the demand for high-skilled workers relative to the demand for low-skilled workers

A

Question119 Human capital: A. is the improvement in labor produced by education and knowledge that is embodied in the workforce. B. is the improvement in labor produced by education, which has become less important because of the progress in technology. C. has become less important because of the progress in technology. D. consists of man-made resources such as buildings and machines.

A

Question123 When labor is hired in a competitive market, the value of the marginal product of labor is computed by: A. multiplying the price of the output by the marginal product of labor. B. multiplying the wage paid to labor by the marginal product of labor. C. dividing the marginal product of labor by the price of the output. D. multiplying the price of the output by the wage paid to labor.

A

Question127 Barry's Brewpub is considering hiring more brewmasters. The market wage for a brewmaster is $120 per day. The average brewmaster produces 40 pints of beer per day, but Barry expects the next brewmaster to produce only 20 pints per day. Assuming the market for beer is perfectly competitive, Barry's Brewpub will hire another brewmaster only if: A. a pint of brew sells for $6 or more. B. the new brewmaster can produce 40 pints. C. a pint of brew sells for $2. D. a pint of brew sells for $3.

A

Question130 Suppose the labor market for plumbers is in equilibrium. Which occurrence might DECREASE the wage for plumbers? A. Unemployed manufacturing workers attend technical schools to learn the plumbing trade. B. A minimum wage is imposed in the market for plumbers. C. The plumbers union establishes a rigorous certification test that is difficult for aspiring plumbers to pass. D. An economic boom increases the demand for new homes.

A

Question140 Used-car dealers will often advertise how long they have been in business as a means of _____ their long-term _____. A. signaling; reputation B. insuring; capital at risk C. screening; customers D. revealing; moral hazard

A

Question145 Investors in agricultural corporations face many correlated financial risks. Which example does NOT illustrate correlated risks for the agricultural industry? A.the spread of genetically modified crops and the presence of locusts B. losses due to drought and changes in the exchange rate with the euro C. recessions and changes in availability of credit D. political events that can lead to fewer crop subsidies and fewer milk supports

A

Question102 Josh has an iPhone, and he frequently downloads songs from iTunes. He pays a small price for each download, but downloading a song does not remove it from the iTunes inventory, which is available for other buyers. The iTunes service is BEST described as a(n): A. common resource. B. artificially scarce good. C. private good. D. public good.

B

Question106 An individual is MOST likely to be a free rider when a good is: A. artificially scarce. B. nonexcludable. C. nonrival. D. private.

B

Question110 An example of a social insurance program is: A. the food stamp program. B. Social Security payments to the disabled. C. expenditure on national defense. D. purchasing a new city police car.

B

Question113 Food stamps are an example of: A. a monetary benefit. B. an in-kind benefit. C. a negative income tax. D. unemployment insurance.

B

Question115 An advantage of employment-based insurance is that it: A. increases government tax revenues. B. helps reduce the problem of adverse selection. C. guarantees better care than is provided by government insurance such as Medicare. D. reduces moral hazard.

B

Question116 Most Americans receive their health insurance through: A. Medicare. B. their employer. C. direct purchase. D. Medicaid.

B

Question89 An advantage of tradable emissions permits is that: A. nondegradable pollutants can be more easily controlled than can degradable pollutants. B. they provide incentives for firms to develop technologies that are less polluting. C. the value that future generations place on pollution damages can be determined. D. pollution costs are easier to measure than are emissions taxes.

B

Question93 A(n) _____ is excludable and rival in consumption. A. public good B. private good C. common resource D. artificially scarce good

B

Question101 If the market produces an efficient level of a good, then we know that the good must be _____ and _____ in consumption. A. excludable; nonrival B. nonexcludable; nonrival C. excludable; rival D. nonexcludable; rival

C

Question103 The BEST example of a good that is excludable in consumption is: A. a park. B. national defense. C. a bicycle. D. an ocean.

C

Question104 National defense and clean air are similar in that both are _____, but they differ in that clean air is _____, while national defense is not. A. excludable; rival in consumption B. nonrival in consumption; excludable C. nonexcludable; rival in consumption D. rival in consumption; excludable

C

Question105 An e-book is similar to a published book in that it is _____, but it is also similar to national defense in that it is _____. A. nonrival in consumption; excludable B. rival in consumption; nonexcludable C. excludable; nonrival in consumption D. nonexcludable; rival in consumption

C

Question108 For nonrival goods like pay-per-view television programs, the private market will lead to _____ from a social perspective. A. outsourcing its production B. consumption of too much of the good C. consumption of too little of the good D. production of too much of the good

C

Question120 Which factor is NOT associated with production at a college? A. classroom buildings B. the faculty C. electricity D. the computer labs

C

Question129 If a firm hires labor such that W > VMPL, then profit: A. can be increased by decreasing the price of the output. B. can be increased by hiring more labor. C. can be increased by hiring less labor. D. is maximized.

C

Question51 Suppose that each of the two firms in a duopoly has the independent choice of advertising or not advertising. If neither advertises, each gets $10 million in profit; if both advertise, their profits will be $5 million each; and if one advertises while the other does not, the advertiser gets profit of $15 million and the other gets profit of $2 million. According to game theory, the Nash equilibrium is that: A. one will advertise and the other will not. B. neither will advertise. C. both will advertise. D. both may or may not advertise.

C

Question128 All perfectly competitive fast-food firms are hiring the profit-maximizing quantity of labor and are paying their workers $7 per hour. If the government raises the minimum wage to $8 per hour: A. firms will increase their prices to keep the value of the marginal product equal to the wage. B. the value of the marginal product will exceed the wage, and firms will hire more workers. C. firms will have to exit the industry since the value of the marginal product is always less than the wage. D. the value of the marginal product will be less than the wage, and firms will lay off some workers.

D

Question136 If a stock analyst believes there is a 10% probability that the stock price of Dymonatis will be $30 at the end of the year, a 50% probability that it will be $40, and a 40% probability that it will be $50, then the expected value of the stock at the end of the year is: A. $32. B. $40. C. $38. D. $43.

D

Question143 Insurance companies deal with the problems of moral hazard by: A. always insuring buildings for their full replacement value. B. refusing to insure commercial properties against losses caused by fire. C. charging extra in cases of adverse selection. D. requiring a deductible to provide an incentive for insured individuals to take reasonable precautions to avoid losses.

D