econ exam 2

Should a competitive firm keep producing even if it faces short-run losses and is producing at a point on its MC curve that is above the minimum AVC curve? a) Yes, it is earning normal profits b) Yes, because it covers its variable costs and some fixed costs c) No, it should never incur losses

b) Yes, because it covers its variable costs and some fixed costs

Sandy owns a firm with annual revenue of $1 million. Wages, rent, and other costs are $900,000. Suppose that instead of being an entrepreneur, Sandy could get a job with an annual salary of $250,000. Assume that a job would be as satisfying to Sandy as being an entrepreneur. Calculate Sandy's economic profit: a) $100,000 b) $50,000 c) $0 d) -$150,000

d) -$150,000

The long-run market equilibrium in a perfectly competitive industry with identical firms results in all firms: a) earning zero economic profit b) producing the quantity associated with their break-even price c) producing the profit-maximizing quantity at which MR = MC d) All of the above statements are true

d) All of the above statements are true.

Person A reserves a car online weeks before a trip; person B walks up to a Hertz counter after he walks off an airplane after a four-hour flight. Who probably has more elastic demand for a Hertz rental car? Who probably gets charged more? a) Person B a more elastic demand and will be charged less b) Person B has a more elastic demand and will be charged more c) Person A has a more elastic demand and will be charged more d) Person A has a more elastic demand and will be charged less.

d) Person A has a more elastic demand and will be charged less

Which of the following markets is likely to be the most competitive? a) cable television b) automobiles and trucks c) oil refining d) farm commodities

d) farm commodities

If a firm is earning positive economic profit, it must be the case that: a) price is less than average cost b) price is equal to average cost c) price is equal to total cost d) price is greater than average cost

d) price is greater than average cost

All of the following are considered implicit costs, except: a) paying rent on an existing building b) interest that could have been earned from the savings account if the money were not used on the existing business c) the wages the entrepreneur could have earned if he or she chose to pursue a career in corporate America d) forgone entrepreneurial income

a) paying rent on an existing building

You own a deli. Which of the following is most likely a fixed input at your deli? a) the dining room b) the bread used to make sandwiches c) the tomato base used to make soups d) the employees

a) the dining room

If the market for some good were converted from a competitive industry to a monopoly, which of the following would occur as a result? a) Prices would fall on the output produced by the monopolist b) Some consumer surplus would be reallocated to the monopolist as profit c) The overall level of profit earned in the industry would decrease d) More output would be produced by the monopolist

b) Some consumer surplus would be re-allocated to the monopolist as profit

You produce widgets. Currently you produce 4 widgets at a total cost of $40. Suppose you could produce one more widget (the fifth) at a marginal cost of $5. If you do produce that fifth widget, what will your average total cost be? Has your average total cost increased or decreased? a) Your average total cost has decreased to $11 b) Your average total cost has decreased to $9 c) Your average total cost has increased to $9 d) Your average total cost has increased to $11

b) Your average total cost has decreased to $9

Two firms are the only producers in a market. Each firm is trying to decide whether to advertise. If firm B advertises, firm A earns $2,000 in profit without advertising and $1,800 if A does advertise. (The advertising increases its costs more than its revenues.) If B does not advertise, A earns $2,200 in profit without advertising and $2,000 if A does advertise. If A advertises, B earns $3,000 in profit without advertising and $2,700 if B does advertise. If A does not advertise, B earns $2,600 without advertising and $2,400 if B does advertise. What is firm B's dominant strategy? a) advertise b) do not advertise c) firm B does not have a dominant strategy

b) do not advertise

An increase in the price of good X while holding income and the price of good Y constant will: a) have a positive substitution effect, leading the consumer to increase consumption of good X because of the increase in the marginal utility per dollar spent on good X b) have a negative substitution effect, leading the consumer to decrease consumption of good X because of the decrease in the marginal utility per dollar spent on good X c) cause the consumer to substitute away from good Y toward good X d) cause the consumer to purchase more units of good X because of the income effect

b) have a negative substitution effect, leading the consumer to decrease consumption of good X because of the decrease in the marginal utility per dollar spent on good X

If one worker makes 14 baskets, two workers make 34 baskets, three workers make 45 baskets, and four workers make 50 baskets, which worker yielded the highest marginal product? a) the first worker b) the second worker c) the third worker d) the fourth worker

b) the second worker

Marginal product is the slope of the: a) marginal cost curve b) total product curve c) long-run average total cost curve d) total cost curve

b) total product curve

At high levels of output the spreading effect is: a) stronger than the diminishing returns effect b) weaker than the diminishing returns effect

b) weaker than the diminishing returns effect

If Gnomes-R-Us (a competitive firm) produces where the marginal cost curve intersects with the average total cost curve at its minimum point, the firm will earn: a) positive economic profits b) zero economic profits c) a short-run loss

b) zero economic profits

Suppose that a monopolist can sell 5 units of output at a price of $5, or 6 units of output at a price of $4. What is the marginal revenue of the sixth unit? a) $24 b) $49 c) -$1 d) $10

c) -$1

Assume that the marginal utilities for the first three units of a good consumed are 200, 150, and 125, respectively. The total utility when two units are consumed is: a) 150 b) 200 c) 350 d) 475

c) 350

What is the HHI in the search engine market if Google has 67% market share, Bing has 18% market share, Yahoo! has 11% market share, Ask has 3% market share, and AOL has 1% market share? a) 100 b) 6,724 c) 4,944 d) 7,018 e) 6,818

c) 4,944

An increase in the price of good X while holding income and the price of good Y constant will: a) increase the marginal utility provided by good X b) increase the marginal utility per dollar spent on good Y c) decrease the marginal utility per dollar spent on good X d) reduce the individual's preference for good X

c) decrease the marginal utility per dollar spent on good X

In game theory, the strategy that has a higher payoff than any other strategy—no matter what the other player does—is also known as the: a) superior strategy b) Nash equilibrium c) dominant strategy d) best possible outcome.

c) dominant strategy