Econ 211

Ivana produces cookies. Her production cost is $6 per dozen. She sells the cookies for $8 per dozen. Her producer surplus per dozen cookies is

$2

A monopolistically competitive firm chooses

the quantity of output to produce and the price at which it will sell its output

As the price of a pound of peanuts falls,

the quantity of peanuts demanded will increase.

Both public goods and common resources are

nonexcludable

Microsoft faces very little competition from other firms for its Windows software. Why isn't the price of the software $1,000 per copy?

- because the government would not allow such a high price - because stockholders would not allow such a high price - because the company would sell so few copies that they would earn higher profits by selling at a lower price

The principle that "trade can make everyone better off" applies to interactions and trade between

- families. - states within the United States. - nations. *all of the above

The marginal cost eventually increases because

- of the law of diminishing returns. - eventually each additional worker produces a successively smaller addition to output. - the marginal product of the variable input eventually falls.

A monopolistically competitive firm is currently producing 10 units of output. At this level of output the firm is charging a price equal to $10, has marginal revenue equal to $6, has marginal cost equal to $6, and has average total cost equal to $12. From this information we can infer that

- the firm is currently maximizing its profit - the profits of the firm are negative - firms are likely to leave this market in the long run

Abe can catch 15 pounds of fish an hour or pick 30 pounds of fruit an hour. He works an 8 hour day, spending 5 hours picking fruit and 3 hours catching fish. Calculate Abe's opportunity cost of a pound of fruit.

0.3 pounds of fish

Which of the following conditions is characteristic of a monopolistically competitive firm in both the short-run and the long run?

P > MC

Suppose that a worker in Caninia can produce either 2 blankets or 8 meals per day, and a worker in Felinia can produce either 5 blankets or 1 meal per day. Each nation has 10 workers. For many years, the two countries traded, each completely specializing according to their respective comparative advantages. Now war has broken out between them and all trade has stopped. Without trade, Caninia produces and consumes 10 blankets and 40 meals per day and Felinia produces and consumes 25 blankets and 5 meals per day. The war has caused the combined daily output of the two countries to decline by

15 blankets and 35 meals.

At one point along a PPF, 50 tons of coffee and 100 tons of bananas are produced. At another point along the same PPF, 30 tons of coffee and 140 tons of bananas are produced. The opportunity cost of a ton of coffee between these points is

2 tons of bananas per ton of coffee.

Which of the following conditions is characteristic of a monopolistically competitive firm in long-run equilibrium?

P > MC and demand = ATC

If the elasticity of supply is 4, a 10 % increase in the price of a good leads to a

40 % increase in the quantity of supply.

Last year when John graduated and received a 20 percent pay increase, the average number of restaurant meals he consumed rose from once a week to three time a week. Hence his income elasticity for restaurant meals is

5

Which of the following illustrates the concept of a negative externality?

A college student plays loud music on his new stereo system at 2:00 a.m.

For a monopolistically competitive firm

AR = P

Which of the following is not an example of a barrier to entry?

An entrepreneur opens a popular new restaurant.

Private markets fail to account for externalities because

Decisionmakers in the market fail to include the costs of their behavior to third parties.

Suppose that Jay-Z and Beyonce are duopolists in the music industry. In January, they agree to work together as a monopolist, charging the monopoly price for their music and producing the monopoly quantity of songs. By February, each singer is considering breaking the agreement. What would you expect to happen next?

Jay-Z and Beyonce will each break the agreement. The new equilibrium quantity of songs will increase, and the new equilibrium price will decrease.

Mike and Sandy are two woodworkers who both make tables and chairs. In one month, Mike can make 4 tables or 20 chairs, while Sandy can make 6 tables or 18 chairs. Given this, we know that

Mike has an absolute advantage in chairs.

Which of the following is FALSE for a profit-maximizing single-price monopolist?

P = MC

According to a recent study of Chilean bus drivers, drivers who are paid by the number of passengers they transport have higher productivity than drivers who are paid by the hour. This result is an example of which principle of economics?

People respond to incentives.

If the monopolist's linear demand curve intersects the quantity axis at Q = 30, then the monopolist's marginal revenue will be equal to zero at

Q = 15

Katie is planning to sell her house, and she is considering making two upgrades to the house before listing it for sale. Replacing the carpeting will cost her $2,500 and replacing the roof will cost her $9,000. Katie expects the new carpeting to increase the value of her house by $3,000 and the new roof to increase the value of her house by $7,000.

She should replace the carpeting but not replace the roof.

Which of the following best reflects an increase in quantity supplied rather than an increase in supply?

The government stops controlling the price of a product, allowing the price to increase.

After much consideration, you have chosen Cancun over Ft. Lauderdale as your Spring Break destination this year. However, Spring Break is still months away, and you may reverse this decision. Which of the following events would prompt you to reverse this decision?

The marginal cost of going to Ft. Lauderdale decreases.

Suppose the government has imposed a price ceiling on laptop computers. Which of the following events could transform the price ceiling from one that is not binding into one that is binding?

The number of firms selling laptop computers decreases.

Assume that there is an improvement in production technologies and also an increase in the expected future price. Which of the following will happen?

The technological improvement causes the supply curve to shift rightward while the increase in the expected future price causes the supply curve to shift leftward. The net effect is not known.

Under which of the following scenarios would a park be considered a club good?

Visitors to the park must pay an admittance fee, but there are always plenty of empty picnic tables.

You have responsibility for economic policy in the country of Freedonia. Recently, the neighboring country of Sylvania has cut off all exports of oranges to Freedonia. Harpo, who is one of your advisors, suggests that you should impose a binding price ceiling in order to avoid a shortage of oranges. Chico, another one of your advisors, argues that without a binding price floor, a shortage will certainly develop. Zeppo, a third advisor, says that the best way to avoid a shortage of oranges is to take no action at all. Which of your three advisors is most likely to have studied economics?

Zeppo

A shift of the supply curve for pick-up trucks might be the result of all of the following EXCEPT

a change in the price of pick-up trucks.

It is expected that the price of a bushel of wheat will increase in one month. This belief will result in

a decrease in current supply of wheat.

Which of the following would be most likely to have monopoly power?

a local cable TV provider

An externality is an example of

a market failure.

Trade

allows specialization, which reduces costs.

When marginal cost is greater than average total cost, the

average total cost increases as output increases.

It definitely pays a firm to shut down if the price of its product is

below its minimum average variable cost.

Fred and Ann are both given free tickets to see a movie. Both decide to see the same movie. We know that

both bear an opportunity cost of seeing the movie because they could have done other things instead of seeing the movie

Opportunity cost is measured in terms of

both monetary value and time.

A distinguishing feature of an oligopolistic industry is the tension between

cooperation and self-interest.

The difference between social cost and private cost is a measure of the

cost of an externality.

Ham and eggs are complements. If the price of ham rises, the demand for eggs will

decrease and the demand curve for eggs will shift leftward.

Taco Bell's economists determine that the price elasticity of demand for their tacos is 2.0. So, if Taco Bell raises the price of its tacos by 6.0 percent, the quantity demanded will

decrease by 12%

A drought in California destroys many red grapes. As a result of the drought, the consumer surplus in the market for red grapes

decreases, and the consumer surplus in the market for red wine decreases.

Along a straight-line demand curve, as the price falls the

demand becomes less elastic.

If the government wants to reduce smoking, it should impose a tax on

either buyers or sellers of cigarettes.

The route from Dallas to Mexico City is served by more than one airline. The demand for tickets from American Airlines for that route is probably

elastic and more elastic than the demand for all tickets for that route.

The equilibrium quantity in markets characterized by oligopoly is

higher than in monopoly markets and lower than in perfectly competitive markets.

If the government removes a binding price ceiling from a market, then the price received by sellers will

increase, and the quantity sold in the market will increase.

When the supply of a good increases and the demand for the good remains unchanged, consumer surplus

increases.

If Steve's Apple Orchard, Inc. is a perfectly competitive firm, the demand for Steve's apples has

infinite elasticity.

infinite elasticity.

infinite elasticity.

Factors of production are

inputs into the production process.

Tom Petty excels at producing rock videos. Tom Clancy excels at writing military novels. The difference in their skills is one reason why the production possibilities frontier for videos and novels

is bowed out.

In a diagram with the total cost curve and the total variable cost, as output increases, the vertical distance between these two curves

is constant.

Regulation of a firm in a monopolistically competitive market

is unlikely to improve market effici

By producing less, a firm can reduce

its variable costs but not its fixed costs.

One way to eliminate the Tragedy of the Commons is to

limit access to the commons

Under rent control, tenants can expect

lower rent and lower quality housing

In a perfectly competitive industry, there are

many buyers and many sellers.

One difference between a perfectly competitive firm and a monopoly is that a perfectly competitive firm produces where

marginal cost equals price, while a monopolist produces where price exceeds marginal cost.

A straight-line demand curve with negative slope intersects the horizontal axis at 200 tons per week. The point on the demand curve at which the price elasticity of demand is 1 corresponds to a quantity demanded

of 100 tons.

When a good is excludable,

people can be prevented from using the good.

When the government redistributes income from the wealthy to the poor,

people work less and produce fewer goods and services.

The value and cost of goods are easiest to determine when the goods are

private goods.

As a group, oligopolists earn the highest profit when they

produce a total quantity of output that falls short of the Nash-equilibrium total quantity.

A streetlight is a

public good

Efficiency

refers to how much a society can produce with its resources. Equality refers to how evenly the benefits from using resources are distributed among members of society.

Production possibilities frontiers are usually bowed outward. This is because

resources are specialized; that is, some are better at producing particular goods rather than other goods.

A perfectly competitive firm is producing at the point where its marginal cost equals its marginal revenue. If the firm boosts its output, its total revenue will ____ and its profit will ____

rise; fall

You observe that an increase in the price of salsa decreases the demand for tortilla chips and increases the demand for potato chips. You can conclude that

salsa and tortilla chips are complements.

In perfect competition, the price of the product is determined where the industry

supply curve and industry demand curve intersect.

On most days the price of a rose is $1 and 80 roses are purchased. On Valentine's Day the demand increases so that the price of a rose rises to $2 and 320 roses are purchased. Therefore, the price elasticity of

supply of roses is about 1.8.

The quantity of iPods that people plan to buy this month depends on all of the following EXCEPT the

technology used to produce an iPod.

Joe likes peanut butter and jelly sandwiches for lunch. We can conclude that for Joe

the cross elasticity of demand for peanut butter with respect to jelly is negative because jelly and peanut butter are complements.

Olivia was accepted to Notre Dame and another college. She is trying to decide where to go. Which of the following should she include in making her decision?

the difference between living expenses at Notre Dame and her second choice, but not how much she spent applying to Notre Dame

Jane produces only corn, measured in tons, and cloth, measured in bolts. For her, the opportunity cost of one more ton of corn is

the inverse of the opportunity cost of one more bolt of cloth.

A production possibilities frontier is a straight line when

the rate of tradeoff between the two goods being produced is constant.

In March, the quantity of orange juice sold in the town of Jackson was 3000 cartons and the price $3. In May, the quantity of orange juice sold in the town of Jackson was 3500 cartons and the price was $3.20. This change in the price and quantity sold could have been the result of

the release of a medical study suggesting that consuming orange juice helps prevent cancer.

Which of the following would be classified as a fixed cost for the local supermarket

the rent for the building the store uses.

The marketing people for AT&T believe that if they lower the price of long-distance phone calls by 5 percent, their quantity sold will increase by 15 percent. If they are correct in their belief, then

the total revenue from long-distance services will increase if they lower the price.

A production possibilities frontier can shift outward if

there is a technological improvement.

If an economy is producing efficiently, then

there is no way to produce more of one good without producing less of another good.

If the price of chocolate chip cookies rises, then

there would be a movement upward along the demand curve.

If a monopoly is operating along the portion of its demand curve where marginal revenue is positive, its

total revenue increases when price decreases.

Which of the following is not a way for the government to solve the problem of excessive use of common resources?

turning the common resource into a public good

Government policy can potentially raise economic well-being

when a good does not have a price attached to it.