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A consumer is willing to pay a maximum of $5 for the first pretzel, $4 for the second pretzel, $3 for the third pretzel, $2 for the fourth pretzel, $1 for the fifth pretzel and nothing for the sixth pretzel. If the price per unit of pretzel is $2, calculate the net benefit to the consumer. a. $6 b. $14 c. $5 d. $8

a. $6

For the utility function U =3x+5y, the slope of the indifference curve is: a. -3/5. b. -5/3. c. dependent on the values for x and y. d. dependent on the level of utility.

a. -3/5.

Suppose there are two goods, X and Y, with X being measured on the horizontal axis and Y being measured on the vertical axis. Suppose the price of Y is 0.5, the slope of the budget line is -2 and the consumer income is 100. The X-intercept of this budget line is: a. 100 b. 50 c. 200 d. Cannot be determined with the information provided

a. 100

Which of the following is the closest example of block pricing? a. An airline providing discounts to its frequent-flyers as they fly more b. At an auction of antique furniture, each piece of furniture is sold to the highest bidder c. A golf-club imposing a very high entry fee to reduce membership requests d. An electric utility charging higher rates to the customers in the summer season than in the winter season.

a. An airline providing discounts to its frequent-flyers as they fly more

Which one of the following goods is likely to have the highest income elasticity of demand? a. Diamonds b. Water c. Pretzels d. Beer

a. Diamonds

Which of the following is true of fixed costs? a. Fixed costs can be changed, but it is extremely costly to do so in a short period of time. b. Fixed costs cannot be changed in the long-run. c. Fixed costs can be changed, but only in the short run. d. Fixed costs cannot be changed in the short-run, because most firms experience constant returns to scale in the short run.

a. Fixed costs can be changed, but it is extremely costly to do so in a short period of time.

Which of the following statements about demand elasticity is correct? a. If demand is price-inelastic, an increase in price will increase total expenditures. b. If demand is price-elastic, an increase in price will increase total expenditures. c. If demand is price-inelastic, an increase in price will reduce total expenditures. d. If demand is price-elastic, an increase in price will leave total expenditure unchanged.

a. If demand is price-inelastic, an increase in price will increase total expenditures.

Which of the following is true of a long-run competitive equilibrium? a. Inputs employed in the industry cannot earn more in other industries. b. The market has a horizontal long-run supply curve. c. Firms in the market earn high abnormal profits. d. Firms face constant input costs irrespective of the output level.

a. Inputs employed in the industry cannot earn more in other industries.

Which of the following is an advantage of peak-load pricing? a. It allows a firm to reduce its total cost by reallocating its production. b. It allows a firm to capture the entire consumer surplus. c. It allows a firm to clearly identify each consumer's willingness to pay. d. It reduces monopoly profits and increases consumer surplus.

a. It allows a firm to reduce its total cost by reallocating its production.

John will eat peanut butter and jelly sandwiches only when they are made with exactly two ounces of peanut butter and one ounce of jelly. If quantity of peanut butter is denoted as B and the quantity of jelly is denoted by J, an example of John's indifference curve for peanut butter and jelly is: a. Min{B, 2J}=10 b. 2B+J=10 c. Min{2B, J}=10 d. B+2J=10

a. Min{B, 2J}=10

If a perfectly competitive industry is characterized by increasing cost, which of the following will necessarily occur in the long run in response to an unexpected increase in demand? a. New firms will enter the industry. b. Economic profit will remain zero. c. Input prices will remain constant. d. The price of the product will remain unchanged.

a. New firms will enter the industry.

Suppose a builder constructs a house that he hopes to sell to a prospective future buyer before he finishes building it. After spending six months and $300,000 in acquiring the land and constructing the house, market conditions change and the builder fails to find a buyer willing to pay his asking price of $360,000. The builder further realizes that by investing $300,000 in a bank deposit he would have been able to earn $4,500 as interest. Which of the following is the economically efficient way for the builder to view his investment? a. The $300,000 is a sunk cost and should be ignored when negotiating a price for the home. b. The $300,000 is the builder's opportunity cost and he should not accept any offer below that. c. He should advertise more heavily in an attempt to sell the home for at least $300,000. d. He should raise the price even further to better reflect the additional opportunity costs of his time and capital expenditures

a. The $300,000 is a sunk cost and should be ignored when negotiating a price for the home.

Consider two increasing-cost competitive industries (A and B) having identical supply curves. However, the demand curve faced by industry A is more inelastic than the demand curve of industry B. Which of the following is true if a per-unit excise tax is levied on the output of both the industries? a. The consumers of industry A's product will bear a greater burden of the tax than the producers. b. The consumers of industry A's product will bear a smaller burden of the tax than the producers. c. The consumers of industry B's product will bear a larger burden of the tax than the consumers of industry A. d. The consumers of industry B's product will bear the entire burden of the tax imposed on that product.

a. The consumers of industry A's product will bear a greater burden of the tax than the producers.

Which one of the following is held constant along a given demand curve? a. The consumers' income b. The price of the good the demand curve represents c. The cost of producing the good the demand curve represents d. The quantity of the good the demand curve represents

a. The consumers' income

Consider two markets segments, X and Y, for product A. The price elasticity of demand for product A in market X is 1.5, while the same in market Y is 3. The monopolist is selling product A in both the markets at a price of $300. Which of the following statements is true about the marginal revenue earned by the non-price discriminating monopolist from the two markets? a. The monopolist earns $77.78 more from market Y. b. The monopolist earns $99.9 more from market X. c. The monopolist earns $88.89 more from market Y. d. The monopolist earns $11.11 more from market X.

a. The monopolist earns $77.78 more from market Y.

Consider two goods, X and Y. If the price of Y decreases and, as a consequence, the demand curve for X shifts to the left, then: a. X and Y are substitutes. b. X and Y are complements. c. X and Y are unrelated. d. X and Y are inferior goods.

a. X and Y are substitutes.

The assumption of completeness of preferences states that _____. a. a consumer can rank all possible consumption bundles b. consumers have consistent preferences c. more of a good is always better d. consumers are rational when making choices

a. a consumer can rank all possible consumption bundles

The opportunity cost of a good is always constant if the production possibility frontier is (assume that PPF represents the entire opportunity cost): a. a downward-sloping straight line. b. concave to the origin. c. convex to the origin. d. negatively sloped.

a. a downward-sloping straight line.

An individual is considering consumption in two periods. He has decided to borrow $1,000 in period 1, given his endowment and the interest rate. Other things remaining the same, if the interest rate increases, he will: a. borrow less than $1,000. b. continue to borrow $1,000. c. borrow more than $1,000. d. borrow more or less depending upon whether or not the substitution effect of the change is greater than the income effect.

a. borrow less than $1,000.

A monopolistically competitive firm is considered to have excess capacity because it: a. does not operate at the minimum point on its long-run average cost curve. b. does not operate at the minimum point on its marginal cost curve. c. operates at the point where average cost is greater than average revenue. d. operates at the point where marginal cost is above average revenue.

a. does not operate at the minimum point on its long-run average cost curve.

Suppose the consumer price index was 100 in the year 2000 and 200 in the year 2010. If the nominal price of apples has increased from 100 to 150 over this period, the real price of apples has: a. fallen by 25 percent. b. fallen by 50 percent. c. risen by 50 percent. d. risen by 25 percent

a. fallen by 25 percent

Suppose the wage rate is $15 per hour and the rental rate of capital is $10 per hour. If the marginal product of labor is 60 and the marginal product of capital 10, the profit maximizing firm should: a. hire more labor and less capital. b. utilize more capital and less labor. c. maintain its current input mix of capital and labor. d. employ more of both capital and labor.

a. hire more labor and less capital.

When labor is the only variable input used in production, marginal cost [MC]: a. is inversely related to the marginal product of labor [MPL]. b. is inversely related to the wage rate [w]. c. is positively related to MPL. d. is negatively related to labor supply [SL].

a. is inversely related to the marginal product of labor [MPL].

The short-run supply curve for a competitive industry: a. is subject to the law of diminishing returns. b. is the industry's marginal cost curve. c. coincides with the marginal revenue curve. d. is horizontal because there are many buyers and sellers.

a. is subject to the law of diminishing returns.

Economies of scope exist if: a. it is cheaper for one firm to produce two products jointly than for separate firms to produce them separately. b. it is cheaper to have only one firm in an industry. c. it is more expensive to have one firm in an industry. d. it is cheaper for two firms to work together to make two products than for one firm to make both by itself.

a. it is cheaper for one firm to produce two products jointly than for separate firms to produce them separately.

Price discrimination is more common for firms selling services than for manufacturing firms because: a. it is easier to prevent arbitrage of a service than of a manufactured product. b. monopoly is more common in the production of services than in production of manufactured goods. c. price elasticities of demand differ more among consumers of services than customers of manufactured goods. d. firms selling services are more likely to have constant marginal cost curves.

a. it is easier to prevent arbitrage of a service than of a manufactured product.

A supply curve for a good depicts the: a. maximum quantities sellers are willing to offer for sale at alternative prices. b. maximum quantities that can be produced at alternative prices. c. quantities sellers will offer as their production costs change. d. quantities sellers can legally supply.

a. maximum quantities sellers are willing to offer for sale at alternative prices.

Compared to an equal-cost cash grant, an excise subsidy on clothing results in the purchase of (assuming smooth convex indifference curves): a. more clothing and less of other goods. b. less clothing and more of other goods. c. more clothing and more of other goods. d. less clothing and less of other goods.

a. more clothing and less of other goods.

In the long run, the imposition of an excise tax in a constant-cost competitive industry will cause price to: a. rise by the amount of the tax. b. fall by the amount of the tax. c. rise by less than the amount of the tax. d. fall by more than the amount of the tax.

a. rise by the amount of the tax.

A rent control has been imposed on the market for rental housing in a country. If the long run supply curve in this competitive market is more price elastic than the short run supply curve, it implies that: a. the deadweight loss of the rent control is higher in the long run compared to the short run. b. the deadweight loss of the rent control is higher in the short run compared to the long run. c. the deadweight loss of the rent control is zero in the long run. d. the deadweight loss of the rent control is zero in the short run.

a. the deadweight loss of the rent control is higher in the long run compared to the short run.

Suppose 100 pretzels are demanded at a given price. If the price of pretzels rises by 5% and the number of pretzels demanded falls to 92, it can be concluded that: a. the demand for pretzels in the price range is elastic. b. the demand for pretzels in the price range is inelastic. c. the demand for pretzels in the price range is unit elastic. d. the price elasticity of demand for pretzels is zero.

a. the demand for pretzels in the price range is elastic.

In a two-year period, if a higher interest rate causes consumption in year 1 to rise: a. the income effect associated with the higher interest rate is greater than the substitution effect. b. the substitution effect associated with the higher interest rate is greater than the income effect. c. the income effect of the higher interest rate is negative. d. the substitution effect of the higher interest rate is positive.

a. the income effect associated with the higher interest rate is greater than the substitution effect.

Elasticity of demand tends to be greater: a. the longer the time period involved. b. the more complements the good has. c. the lower the number of substitutes available. d. the more widely defined the commodity class.

a. the longer the time period involved.

The deadweight loss of a monopoly arises from: a. the loss of consumer surplus being greater than the gain in producer surplus. b. the transfer of producer surplus to consumers. c. the loss in producer surplus being greater than the gain in consumer surplus. d. the combined loss of consumer and producer surplus.

a. the loss of consumer surplus being greater than the gain in producer surplus

Convexity of indifference curves between X and Y implies that _____. a. the marginal utility of good X decreases as the consumer consumes more X staying on the indifference curve b. the total utility decreases as the consumer consumes more X staying on the indifference curve c. the marginal utility along the indifference curve remains constant d. the total utility increases as the consumer consumes more X staying on the indifference curve

a. the marginal utility of good X decreases as the consumer consumes more X staying on the indifference curve

An excess demand for a product indicates that: a. the price is below the equilibrium price. b. there is a rightward shift in the demand curve. c. there will be a downward movement along the supply curve. d. the supply curve will shift rightward.

a. the price is below the equilibrium price.

If fixed costs are $10,000 and variable costs are constant at $1.00 per unit over the relevant range of output, what will the average total cost be when 10,000 units are produced? a. $0.20 b. $2.00 c. $5.00 d. $1.00

b. $2.00

Acme Baseball Bats is a monopoly firm. If the marginal cost of producing a baseball bat is $30, and the absolute value of price elasticity of demand for Acme Baseball Bat Company is estimated to be 4, at what price should Acme set its price if it wants to maximize profits? a. $30 b. $40 c. $50 d. $60

b. $40

Mike can spend his evening at home watching TV. Alternatively, he can go to the movies in a theater next door to his home and watch "Suicide Squad". Mike would be willing to pay up to $15 to watch "Suicide Squad". The price of the ticket is $10. Mike's opportunity cost of watching TV at home is: a. $0 b. $5 c. $10 d. $15

b. $5

Suppose labor is on the horizontal axis and capital is on the vertical axis. If the wage rate is $15 per worker per hour and the rental rate of capital is $10 per unit per hour, what is the slope of the isocost curve? a. -0.667 b. -1.5 c. -10 d. -15

b. -1.5

Consider the income and consumption of an individual between two time periods. If consumption in period 2 (C2) is on the horizontal axis, consumption in period 1 (C1) is on the vertical axis, and the interest rate is 11 percent, the slope of the budget constraint must be approximately _____. a. 0.11 b. 0.9 c. 1.11 d. 11

b. 0.9

Consider the demand curve Q = 50 - 3P, for P=10 elasticity is: a. 1. b. 1.5. c. 3. d. 6.

b. 1.5.

A farmer is growing corn on an acre of land. Output will be 200 bushels if one worker is hired, 500 if two, 700 if three, 850 if four, and 900 if five. The marginal product of the fourth worker is _____ bushels of corn. a. 850 b. 150 c. 212.5 d. 50

b. 150

Suppose that at a point on an isoquant, the following information is true: MPL = 3 and MPK = 2. Then if K falls by 5, L must increase by approximately: a. 0.30. b. 3.33. c. 0.67. d. 1.50.

b. 3.33.

Suppose Microsoft stock will provide either a return of 10 or 20 percent over the next year and that the probability of the former outcome is 0.25 while the probability of the latter is 0.75. If the utility an investor derives from a 10 percent return on Microsoft stock is 200 and the utility the investor derives from a 20 percent return is 400, the investor's expected utility from holding Microsoft stock is _____. a. 300 b. 350 c. 250 d. 400

b. 350

Which of the following correctly describes a production function? a. A production function shows the minimum output that can be produced with given inputs. b. A production function relates employment of inputs to output. c. A production function identifies output-cost relationships. d. A production function identifies the profit maximizing level of output.

b. A production function relates employment of inputs to output.

How does the Stackelberg model of oligopoly differ from the dominant firm model? a. The Stackelberg model assumes a single leader firm unlike the dominant firm model where all firms share output equally. b. In the dominant firm model, the fringe firms are competitive while in the Stackelberg model, the follower firms display Cournot behavior. c. The dominant firm model is only applicable to a duopoly while the Stackelberg model can be applied to all oligopolistic markets. d. The Stackelberg leader produces along the market demand curve while the dominant firm produces along the residual demand curve.

b. In the dominant firm model, the fringe firms are competitive while in the Stackelberg model, the follower firms display Cournot behavior.

Which of the following is likely to shift the demand for chocolates to the left? a. An increase in the price of cocoa used to make chocolates b. Medical reports suggesting increased risk of memory loss among the aged due to high chocolate consumption c. A decrease in the price of chocolates d. The introduction of minimum wages by the government in an attempt to improve the average wage level in the economy and alleviate poverty

b. Medical reports suggesting increased risk of memory loss among the aged due to high chocolate consumption

Which of the following statements is not true about a demand curve? a. The demand curve shows the maximum price consumers will pay for various quantities of a product. b. Movements along a demand curve reflect changes in consumers' tastes. c. The demand curve shows the quantities consumers will purchase at various prices. d. Movements along a demand curve reflect consumers' response to price changes

b. Movements along a demand curve reflect changes in consumers' tastes.

Consider a commodity demanded by only two individuals, A and B. The demand curves of these two individuals are: Q1 = 12 - P and Q2 = 14 - 1.5P. Then the market demand curve is: a. Q = 12 - 1.5P b. Q = 26 - 2.5P c. Q = 13 - 1.25P d. Q = 14 - 1.5P

b. Q = 26 - 2.5P

Under which of the following game theory circumstances is a collusive outcome most likely? a. Prisoner's dilemma b. Repeated games c. Games with dominant-strategy outcomes d. Games with Nash equilibrium

b. Repeated games

Consider two increasing cost competitive industries (A and B) having identical demand curves. However, the supply curve faced by industry A is more inelastic than the supply curve of industry B. Which of the following is true if a per-unit excise tax is levied on the output of both the industries? a. The consumers of industry A's product will bear a greater burden of the tax than the producers. b. The consumers of industry A's product will bear a smaller burden of the tax than the producers. c. The consumers of industry B's product will bear a smaller burden of the tax than the consumers of industry A. d. The consumers of industry B's product will bear the entire burden of the tax imposed on that product.

b. The consumers of industry A's product will bear a smaller burden of the tax than the producers.

The demand for corn has increased over the past few decades to satisfy the increasing demand from the food and ethanol industries. The primary beneficiaries of an expansion in the output of corn are owners of farmland suitable for corn production. What can you conclude about the nature of the corn industry? a. The corn industry is not competitive. b. The corn industry is an increasing-cost industry. c. The long-run corn supply curve is horizontal. d. There are barriers to entry in the corn industry.

b. The corn industry is an increasing-cost industry.

During the 1970s, oil prices reached historical highs, causing many competitive industries to reduce the supply of goods and services. Which of the following is the most likely explanation for this reduction in supply? a. The total fixed cost of the firms would have increased due to the higher price of oil. b. The marginal cost curves of the firms most likely shifted upward. c. The supply curves of firms may have shifted downward. d. The average total cost of these firms mostly likely shifted downward due to the high inflation.

b. The marginal cost curves of the firms most likely shifted upward.

Until recently, the United States produced as well as imported crude oil. Suppose the government imposed a $10 per barrel excise tax on imported oil. What would happen? a. The price of oil will rise by $10; less oil will be consumed but sales of foreign producers will rise at the expense of domestic producers. b. The price of oil will rise; less oil will be consumed but sales of domestic producers will rise at the expense of the foreign oil producers. c. The price of oil will decline and more U.S.-produced oil will be sold in place of the heavily taxed foreign oil. d. The price of oil will decline and more oil will be consumed but the relative shares of the oil market between the U.S. and foreign oil producers will be unchanged.

b. The price of oil will rise; less oil will be consumed but sales of domestic producers will rise at the expense of the foreign oil producers.

Which of the following is not necessarily true at the profit-maximizing quantity for a monopolist? a. The marginal revenue is equal to the marginal cost of production. b. The slope of the marginal revenue curve equals the slope of the marginal cost curve. c. The difference between total revenue and total cost is maximized. d. The difference between price and average cost is maximized.

b. The slope of the marginal revenue curve equals the slope of the marginal cost curve.

Consider two goods, X and Y. If the price of Y increases and, as a consequence, the demand curve for X shifts to the left, then: a. X and Y are substitutes. b. X and Y are complements. c. X and Y are unrelated. d. X and Y are inferior goods.

b. X and Y are complements.

If the price elasticity of demand for a commodity is greater than one, it implies that: a. a price floor that raises price above the equilibrium will increase total the total consumer spending on that good. b. a price ceiling that lowers the price below market equilibrium will increase total the total consumer spending on that good. c. an increase in supply will decrease total revenues. d. a decrease in supply will increase total revenues.

b. a price ceiling that lowers the price below market equilibrium will increase total the total consumer spending on that good.

If a production possibility frontier (PPF) is drawn concave to the origin with the quantity of shoes on the X-axis and the quantity of T-shirts on the Y-axis, a movement downward along the PPF reflects: a. an increasing opportunity cost of producing T-shirts. b. an increasing opportunity cost of producing shoes. c. constant opportunity cost of producing T-shirts. d. constant opportunity cost of producing shoes.

b. an increasing opportunity cost of producing shoes.

When the income-consumption curve is backward-bending to the left, the good represented on the X-axis must be _____. a. a normal good b. an inferior good c. a Giffen good d. an economic bad

b. an inferior good

Suppose a firm can produce only two goods: A and B. If the opportunity cost of increasing output of good A increases when the firm produces more of it, then the production possibility frontier is: a. a downward-sloping straight line. b. concave to the origin. c. convex to the origin. d. positively sloped.

b. concave to the origin.

The assumptions of perfect competition _____. a. are satisfied in most real-world markets b. do not readily apply to most real-world markets c. are hardly ever satisfied and therefore make the study of perfect competition unwarranted d. if satisfied, lead to equitable outcomes

b. do not readily apply to most real-world markets

Economies of scale: a. is the same thing as increasing returns to scale. b. exist if a firm increases its output more than in proportion to its total input cost. c. exist if a firm increases its output precisely proportional to its total input cost. d. refers to the ability to make large-scale investments in capital.

b. exist if a firm increases its output more than in proportion to its total input cost.

For the cubic total cost function TC = a + bQ + cQ2 + dQ3, where a = 0, b = 25, c = -10, and d = 1, the firm's average variable cost is minimized at an output of: a. ten. b. five. c. two. d. one.

b. five.

If the nominal price of apples has increased by 10 percent over a year in which the average price level has risen by 10 percent, then the real price of apples: a. has increased. b. has stayed the same. c. has decreased. d. cannot be determined without further information.

b. has stayed the same.

Consider an individual for whom consumption in two periods is a normal good. Other things remaining the same, if the interest rate increases, then: a. he is worse off. b. he is better off. c. he will spend more in each period. d. he will choose to save more.

b. he is better off.

Consider a two-year period where a consumer has income of $10,000 in year 1 and $8,000 in year 2. The consumer can borrow or lend at a rate of 10 percent. If the consumer decides to save $1,000 in year 1, it means: a. his consumption will be equal in both years. b. he will have a higher consumption in year 2 than in year 1. c. he considers consumption in year 1 as an inferior good. d. the cost of future consumption will increase.

b. he will have a higher consumption in year 2 than in year 1.

Corn farmers in a country are colluding to reduce the market supply of corn. This will successfully raise the farmers' gross incomes only if the demand for corn is: a. elastic. b. inelastic. c. unit elastic. d. infinitely-elastic.

b. inelastic.

When comparing T-bills and stocks, a risk-averse investor may choose to invest in T-bills although stocks give higher average returns because _____. a. investing in stocks involves a long term commitment b. investing in stocks involves a higher degree of risk c. stocks are less liquid than T-bills d. stocks cannot be bought and sold in a secondary market

b. investing in stocks involves a higher degree of risk

A case where a consumer buys less of a good when its price falls: a. cannot occur if the indifference curves are convex to the origin. b. is an example of a Giffen good and will produce an upward-sloping market demand curve. c. gives rise to a positively sloped price-consumption curve. d. refers to an inferior good with a substitution effect that dominates the income effect.

b. is an example of a Giffen good and will produce an upward-sloping market demand curve.

Economies of scope exist if: a. it is cheaper to have only one firm in an industry. b. it is cheaper for one firm to produce two products jointly than for separate firms to produce them separately. c. it is more expensive to have one firm in an industry. d. it is cheaper for two firms to work together to make two products than for one firm to make both by itself.

b. it is cheaper for one firm to produce two products jointly than for separate firms to produce them separately.

The opportunity cost of traffic congestion includes: a. lower use of gasoline. b. longer commuting time to work. c. more fuel efficient cars. d. more freeways being built.

b. longer commuting time to work.

If the marginal utility of an extra hamburger is 8 utils, the marginal utility of a soft drink is 5 utils, the price of a hamburger is $1, and the price of a soft drink is 50 cents, then the consumer can achieve equilibrium when: a. she buys more hamburgers. b. she buys more soft drinks. c. the price of soft drinks increases. d. the price of hamburgers decreases.

b. she buys more soft drinks.

After spending $5 million developing a new MP3 player, you discover that a competitor is about to introduce a new model similar to yours at a lower per unit price. The $5 million development cost: a. should be factored into your decision on whether or not to introduce your new MP3 player. b. should be ignored in your decision on whether or not to introduce your new MP3 player. c. should not be included while determining the opportunity cost of this investment. d. should be considered as fixed cost for the firm.

b. should be ignored in your decision on whether or not to introduce your new MP3 player.

The Stackelberg model is different from the Cournot model because: a. the Stackelberg model assumes that firms compete by varying their prices while the Cournot model assumes that firms compete by varying their output. b. the Stackelberg model assumes that one firm selects its output on the basis of the other firm's reaction curve while the Cournot model assumes that both firms take each other's output as given. c. the Stackelberg model assumes that both firms try to predict each other's reaction curves while the Cournot model assumes that the level of output of both firms is fixed. d. the Stackelberg model assumes that one firm dominates the market through its market share while the Cournot model assumes that all firms are small relative to the market.

b. the Stackelberg model assumes that one firm selects its output on the basis of the other firm's reaction curve while the Cournot model assumes that both firms take each other's output as given.

A perfectly competitive firm faces a horizontal demand curve, which implies that: a. the price in the market never changes. b. the firm cannot affect price by any action it takes. c. the quantity of output produced by the firm is indeterminate. d. the firm makes zero accounting profits.

b. the firm cannot affect price by any action it takes.

The fact that limited use of caffeine can improve mental alertness and help test performance, while excessive use of caffeine can cause anxiety and trembling shows _____. a. that coffee is an inferior good b. the law of diminishing marginal returns with respect to test performance c. the law of returns to scale with respect to test performance d. decreasing returns to scale in coffee production

b. the law of diminishing marginal returns with respect to test performance

At every point on an individual's demand curve, the height to the demand curve measures: a. the quantity demanded of the good. b. the marginal benefit of the good to the consumer. c. the real income of the consumer. d. the consumer surplus.

b. the marginal benefit of the good to the consumer.

Based on the rule for utility maximization, if the price of good A is twice that of good B then a. the total utility from A must be twice the total utility from B. b. the marginal utility of the last unit of A must be twice the marginal utility of the last unit of B. c. the consumer must buy twice as many units of B in comparison to A. d. none of the above is correct.

b. the marginal utility of the last unit of A must be twice the marginal utility of the last unit of B.

The marginal revenue curve of a non-price-discriminating monopolist lies below the demand curve because: a. the demand curve is unit elastic. b. the monopolist must lower price on all units sold in order to sell additional units. c. the monopolist is a price taker. d. the marginal revenue curve coincides with the average revenue curve.

b. the monopolist must lower price on all units sold in order to sell additional units.

Compared to the marginal rate of substitution at the original optimal consumption point, the marginal rate of substitution at the new optimal consumption point is lower if: a. the consumer's income increased. b. the price of the good on the horizontal axis fell. c. the price of the good on the horizontal axis rose. d. the consumer's income decreased.

b. the price of the good on the horizontal axis fell.

Compared to a Cournot equilibrium, the _____ in a Stackelberg equilibrium. a. price paid by the consumers is higher b. total industry output is higher c. profit made by the leader firm is lower d. output is closer to monopoly output

b. total industry output is higher

Suppose the wage rate is $12 per hour and the rental rate of capital is $15 per hour. If the marginal product of labor is 30 and the marginal product of capital is 45, the profit maximizing firm should: a. hire more labor and less capital. b. utilize more capital and less labor. c. maintain its current input mix of capital and labor. d. employ more of both capital and labor.

b. utilize more capital and less labor.

Suppose the demand for ice cream sundaes can be represented by the equation QD = 10 - P, and the supply is given by the equation QS = P. Which of the following is the best estimate of the producer surplus in this market? a. $5 b. $10 c. $12.5 d. $22.5

c. $12.5

Suppose the demand for raspberry frozen yogurt can be represented by the equation QD = 5 - 2P, and the supply is given by the equation QS = 3P. Which of the following is the best estimate of the consumer surplus in this market? a. $2 b. $1.25 c. $2.25 d. $3.75

c. $2.25

For the cubic total cost function TC = a + bQ + cQ2 + dQ3, where a = 0, b = 25, c = -10, and d = 1, the marginal cost at an output of one unit equals: a. $0. b. $5. c. $8. d. $10

c. $8.

Compute the income elasticity of the demand for oats, if a 12% decrease in an individual's income increases his demand for oats by 6%. a. -2 b. 0.4 c. -0.5 d. 1.2

c. -0.5

A farmer can produce 10,000 pears on his one acre farmland. When he uses the same land for apple cultivation, a total of 7,000 apples can be produced. Given that his production possibility frontier (PPF) is linear and apples are graphed on the Y-axis and pears on the X-axis, calculate the slope of his PPF. a. -1.4 b. -0.2 c. -0.7 d. -0.4

c. -0.7

If the value of price elasticity of demand is 0.2, it implies that a 1 percent increase in price leads to a: a. 2 percent decrease in quantity demanded. b. 2 percent increase in quantity demanded. c. 0.2 percent decrease in quantity demanded. d. 0.2 percent increase in quantity demanded.

c. 0.2 percent decrease in quantity demanded.

A carpenter hammers nails each day at work. The average number of nails hammered over the first three hours is 50, and the marginal product of the fourth and fifth hours of work is 40 and 20 nails, respectively. The total output after five hours work is _____ nails. a. 150 b. 110 c. 210 d. 60

c. 210

If the average product of labor is 150 bushels of wheat when three workers farm an acre of land and the marginal product of the fourth worker is 75 bushels, then the total output with four workers is _____ bushels. a. 225 b. 50 c. 525 d. 675

c. 525

Which of the following violates the law of demand? a. After receiving an annual raise of $10,000, a young man buys more steak than before, even though the price of steak increased by 5 percent. b. A woman with a small baby continues to purchase diapers even after the price of diapers went up. c. After the price of bowling increases, a woman increases her frequency of bowling. d. Despite butter being more expensive than margarine, a woman buys more butter after the price of margarine (a close substitute) increases.

c. After the price of bowling increases, a woman increases her frequency of bowling.

Which of the following would cause the demand curve for coffee to shift up? a. An increase in the price of cream, a complement to coffee b. A decrease in the price of coffee c. An increase in the price of tea, a substitute for coffee d. A decrease in the price of tea, a substitute for coffee

c. An increase in the price of tea, a substitute for coffee

Which of the following is correct? a. Total Fixed Cost = Total Cost + Total Variable Cost b. Total Cost = Total Variable Cost + Marginal Cost c. Average Fixed Cost = Average Total Cost - Average Variable Cost d. Average Total Cost = Marginal Cost + Average Fixed Cost

c. Average Fixed Cost = Average Total Cost - Average Variable Cost

Assume that coffee shops operate in a perfectly competitive industry. A single coffee shop, Brick & Mortar, decides to charge an entrance fee in addition to charges for its coffee and pastry. Which of the following is most likely to happen? a. Brick & Mortar can continue to charge the entrance fee in the long-run since there is free entry into the coffee shop industry. b. As long as the coffee shop industry is perfectly competitive, customers will be willing to pay the extra charges. c. Brick & Mortar will not be able to sustain the extra charges as customers will move to coffee shops that are cheaper. d. Brick & Mortar can charge their customers extra because there are a large number of buyers and sellers in the coffee shop industry.

c. Brick & Mortar will not be able to sustain the extra charges as customers will move to coffee

Which of the following consumer segments are benefited by third-degree price discrimination? a. Consumers with high income b. Consumers with perfectly inelastic demand c. Consumers with highly elastic demand d. Consumers with more than one source of income

c. Consumers with highly elastic demand

Which of the following is true of cost minimization? a. It is equivalent to profit maximization. b. It is sufficient for profit maximization. c. It is necessary for profit maximization. d. It is unrelated to profit maximization.

c. It is necessary for profit maximization.

Which of the following is true of the expansion path? a. It always slopes upward. b. It slopes upward as long as input prices are constant. c. It slopes upward as long as the firm uses more of both inputs as output increases. d. It is always linear, but not necessarily upward-sloping.

c. It slopes upward as long as the firm uses more of both inputs as output increases.

Mike will drink a cup of coffee only with 2 spoons of sugar. And he doesn't consume any sugar except with coffee. If the number of coffee cups Mike drinks is denoted as C and the number of spoons of sugar is denoted by S, an example of Mike's indifference curve for coffee and sugar is: a. Min{C, 2S}=4 b. Max{2C,S}=4 c. Min{2C, S}=4 d. Max{C,2S}=4

c. Min{2C, S}=4

Which of the following conditions holds for a monopolistically competitive firm that is in equilibrium in the long run? a. Price equal to marginal cost b. Marginal cost equal to average cost c. Price equal to average cost d. Marginal cost equal to average revenue

c. Price equal to average cost

Which of the following would weaken the argument that monopolistically competitive firms should be regulated by the government? a. Monopolistically competitive firms and perfectly competitive firms are similar in that their equilibrium prices and quantities are efficient. b. Monopolistically competitive firms earn zero economic profits in the short run just as perfectly competitive firms do. c. The benefits of increased product variety produced by monopolistic competition offsets the relatively small welfare costs. d. The cost of regulating a monopolistically competitive firm could possibly be lower than the deadweight loss from monopolistic competition.

c. The benefits of increased product variety produced by monopolistic competition offsets the relatively small welfare costs.

If both supply and demand for a good increase at the same time, which of the following must also increase? a. The equilibrium price b. The use of substitutes c. The equilibrium quantity d. The price of substitute goods

c. The equilibrium quantity

Suppose the government levies a tax on sugar at the rate of $0.50 per pound. Then the government returns the tax revenues to a family in the form of a cash grant equivalent to the average tax paid per family. If the family's cash refund just equals the total amount of tax they paid on sugar, which of the following statements would be true? a. The family would consume less sugar and be better off. b. The family would consume the same amount of sugar and be worse off. c. The family would consume less sugar and be worse off. d. The family would consume less sugar but their well-being would remain unchanged.

c. The family would consume less sugar and be worse off.

Which one of the following is not an opportunity cost of owning a house? a. The mortgage payment made each month to own the house b. The money you would receive from selling your house c. The membership fee paid to join the neighborhood pool d. The property taxes paid to the local government

c. The membership fee paid to join the neighborhood pool

Which of the following is true of the comparison between a non-price discriminating monopoly and a perfectly price discriminating monopoly? a. The non-price discriminating monopolist will produce a higher amount of output. b. The non-price discriminating monopolist will have more producer surplus. c. The non-price discriminating monopolist will impose a greater efficiency loss. d. The non-price discriminating monopolist will capture more consumer surplus.

c. The non-price discriminating monopolist will impose a greater efficiency loss.

Which of the following will occur in response to an unexpected increase in demand in a constant-cost, competitive industry? a. Resources will move out of the industry. b. The output of the industry will remain constant. c. The output will increase with input prices remaining unchanged d. The existing firms will not be able to expand output sufficiently without incurring huge costs.

c. The output will increase with input prices remaining unchanged

"If, at the initial price, there is excess demand, the price will rise. As a consequence, the demand curve shifts down since people buy less at a higher price, and the supply curve shifts up because producers find it profitable to supply more output at a higher price. Price will continue to adjust until there is no excess demand." Which of the following is true about this statement? a. The quotation is correct. b. The quotation confuses excess supply with excess demand. c. The quotation confuses movements along curves with shifts in curves. d. The quotation confuses short-run adjustments with long-run adjustments

c. The quotation confuses movements along curves with shifts in curves.

Which of the following statements about the relationship between marginal cost (MC) and average cost (AC) is correct? a. When MC is falling, AC is rising. b. AC equals MC at MC's lowest point. c. When MC exceeds AC, AC must be rising. d. When AC exceeds MC, MC must be rising.

c. When MC exceeds AC, AC must be rising.

Suppose a constant-cost competitive industry produces widgets using labor and capital according to a Cobb-Douglas production function 𝑄 = 2√𝐾𝐿 2. A firm in the industry faces: a. a vertical supply curve for labor and capital. b. a downward sloping supply curve for labor and capital. c. a horizontal supply curve for labor and capital. d. an upward sloping supply curve for labor and capital.

c. a horizontal supply curve for labor and capital.

All-you-can-eat restaurants tend to attract "undesirable" customers, i.e., mostly people who overeat. According to this statement, the problem encountered by such restaurants can be described as: a. a prisoner's dilemma. b. a moral hazard. c. an adverse selection. d. an agency dilemma.

c. an adverse selection.

In Cournot's duopoly model, a firm's profit-maximizing level of output: a. depends on the market price of the good. b. is based on the assumption that the other firm produces zero output. c. based on the other firm's expected level of output, which is assumed to remain unchanged. d. is equal to the other firm's expected level of output, which is assumed to remain unchanged.

c. based on the other firm's expected level of output, which is assumed to remain unchanged.

Consider a duopoly market where the players agree to collude. The single-period prisoner's dilemma game applied to this market generally predicts that: a. the firms will maintain the collusion agreement. b. one firm will cheat on the agreement while the other will not. c. both firms will cheat and the collusion agreement will break down. d. the firms will be worse off from collusion than cheating.

c. both firms will cheat and the collusion agreement will break down.

If total product is increasing at a decreasing rate, then marginal product is _____. a. below average product at all levels of output b. above average product at all levels of output c. declining faster than average product d. increasing at a decreasing rate

c. declining faster than average product

Along a linear demand curve, price elasticity of demand: a. increases as price falls. b. is independent of price. c. decreases as price falls. d. remains unchanged.

c. decreases as price falls.

A given per-unit excise tax will increase the short run product price by the highest amount when: a. demand is elastic and supply is inelastic. b. supply is inelastic and demand is elastic. c. demand is inelastic and supply is elastic. d. supply is perfectly inelastic and demand is elastic.

c. demand is inelastic and supply is elastic.

If there are only two goods, coffee and donuts, and coffee is an inferior good for a consumer, then: a. the consumer does not value an extra unit of coffee in terms of donuts. b. a price increase for coffee leads to a higher level of well-being. c. donuts cannot be an inferior good. d. donuts can be an inferior good but not a Giffen good.

c. donuts cannot be an inferior good.

In the long-run, firms in a competitive industry earn only a normal rate of return because: a. decreasing returns to scale causes per unit costs to rise. b. input prices will rise in the long-run and eliminate abnormal profits. c. entry of new firms will eliminate abnormal profits. d. profit per unit declines in the long-run.

c. entry of new firms will eliminate abnormal profits.

Assume that the market demand curve for a good is constructed from a hundred identical individual demand curves. Using the same scale on the graph, the slope of the market demand curve will be _____ and its price elasticity _____ that of the individual demand curves. a. steeper; equal to b. steeper; more than c. flatter; equal to d. flatter; more than

c. flatter; equal to

Assume that as the price of good X rises, the demand for good Z shifts outward. On the basis of this information we can conclude that: a. good Z is inferior. b. goods X and Z are complements. c. goods X and Z are substitutes. d. good X is an input used in the production of Z

c. goods X and Z are substitutes.

In an effort to deter alcohol consumption by youths, raising the legal age for alcohol consumption causes a _____ the demand curve for alcohol, while raising the federal per unit tax on alcohol would cause a _____ the demand curve. a. movement along; leftward shift of b. rightward shift of; movement along c. leftward shift of; movement along d. movement along; rightward shift of

c. leftward shift of; movement along

An isoquant map, with labor on the horizontal axis and capital on the vertical axis, has horizontal isoquants. This implies that the: a. marginal product of capital is zero. b. marginal rate of substitution of capital for labor approaches infinity. c. marginal product of labor is zero. d. marginal rate of substitution of capital for labor is positive.

c. marginal product of labor is zero.

The marginal rate of technical substitution: a. equals the marginal product of capital times the marginal product of labor. b. measures the rate at which marginal product declines as inputs are increased. c. measures the degree to which one input can be substituted for another, output held constant. d. is the horizontal distance between two isoquants.

c. measures the degree to which one input can be substituted for another, output held constant.

The marginal rate of technical substitution: a. equals the marginal product of capital times the marginal product of labor. b. measures the rate at which marginal product declines as inputs are increased. c. measures the degree to which one input can be substituted for another, output held constant. d. is the horizontal distance between two isoquants.

c. measures the degree to which one input can be substituted for another, output held constant.

One important difference between indifference curves and isoquants is that: a. indifference curves are convex while isoquants are concave to the origin. b. indifference curves can never intersect while isoquants can intersect. c. output shown on isoquants is measurable while well-being shown on indifference curves is not. d. indifference curves are likely to be positively sloped while isoquants are mostly negatively sloped.

c. output shown on isoquants is measurable while well-being shown on indifference curves is not.

A set of indifference curves between an economic good and an economic bad must be _____. a. negatively sloped b. intersecting c. positively sloped d. horizontal

c. positively sloped

Long-run equilibrium in a monopolistically competitive market satisfies all of the following conditions, except: a. zero economic profit. b. excess capacity. c. price equal to marginal cost. d. marginal revenue equal to marginal cost.

c. price equal to marginal cost.

A perfectly competitive firm is a price taker. This implies that: a. price does not change in a perfectly competitive market. b. price is not determined by supply and demand in a competitive market. c. price only changes when market conditions change. d. output of a firm is the only factor that can change prices.

c. price only changes when market conditions change.

At his current consumption of lobster and hamburgers, Ike's marginal utility from eating lobster is 30 and from hamburger is 5. If the price of a hamburger is $3, and the price of lobster is $20, Ike should: a. purchase less lobster and hamburger in equal amounts. b. purchase more lobster and fewer hamburgers. c. purchase less lobster and more hamburgers. d. purchase more lobster and hamburger in equal amounts

c. purchase less lobster and more hamburgers.

In the short-run, if the price falls, the firm will respond by: a. liquidating all of its assets and shutting down. b. producing at the output level where average variable cost is equal to marginal revenue. c. reducing output along its marginal cost curve as long as marginal revenue exceeds average variable cost. d. increasing its output in order to sell higher quantities.

c. reducing output along its marginal cost curve as long as marginal revenue exceeds average variable cost.

Consider the following lottery: 𝑥1 = 200 with probability 0.1; 𝑥2 = 1000 with probability 0.9. Suppose Mike's certainty equivalent is 𝐶 = 950. Then Mike's behavior is: a. risk neutral b. risk averse c. risk loving d. Cannot determine with information provided

c. risk loving

Indifference curves consistent with one good being an economic "neuter" are: a. convex. b. straight lines with a slope of -1. c. straight lines with a slope of 0. d. L-shaped.

c. straight lines with a slope of 0.

If land use restrictions in major cities were relaxed, the: a. supply of houses would decrease. b. demand for houses would increase. c. supply of houses would increase. d. demand for houses would decrease.

c. supply of houses would increase.

Negatively-sloped, straight-line indifference curves imply: a. that one of the goods has no effect on utility. b. that the goods are perfect complements. c. that the goods are perfect substitutes. d. that one of the goods is an economic "bad".

c. that the goods are perfect substitutes.

If isoquants are drawn as right angles, it implies: a. that the two inputs are perfect substitutes for each other. b. that the MRTS is constant. c. that the inputs must be used in fixed proportions. d. the isoquants can be intersecting.

c. that the inputs must be used in fixed proportions.

If the average nominal price of an automobile increased from $7,000 to $8,000 from 1979 to 1980, then we know that: a. the real price of automobiles must have increased. b. the absolute price of automobiles increased but its real price declined. c. the absolute price of automobiles increased but we do not have enough information to say what happened to its real price. d. the demand for automobiles increased during that period.

c. the absolute price of automobiles increased but we do not have enough information to say what happened to its real price.

A production isoquant identifies _____. a. the maximum output possible, given a fixed budget b. the different combinations of goods that can be produced, given fixed amounts of inputs c. the different combinations of inputs that can be used to produce a fixed rate of output d. the cost of producing a given output

c. the different combinations of inputs that can be used to produce a fixed rate of output

The "lemons" model suggests that in cases of asymmetric information between buyers and sellers: a. low-quality goods become the preferred choice. b. consumers are indifferent between the purchase of high- and low-quality goods. c. the proportion of low quality goods in the market increases. d. the availability of high quality goods in the market increases.

c. the proportion of low quality goods in the market increases.

The short-run refers to: a. a time period of two years or less. b. the time period in which the usage of all inputs are held constant. c. the time period in which it is too costly to change the usage of at least one input. d. the time period in which the usage of all inputs can be changed.

c. the time period in which it is too costly to change the usage of at least one input.

Long-run costs of production are generally lower than the short run costs because: a. all inputs are fixed in the long run. b. firms cannot change their scale of production in the long run. c. there is greater flexibility in input usage in the long run. d. there is no scope for learning by doing in the long run.

c. there is greater flexibility in input usage in the long run.

If marginal costs are zero, a monopolist will maximize profit by producing at the point where: a. average revenue is zero. b. price is maximum. c. total revenue is maximum. d. marginal revenue is maximum.

c. total revenue is maximum.

According to the law of diminishing marginal returns: a. when the amount of some input is increased by equal increments, holding other inputs constant, the resulting increments in output will be negative. b. when all inputs are increased proportionately, output eventually will decrease at a smaller rate. c. when the amount of some input is increased at equal increments, holding other inputs constant, the resulting increments in output will eventually decrease. d. firms will not operate on the portion of the total product curve where marginal product is declining.

c. when the amount of some input is increased at equal increments, holding other inputs constant, the resulting increments in output will eventually decrease.

Along an indifference curve, if the MRS of food (F) for clothing (C) is 1F/2C, this means the consumer: a. has a stronger preference for clothes than for food. b. would be willing to give up 1 unit of food for 2 units of clothing, and would be better off with the exchange. c. would be willing to give up 1 unit of food for 2 units of clothing, but his or her total utility will not increase. d. would be willing to give up 2 units of food for 1 unit of clothing.

c. would be willing to give up 1 unit of food for 2 units of clothing, but his or her total utility will not increase.

For two goods which are perfect complements, the substitution effect of a price decrease is: a. positive. b. negative. c. zero. d. one.

c. zero.

Suppose the demand for lattes is given by the equation 𝑄𝐷 = 9 - 𝑃, if the price is $3 per latte, how much is the consumer surplus? a. $9 b. $12 c. $15 d. $18

d. $18

Suppose your pharmaceutical company, which operates as a monopoly, has a patent on a drug with an estimated price elasticity of demand of 1.2. If the marginal cost of producing each pill is $3, at what price should you sell your drug if profit maximization is your objective? a. $3 b. $9 c. $16 d. $18

d. $18

Suppose that at a point on an isoquant, the following information is true: L increases by 5; K falls by 3; MPL = 4, then MPK must be: a. 3.33. b. 0.67. c. 1.67. d. 6.67.

d. 6.67.

A carpenter hammers nails each day at work. During the first hour she can hammer 120 nails, the second hour 100 nails, the third hour 90 nails, the fourth hour 60 nails, and the fifth hour 10 nails. The average product of five hours work is _____ nails. a. 80 b. 380 c. 320 d. 76

d. 76

Which of the following would result in a higher equilibrium price and an ambiguous change in the equilibrium quantity? a. An increase in both supply and demand b. An increase in supply and a decrease in demand c. A decrease in both supply and demand d. A decrease in supply and an increase in demand

d. A decrease in supply and an increase in demand

Which of the following is not a prerequisite for practicing third-degree price discrimination? a. Some degree of monopoly power b. Ability to separate customers into two or more identifiable groups c. Some mechanism to prevent resale of the product among groups d. A perfectly competitive market for inputs

d. A perfectly competitive market for inputs

Which of the following is the best explains the moral hazard problem? a. Chronically ill people are more likely to purchase health care insurance. b. Only owners of poor quality used cares put them up for sale. c. People who are highly risk-averse are less likely to invest in the stock market. d. Drivers with airbags in their cars drive a little more recklessly.

d. Drivers with airbags in their cars drive a little more recklessly.

The cross price elasticity of demand for Good X with respect to Good Y is 1.2 and that with respect to Good Z is -0.3. This implies: a. Good X and Good Y are complements. b. Good X and Good Z are substitutes. c. Good Y and Good Z are substitutes. d. Good X and Good Z are complements.

d. Good X and Good Z are complements.

Which of the following statements is true of Nash equilibrium? a. Each firm chooses its dominated strategy to arrive at a Nash equilibrium. b. In a Nash equilibrium, both firms are always worse off than if they had colluded. c. Each firm always chooses the strategy with the lower payoff to arrive at a Nash equilibrium. d. In a Nash equilibrium, each firm's choice is the best one given the strategy of the other player.

d. In a Nash equilibrium, each firm's choice is the best one given the strategy of the other player.

Which of the following is true? a. Diseconomies of scale imply increasing returns to scale. b. Increasing returns to scale implies diseconomies of scale. c. Economies of scale imply increasing returns to scale. d. Increasing returns to scale implies economies of scale.

d. Increasing returns to scale implies economies of scale.

Which of the following properties is not assumed to hold for a typical consumer's preferences? a. Nonsatiation b. Completeness c. Transitivity d. Neutrality

d. Neutrality

A local businessman points out that, as the price of VCR has fallen, sales have increased tremendously. The businessman cites this example as proof that the law of supply does not hold. Which of the following explanations best solves the paradox cited by the businessman? a. Demand was decreasing during the period in question. b. Demand was stable during the period in question. c. Supply was stable during the period in question. d. Supply curve shifted to the right during the period in question.

d. Supply curve shifted to the right during the period in question.

A local businessman points out that, as the price of VCR has fallen, sales have increased tremendously. The businessman cites this example as proof that the law of supply does not hold. Which of the following explanations best solves the paradox cited by the businessman? a. Demand was decreasing during the period in question. b. Demand was stable during the period in question. c. Supply was stable during the period in question. d. Supply was increasing during the period in question.

d. Supply was increasing during the period in question.

Consider a firm that uses labor and capital as the only inputs. Suppose labor is on the horizontal axis and capital is on the vertical axis. Further, the expansion path has shifted down and average cost curves have shifted up. Which of following provides the most likely explanation for what has happened? a. The wage rate decreased b. The wage rate increased c. The price of capital decreased d. The price of capital increased

d. The price of capital increased

"If, at the initial price, there is excess demand, the price will rise. As a consequence, the demand curve shifts down since people buy less at a higher price, and the supply curve shifts up because producers find it profitable to supply more output at a higher price. Price will continue to adjust until there is no excess demand." Which of the following is true about this statement? a. The quotation is correct. b. The quotation confuses excess supply with excess demand. c. The quotation confuses short-run adjustments with long-run adjustments. d. The quotation confuses movements along curves with shifts in curves.

d. The quotation confuses movements along curves with shifts in curves.

What would be the impact on the real price of automobiles if the nominal price increases by 60 percent over a ten year period? a. The real price will increase by 60 percent. b. The real price will increase, but by less than 60 percent. c. The real price will decrease. d. The real price cannot be determined without more information

d. The real price cannot be determined without more information

Walter works for a large firm that produces software and has a capitalized value of $10 billion. This firm pays its employees, in part, with the company's stock, compensating Walter an additional thirty percent of his $50,000 annual salary worth of the company's stock. Which of the following is true? a. This compensation scheme reduces the level of risk in his portfolio since he is employed at the same company. b. This compensation scheme provides Walter a good means of minimizing financial risk since he can hold stock in his company rather than money in the bank. c. To reduce his exposure to risk Walter should purchase more stock in his company if he believes more people will buy computers in the future. d. To minimize risk Walter should sell the stock in his company and buy other assets to diversify his financial holdings.

d. To minimize risk Walter should sell the stock in his company and buy other assets to diversify his financial holdings.

A monopolist has segmented its customers into three groups, A, B, and C, and is discriminating prices between them. Each type A customer has a price elasticity of demand equal to 1.2; each type B customer has a price elasticity of demand equal to 6; and each type C customer has a price elasticity of demand equal to 11. If the firm charges type C customers $11 per unit, what prices should it charge its type A and type B customers in order to maximize profit? a. Type A = $1.20 per unit and type B = $6.00 per unit b. Type A = $1.33 per unit and type B = $1.66 per unit c. Type A = $12.00 per unit and type B = $6.00 per unit d. Type A = $60.00 per unit and type B = $12.00 per unit

d. Type A = $60.00 per unit and type B = $12.00 per unit

Which of the following statements is true of the relationship between marginal product and average product of labor? a. When the marginal product of labor is decreasing, the average product of labor must also be decreasing. b. When the average product of labor is increasing, the marginal product of labor must also be increasing. c. When the marginal and average products of labor are equal, the marginal product is at its minimum. d. When the average product of labor is decreasing, average product must be greater than marginal product.

d. When the average product of labor is decreasing, average product must be greater than marginal product.

Which of the following statements is true of the relationship between marginal product and average product of labor? a. When the marginal product of labor is decreasing, the average product of labor must also be decreasing. b. When the average product of labor is increasing, the marginal product of labor must also be increasing. c. When the marginal and average products of labor are equal, the marginal product is at its minimum. d. When the average product of labor is decreasing, average product must be greater than marginal product.

d. When the average product of labor is decreasing, average product must be greater than marginal product.

Fred is considering consumption between two periods and is earning an income of $1,000 in both periods. If the interest rate is 8 percent, Fred borrows $500, but if the interest rate rises to 18 percent, Fred saves $500. Is this behavior economically reasonable? a. No, Fred would borrow less because of the higher interest rate but would still borrow a positive amount. b. No, Fred might not borrow at all, but would not start saving. If Fred wanted to save he would have saved at the lower interest rate too. c. Yes, the change in interest rates will cause his endowment point to shift, allowing him to become a saver. d. Yes, the higher interest rate will raise the cost of current consumption, inducing him to cut back current consumption. He could cut back so much that he becomes a saver.

d. Yes, the higher interest rate will raise the cost of current consumption, inducing him to cut back current consumption. He could cut back so much that he becomes a saver.

A consumer attains equilibrium by _____. a. consuming all goods to the point where the marginal utility of each are equal b. consuming all goods to the point where the total utility of each are equal c. allocating income such that the total amount spent on each good is equal d. allocating income such that the marginal utility of the last dollar spent on each good is the same

d. allocating income such that the marginal utility of the last dollar spent on each good is the same

Suppose you have two indifference curves 𝑈1 and 𝑈2 representing the consumption of two normal goods. If 𝑈2 is twice as far from the origin as 𝑈1, then _____. a. consuming a bundle on 𝑈1 is preferred two times more than consuming a bundle on 𝑈2 b. consuming a bundle on 𝑈1 has a higher utility than consuming a bundle on 𝑈2 c. consuming a bundle on 𝑈2 is preferred two times less than consuming a bundle on 𝑈1 d. consuming a bundle on 𝑈2 has a higher utility than consuming a bundle on 𝑈1

d. consuming a bundle on 𝑈2 has a higher utility than consuming a bundle on 𝑈1

The prisoner's dilemma illustrates a situation in which: a. neither player has a dominant strategy, hence at equilibrium both are better off. b. the Nash equilibrium is superior to the dominant-strategy equilibrium. c. each oligopolist behaves as if it were a perfectly competitive firm. d. each player pursuing his/her self-interest generates a collective outcome that is inferior for both.

d. each player pursuing his/her self-interest generates a collective outcome that is inferior for both.

In the Stackelberg model of oligopoly, the dominant firm: a. will equate marginal cost with the residual demand curve to maximize profits. b. faces a perfectly elastic demand curve. c. can maximize profits ignoring the actions of other firms in the industry. d. faces a marginal revenue curve that lies under the residual demand curve.

d. faces a marginal revenue curve that lies under the residual demand curve.

The survivor principle in competitive markets implies that: a. the outcome of a competitive market will not be profit-maximizing. b. profit maximization need not be the only objective of a firm. c. all firms follow the objective of profit maximization. d. firms that do not undertake profit maximization will be driven out of the market.

d. firms that do not undertake profit maximization will be driven out of the market.

The _____ depicts the change in a consumer's real purchasing power brought about by a change in the price of a good. a. marginal rate of substitution b. indifference curve c. budget line d. income effect

d. income effect

Relative to a linear production possibilities curve, one that is more concave to the origin indicates a(n): a. greater resource availability. b. reduced resource availability. c. decreasing opportunity cost of specializing in production. d. increasing opportunity cost of specializing in production.

d. increasing opportunity cost of specializing in production.

Relative to a linear production possibilities curve, one that is more concave to the origin indicates a(n): a. greater resource availability. b. reduced resource availability. c. decreasing opportunity cost of specializing in production. d. increasing opportunity cost of specializing in production.

d. increasing opportunity cost of specializing in production.

A set of indifference curves showing that the consumer is indifferent between market baskets A and B, and market baskets A and C, but that market basket C is preferred to B must be _____. a. horizontal b. positively sloped c. parallel d. intersecting

d. intersecting

An economic "bad" is a commodity for which _____. a. less is preferred to more after a certain level of consumption has been reached b. more is preferred to less regardless of the level of consumption c. satisfaction does not change as more is consumed d. less is preferred to more over all possible ranges of consumption

d. less is preferred to more over all possible ranges of consumption

Suppose red onions are on the horizontal axis and white onions on the vertical axis. If both are perfect substitutes with two white onions worth one red onion, and the price of red onions falls from four to three times the price of white onions, the consumer: a. decreases her consumption of white onions and increases her consumption of red onions. b. increases her consumption of white onions and decreases her consumption of white onions. c. moves to a higher indifference curve d. makes no change in his/her consumption of onions and experiences no income effect as a result of the price change.

d. makes no change in his/her consumption of onions and experiences no income effect as a result of the price change.

A firm uses labor as the only variable input in production. In the short-run, its average cost will reach a minimum where: a. average product of labor reaches a maximum. b. marginal product of labor reaches a maximum. c. marginal cost begins to increase. d. marginal cost equals average cost.

d. marginal cost equals average cost.

The competitive firm maximizes its profit by operating at the point where _____ and price is greater than average variable cost. a. average cost is at a minimum b. total revenue is at a maximum c. profit per unit is at a maximum d. marginal cost equals price

d. marginal cost equals price

In the Cournot duopoly model, the reaction curve shows: a. one firm's best possible price as a function of the profit of the other firm. b. one firm's most possible profit as a function of the costs of the other firm. c. one firm's best possible revenue as a function of the profit of the other firm. d. one firm's most profitable output as a function of the output of the other firm.

d. one firm's most profitable output as a function of the output of the other firm.

If a commodity has a(n) _____, a greater share of the burden of an excise tax levied on the commodity would be borne by the producers. a. relatively elastic supply curve and a perfectly inelastic demand curve b. perfectly elastic supply curve c. relatively inelastic demand curve and a relatively elastic supply curve d. perfectly elastic demand curve

d. perfectly elastic demand curve

Unlike a perfectly competitive firm, a monopolistically competitive firm: a. makes zero economic profits in the short run. b. caters to a large portion of the market. c. does not face barriers to entry and exit. d. sells a differentiated product.

d. sells a differentiated product.

When the value of the Lerner index is zero for a firm: a. its demand curve is steeply sloped. b. its demand curve is non-linear. c. the demand for its product is unit elastic. d. the demand for its product is perfectly elastic.

d. the demand for its product is perfectly elastic.

In an oligopoly game, the incentive to cheat is reduced when: a. it is a one-period game and there are only a few players. b. the game is repeated a finite number of times and all players are aware of it. c. it is a one-period game and the payoffs from cooperation are higher than the payoffs from cheating. d. the game is repeated indefinitely and there is a threat of retaliation in subsequent periods.

d. the game is repeated indefinitely and there is a threat of retaliation in subsequent periods.

At every point on a demand curve for good X, the height of the demand curve indicates: a. the total benefit of good X to the consumer. b. the minimum price the consumer is willing to pay for good X. c. the consumer's utility level derived from consuming good X. d. the marginal rate of substitution between X and all other goods.

d. the marginal rate of substitution between X and all other goods.

For the utility function U =3x+5y and budget constraint I =3x + 5y, the utility maximizing consumer will choose to consume: a. all x. b. all y. c. one half of their income in good x and one half of their income in good y. d. unknown because there is no unique utility maximizing combination of x and y.

d. unknown because there is no unique utility maximizing combination of x and y.

If ∆TC represents the change in total cost, ∆w the change in the wage rate, ∆TFC the change in total fixed cost, ∆q the change in output, and ∆AC the change in average cost, the marginal cost of the firm can be defined as: a. ∆TC/∆w. b. ∆TFC/∆q. c. ∆AC/∆q. d. ∆TC/∆q.

d. ∆TC/∆q.