econ exam review #2

Refer to Figure 14-7. Let Q represent the quantity of output and suppose the price of the good is $125. Then marginal revenue is $80 atQ= 270. $100 atQ= 322. $175 atQ= 515. None of the above are correct.

None of the above are correct

When a firm experiences continually declining average total costs, the firm is a price taker. society is better served by having one firm supply the product. the firm will earn higher profits than if average total costs are increasing. All of the above are correct.

society is better served by having one firm supply the product.

One assumption that distinguishes short-run cost analysis from long-run cost analysis for a profit-maximizing firm is that in the short run, output is not variable. the number of workers used to produce the firm's product is fixed. the size of the factory is fixed. there are no fixed costs.

the size of the factory is fixed.

Knowing that the demand for wheat is inelastic, if all farmers voluntarily did not plant wheat on 10 percent of their land, then consumers of wheat would buy more wheat . wheat farmers would suffer a reduction in their total revenue. wheat farmers would experience an increase in their total revenue. the demand for wheat would decrease.

wheat farmers would experience an increase in their total revenue.

The supply curve for the monopolist is horizontal is vertical is upward sloping does not exist

does not exist

Refer to Figure 14-6. Firms will be earn losses in the short run but will remain in business if the market price exceeds P3. is less than P1. is greater than P1 but less than P3. exceeds P2.

is greater than P1 but less than P3.

Refer to Figure 14-6. Firms will shut down in the short run if the market price exceeds P3. is less than P1. is greater than P1 but less than P3. exceeds P2.

is less than P1.

The reason to regulate utilities instead of using antitrust laws to promote competition is that a utility is usually a profit-maximizing monopoly. producer of externalities revenue-maximizing monopoly. natural monopoly.

natural monopoly

Refer to Figure 6-5.If the horizontal line on the graph represents a price ceiling, then the price ceiling is binding and creates a surplus of 60 units of the good. binding and creates a surplus of 20 units of the good. not binding but creates a surplus of 40 units of the good. not binding, and there will be no surplus or shortage of the good.

not binding, and there will be no surplus or shortage of the good.

A key characteristic of a competitive market is that government antitrust laws regulate competition. producers sell nearly identical products. firms minimize total costs. firms have price setting power.

producers sell nearly identical products.

Refer to Table 13-17. Which firm has constant returns to scale over the entire range of output? Firm 1 Firm 2 Firm 3 Firm 4

Firm 3

Suppose the equilibrium price of a tube of toothpaste is $2, and the government imposes a price floor of $3 per tube. As a result of the price floor, quantity demanded decreases. quantity supplied increases. there is a surplus. All of the above are correct.

all of the above are correct

The market demand curve for a monopolist is typically unit price elastic. downward sloping. horizontal. vertical.

downward sloping.

Refer to Figure 7-2. If the price ofthe good is $100, then consumer surplus amounts to $50. $75. $100. $125.

$125

Kelly is willing to pay $5.20 for a gallon of gasoline. The price of gasoline at her local gas station is $3.80. If she purchases ten gallons of gasoline, then Kelly's consumer surplus is $1.40. $14. $3.80. $52.

$14

Refer to Figure 7-22. At the equilibrium price, total surplus is $2,500. $1,000. $3,500. $7,000.

$3,500

Refer to Table 15-21. If the monopolist can engage in perfect price discrimination, what is total profit at the profit-maximizing quantity? $325 $435 $565 $1000

$435

If a 6% decrease in price for a good results in a 2% increase in quantity demanded, the price elasticity of demand is 0.02. 0.33. 3. 4.

0.33

Refer to Table 5-7. Using the midpoint method, at a price of $16, what is the income elasticity of demand when income rises from $5,000 to $10,000? 0.00 0.50 1.00 1.50

1.00

Refer to Table 5-7.Using the midpoint method, at a price of $12, what is the income elasticity of demand when income rises from $5,000 to $10,000? 0.00 0.41 1.00 2.45

1.00

Refer to Table 13-3.If the firm can sell its output for $1 per unit, what is the profit-maximizing level of output? 240 units 230 units 190 units 170 units

230 units

Refer to Table 7-1. If the price of the product is $110, then who would be willing to purchase the product? Calvin Calvin and Sam Calvin, Sam, and Andrew Calvin, Sam, Andrew, and Lori

Calvin, Sam, and Andrew

A firm produces 300 units of output at a total cost of $1,000. If fixed costs are $100, average fixed cost is $10. average variable cost is $3. average total cost is $4. average total cost is $5.

average variable cost is $3.

A legal maximum on the price at which a good can be sold is called a pricefloor. subsidy. support. ceiling.

ceiling

In the long-run equilibrium of a market with free entry and exit, if all firms have the same cost structure, then marginal cost exceeds average total cost. the price of the good exceeds average total cost. average total cost exceeds the price of the good. firms are operating at their efficient scale.

firms are operating at their efficient scale.

Which of the following is not a characteristic of a monopoly? the seller has market power one seller free entry and exit a product without close substitutes

free entry and exit

At the profit-maximizing level of output, marginal revenue equals average total cost. marginal revenue equals average variable cost. marginal revenue equals marginal cost. average revenue equals average total cost.

marginal revenue equals marginal cost.

The deadweight loss associated with a monopoly occurs because the monopolist maximizes profits. produces an output level less than the socially optimal level. produces an output level greater than the socially optimal level. equates marginal revenue with marginal cost.

produces an output level less than the socially optimal level.

Changes in the output of a perfectly competitive firm, without any change in the price of the product, will change the firm's total revenue. marginal revenue. average revenue. All of the above are correct.

total revenue

The long-run market supply curve in a competitive market will always be horizontal. be the portion of the MC that lies above the minimum of AVC for the marginal firm. typically be more elastic than the short-run supply curve. be above the competitive firm's efficient scale.

typically be more elastic than the short-run supply curve.

Price controls are usually enacted as a means of raising revenue for public purposes when policymakers believe that the market price of a good or service is unfair to buyers or sellers. when policymakers tax a good. All of the above are correct.

when policymakers believe that the market price of a good or service is unfair to buyers or sellers.

The federal government is concerned about obesity in the United States. Congress is considering two plans. One will ban the production and sale of "junk food." The other will increase nutrition-education programs and include substantial advertising campaigns to encourage healthy eating habits. The junk-food ban program and the education program will reduce the quantity of junk food sold and raise the price. and the education program will reduce the quantity of junk food sold and lower the price. will reduce the quantity of junk food sold and raise the price. The education program will reduce the quantity of junk food sold and lower the price. will reduce the quantity of junk food sold and lower the price. The education program will reduce the quantity of junk food sold and raise the price.

will reduce the quantity of junk food sold and raise the price. The education program will reduce the quantity of junk food sold and lower the price.

Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit .Refer to Scenario 14-1. At Q = 999, the firm's profits equal $993. $997. $1,003. $1,007.

$1,003

Caroline sharpens knives in her spare time for extra income. Buyers of her service are willing to pay $2.95 per knife for as many knives as Caroline is willing to sharpen. On a particular day, she is willing to sharpen the first knife for $2.00, the second knife for $2.25, the third knife for $2.75, and the fourth knife for $3.50. Assume Caroline is rational in deciding how many knives to sharpen. Her producer surplus is $0.95. $1.15. $1.30. $1.85

$1.85

Katherine gives piano lessons for $20 per hour. She also grows flowers, which she arranges and sells at the local farmer's market. One day she spends 5 hours planting $50 worth of seeds in her garden. Once the seeds have grown into flowers, she can sell them for $150 at the farmer's market. Katherine's accounting profits are $100, and her economic profits are $100. $100, and her economic profits are $0. $0, and her economic profits are $100. $0, and her economic profits are $-100.

$100, and her economic profits are $0.

Suppose that Emily opens a restaurant. She receives a loan from a bank for $200,000. She withdraws $100,000 from her personal savings account. The interest rate on the loan is 6%, and the interest rate on her savings account is 2%.Refer to Scenario 13-5.Emily's total opportunity cost of capital is $2,000. $4,000. $12,000. $14,000.

$14,000

Refer to Figure 7-18. If total surplus is $240 and consumer surplus is $100, then the price of the good is $130. $130, then the price of the good is $120. $160, then the price of the good is $100. $120, then the price of the good is $90.

$160, then the price of the good is $100.

Scenario 14-4Victor is the recipient of $1 million from a lawsuit. Victor decides to use the money to purchase a small business in Florida. His business operates in a perfectly competitive industry. If Victor would have invested the $1 million in a risk-free bond fund, he could have earned $100,000 each year. After he bought the small business, Victor quit his job as a market analyst with Research, Inc., where he used to earn $75,000 per year. Refer to Scenario 14-4. What is Victor's opportunity costs of operating his new business? $25,000 $75,000 $100,000 $175,000

$175,000

Victor is the recipient of $1 million from a lawsuit. Victor decides to use the money to purchase a small business in Florida. His business operates in a perfectly competitive industry. If Victor would have invested the $1 million in a risk-free bond fund, he could have earned $100,000 each year. After he bought the small business, Victor quit his job as a market analyst with Research, Inc., where he used to earn $75,000 per year. Refer to Scenario 14-4. How large would Victor's accounting profits need to be to allow him to attain zero economic profit? $100,000 $125,000 $175,000 $225,000

$175,000

33Refer to Figure 7-2. If the price of the good is $80, then consumer surplus amounts to $110. $135. $160. $185.

$185

Refer to Figure 15-7.A profit-maximizing monopolist would earn total revenues of $81. $144. $225. $240.

$240

A firm has a fixed cost of $500 in its first year of operation. When the firm produces 100 units of output, its total costs are $3,500. When it produces 101 units of output, its total costs are $3,750. What is the marginal cost of producing the 101st unit of output? $250 $275 $340.91 $350

$250

Refer to Table 14-2.For this firm, the average revenue from selling 3 units is $12. $4. $3. $1

$3

Refer to Table 14-2.For this firm, the marginal revenue from selling the 3rd unit is $12. $4. $3. $1.

$3

Refer to Figure 15-19. If there are no fixed costs of production, monopoly profit without price discrimination equals $0. $1,562.50. $3,125. $6,250.

$3,125

Scenario 15-3A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its marginal revenue is $30, its average revenue is $60, and its average total cost is $34. Refer to Scenario 15-3. At Q = 500, the firm's marginal cost is less than $30. $30. $34. greater than $34

$30

A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its marginal revenue is $30, its average revenue is $60, and its average total cost is $34. Refer to Scenario 15-3. At Q = 500, the firm's total revenue is $13,000. $15,000. $17,000. $30,000

$30,000

Refer to Figure 7-14.If the government imposes a price ceiling of $50 in this market, then producer surplus will decrease by $325. $100. $300. $200.

$300

Bill created a new software program he is willing to sell for $200. He sells his first copy and enjoys a producer surplus of $150. What is the price paid for the software? $50. $150. $200. $350.

$350

Refer to Table 7-14.You want to hire a professional photographer to take pictures of your family. The table shows the costs of the four potential sellers in the local photography market. You hire Kevin for a price of $500. What is his producer surplus? $500 $150 $100 $50

$50

Cindy's Car Wash has average variable costs of $2 and average fixed costs of $3 when it produces 100 units of output (car washes). The firm's total cost is $100. $200. $300. $500.

$500

Consider a profit-maximizing monopoly pricing under the following conditions. The profit-maximizing price charged for goods produced is $12.The intersection of the marginal revenue and marginal cost curves occurs where output is 10 units and marginal cost is $6. The socially efficient level of production is 12 units. The demand curve and marginal cost curves are linear. What isthe value of the deadweight loss created by the monopolist? $4 $6 $12 $16

$6

Refer to Figure 14-7. Suppose AVC = $113 when the firm produces 515 units of output. Then the firm's fixed cost amounts to $5,500, and its profit amounts to $20,375. $5,750, and its profit amounts to $20,375 $5,980, and its profit amounts to $25,750. $6,180, and its profit amounts to $25,750.

$6,180, and its profit amounts to $25,750.

Refer to Table 14-9. In order to maximize profit, the firm will produce a level of output where marginal cost is equal to $6. $7. $8. $9.

$8

The marginal revenue curve for a monopoly firm starts at the same point on the vertical axis as the (i)average revenue curve.(ii)marginal cost curve.(iii)demand curve. (i) only (i) and (ii) only (i) and (iii) only (iii) only

(i) and (iii) only

Which of the following statements is correct for a monopolist? (i)The firm maximizes profits by equating marginal revenue with marginal cost. (ii)The firm maximizes profits by equating price with marginal cost. (iii)Demand equals marginal revenue. (iv)Average revenue equals price. (i), (iii), and (iv) only (i) and (iv) only (i), (ii), and (iv) only (i), (ii), (iii), and (iv)

(i) and (iv) only

Suppose good X has a positive income elasticity of demand. This implies that good X could be(i)a normal good.(ii)a necessity.(iii)an inferior good.(iv)a luxury. (i)only (i) and (ii) only (i), (ii), and (iv) only (iii) only

(i), (ii), and (iv) only

Suppose that a firm operating in perfectly competitive market sells 50 units of output. Its total revenues from the sale are $500. Which of the following statements is correct? (i)Marginal revenue equals $5.(ii)Average revenue equals $10.(iii)Price equals $15. (i) only (ii) only (i) and (ii) only (i), (ii), and (iii)

(ii) only

A nonbinding price ceiling (i)causes a surplus. (ii)causes a shortage. (iii)is set at a price above the equilibrium price. (iv)is set at a price below the equilibrium price. (i) only (iii) only (i) and (iii) only (ii) and (iv) only

(iii) only

An industry is a natural monopoly when (i)the government assists the firm in maintaining the monopoly. (ii)a single firm owns a key resource. (iii)a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms. (ii) only (iii) only (i) and (ii) only (ii) and (iii) only

(iii) only

Monopolies are inefficient because they (i)eliminate barriers to entry.(ii)price their product at a level where marginal revenue exceeds marginal cost. (iii)restrict output below the socially efficient level of production. (i) and (ii) only (ii) and (iii) only (iii) only (i), (ii), and (iii)

(iii) only

Victor is the recipient of $1 million from a lawsuit. Victor decides to use the money to purchase a small business in Florida. His business operates in a perfectly competitive industry. If Victor would have invested the $1 million in a risk-free bond fund, he could have earned $100,000 each year. After he bought the small business, Victor quit his job as a market analyst with Research, Inc., where he used to earn $75,000 per year. Refer to Scenario 14-4. At the end of the first year of operating his new business, Victor's accountant reported an accounting profit of $150,000. What was Victor's economic profit? -$150,000 -$50,000 -$25,000 $25,000

-$25,000

A monopolist can sell 300 units of output for $45 per unit. Alternatively, it can sell 301 units of output for $44.60 per unit. The marginal revenue of the 301stunit of output is -$120.00. -$75.40. -$0.40. $75.40.

-$75.40.

Refer to Figure 5-1. Between point A and point B, the slope is equal to -1/4, and the price elasticity of demand is equal to 2/3. -1/4, and the price elasticity of demand is equal to 3/2. -3/2, and the price elasticity of demand is equal to 1/4. -2/3, and the price elasticity of demand is equal to 3/2.

-1/4, and the price elasticity of demand is equal to 3/2.

Refer to Scenario 5-2.Using the midpoint method, if the price of good X is constant at $10 and the price of good Y decreases from $10 to $8, the cross price elasticity of demand is about 0.57, and X and Y are substitutes. -0.22, and X and Y are complements. -0.80, and X and Y are complements. -2.57, and X and Y are complements.

-2.57, and X and Y are complements.

Consider luxury weekend hotel packages in Las Vegas. When the price is $250, the quantity demanded is 2,000 packages per week. When the price is $280, the quantity demanded is 1,700 packages per week. Using the midpoint method, the price elasticity of demand is about 1.43, and an increase in the price will cause hotels' total revenue to decrease. 1.43, and an increase in the price will cause hotels' total revenue to increase. 0.70, and an increase in the price will cause hotels' total revenue to decrease. 0.70, and an increase in the price will cause hotels' total revenue to increase.

1.43, and an increase in the price will cause hotels' total revenue to decrease.

If a 25% change in price results in a 40% change in quantity supplied, then the price elasticity of supply is about 0.63, and supply is elastic. 0.63, and supply is inelastic. 1.60, and supply is elastic. 1.60, and supply is inelastic.

1.60, and supply is elastic.

Refer to Table 13-3. The marginal product of the fourth worker is 10 units. 60 units. 230 units. 240 units.

10 units

Refer to Figure 15-7.In order to maximize profits, the monopolist should produce 9 units. 12 units. 15 units. more than 15 units.

12 units

Kate is a florist. Kate can arrange 20 bouquets per day. She is considering hiring her husband William to work for her. Together Kate and William can arrange 35 bouquets per day. What is William's marginal product? 55 bouquets 35 bouquets 22.5 bouquets 15 bouquets

15 bouquets

Refer to Table 13-3. At which number of workers does diminishing marginal product begin? 1 2 3 4

2

Refer to Figure 14-9. If there are 100 identical firms in this market, what is the value of Q2? 10,000 20,000 40,000 80,000

20,000

Refer to Figure 14-9. If at a market price of $1.75, 52,500 units of output are supplied to this market, how many identical firms are participating in this market? 75 100 250 300

300

Refer to Table 14-9. At which quantity of output is marginal revenue equal to marginal cost? 3 units 5 units 7 units 9 units

5 units

Refer to Table13-3.The marginal product of the third worker is 230 units. 100 units. 77 units. 60 units.

60 units

The monopolist has fixed costs of $1,000 and has a constant marginal cost of $2 per unit. If the monopolist were able to perfectly price discriminate, how many units would it sell? 400 500 900 4,200

900

For a construction company that builds houses, which of the following costs would be a fixed cost? the $50,000 per year salary paid to a construction foreman the $30,000 per year salary paid to the company's bookkeeper the $10,000 per year premium paid to an insurance company All of the above are correct.

All of the above

Patents, copyrights, and trademarks are examples of government-created monopolies. are examples of barriers to entry. allow their owners to charge higher prices. All of the above are correct.

All of the above are correct.

Refer to Figure 7-10. Which area represents producer surplus when the price is P1? BCG ACH ABGD DGH

BCG

Which of the following is a characteristic of a competitive market? There are many buyers but few sellers. Many firms have market power because they own patents Buyers and sellers are price takers. Firms sell differentiated products.

Buyers and sellers are price takers.

Refer to Table 7-1. If the price of the product is $130, then who would be willing to purchase the product? Calvin Calvin and Sam Calvin, Sam, and Andrew Calvin, Sam, Andrew, and Lori

Calvin and Sam

Refer to Figure 5-2. As price falls from Pa to Pb, which demand curve represents the most elastic demand? D1 D2 D3 All of the above are equally elastic.

D1

Which of the following statements helps to explain why government drug interdiction increases drug-related crime? the direct impact is on buyers, not sellers. Successful drug interdiction policies reduce the demand for illegal drugs. Drug addicts will have an even greater need for quick cash to support their habits. In the short run, both equilibrium quantities and prices will fall in the markets for illegal drugs

Drug addicts will have an even greater need for quick cash to support their habits.

Which of the following statements is correct? Opportunity costs equal explicit minus implicit costs. Economists consider opportunity costs to be included in a firm's total revenues. Economists consider opportunity costs to be included in a firm's costs of production. All of the above are correct.

Economists consider opportunity costs to be included in a firm's costs of production

Refer to Table 13-17. Which firm has economies of scale over the entire range of output? Firm 1 only Firms 1 and 2 only Firm 2 only Firm 3 only

Firm 1 only

How does a competitive market compare to a monopoly that engages in perfect price discrimination? In both cases, total social welfare is the same. Total social welfare is higher in the competitive market than with the perfectly price discriminating monopoly. In both cases, some potentially mutually beneficial trades do not occur. Consumer surplus is the same in both cases.

In both cases, total social welfare is the same.

Refer to Table 7-14.You and your best friend want to hire a professional photographer to take pictures of your two families. The table shows the costs of the four potential sellers in the local photography market. You and your friend agree to offer $500 for each session. Who accepts the offer, and what is the total producer surplus in the market? LeBron and Kobe; $500 Kevin and Steve; $500 LeBron and Kobe; $300 Kevin and Steve; $150

Kevin and Steve; $150

Which of the following is an example of a barrier to entry? Tom charges a higher price than his competitors for his golf lessons. Dick charges a lower price than his competitors for his lawn-mowing services. Harry offers free concerts on Sunday afternoons as a form of advertising. Larry obtains a copyright for the new computer game that he invented.

Larry obtains a copyright for the new computer game that he invented.

Which of these assumptions is often realistic for a firm in the short run? The firm can vary both the size of its factory and the number of workers it employs. The firm can vary the size of its factory but not the number of workers it employs. The firm can vary the number of workers it employs but not the size of its factory. The firm can vary neither the size of its factory nor the number of workers it employs.

The firm can vary the number of workers it employs but not the size of its factory.

If the price elasticity of supply for a window manufacturer is 1.5, a 10% increase in the price of windows results in a 15% increase in the quantity of windows supplied. supply is considered to be inelastic. the manufacturer is likely operating very near capacity. All of the above are correct.

a 10% increase in the price of windows results in a 15% increase in the quantity of windows supplied.

Minimum-wage laws dictate the exact wage that firms must pay workers. a maximum wage that firms may pay workers. a minimum wage that firms may pay workers. both a minimum wage and a maximum wage that firms may pay workers.

a minimum wage that firms may pay workers.

Total revenue minus only explicit costs is called accounting profit. economic profit. average total cost. implicit profit.

accounting profit

In which of the following situations will total revenue increase? Price elasticity of demand is 1.2, and the price of the good decreases. Price elasticity of demand is 0.5, and the price of the good increases. Price elasticity of demand is 3.0, and the price of the good decreases. All of the above are correct.

all of the above are correct

Opponents of the minimum wage point out that the minimum wage encourages teenagers to drop out of school. prevents some workers from getting needed on-the-job training. contributes to the problem of unemployment. all of the above are correct

all of the above are correct

Why does a firm in a competitive industry charge the market price? If a firm charges less than the market price, it loses potential revenue. If a firm charges more than the market price, it loses all its customers to other firms. The firm can sell as many units of output as it wants to at the market price. All of the above are correct.

all of the above are correct

OPEC successfully raised the world price of oil in the 1970s and early 1980s, primarily due to an inelastic demand for oil and a reduction in the amount of oil supplied. a reduction in the amount of oil supplied and a world-wide oil embargo. a world-wide oil embargo and an elastic demand for oil. a reduction in the amount of oil supplied and an elastic demand for oil

an inelastic demand for oil and a reduction in the amount of oil supplied.

Fixed costs can be defined as costs that vary inversely with production. vary in proportion with production. are incurred only when production is large enough. are incurred even if nothing is produced.

are incurred even if nothing is produced

Refer to Table 14-2.This firm maximizes total revenue by producing 1 units. 3 units. 5 units. as many units as possible.

as many units as possible

For an individual firm operating in a competitive market, marginal revenue equals average revenue and the price for all levels of output. average revenue, which is greater than the price for all levels of output. average revenue, the price, and marginal cost for all levels of output. marginal cost, which is greater than average revenue for all levels of output.

average revenue and the price for all levels of output.

When marginal cost exceeds average total cost, average fixed cost must be rising. average total cost must be rising. average total cost must be falling. marginal cost must be falling.

average total cost must be rising.

At Bert's Bootery, the total cost of producing twenty pairs of boots is $400. The marginal cost of producing the twenty-first pair of boots is $83. We can conclude that the average variable cost of 21 pairs of boots is $23. average total cost of 21 pairs of boots is $23. average total cost of 21 pairs of boots is $15.09. marginal cost of the 20th pair of boots is $20.

average total cost of 21 pairs of boots is $23.

Constant returns to scale occur when the firm's long-run total costs are constant as output increases. average total costs are constant as output increases. average cost curve is falling as output increases. average cost curve is rising as output increases.

average total costs are constant as output increases.

The fundamental source of monopoly power is barriers to entry. profit. decreasing average total cost. a product without close substitutes.

barriers to entry.

Refer to Figure 6-17.A government-imposed price of $12 in this market is an example of a binding price ceiling that creates a shortage. non-binding price ceiling that creates a shortage. binding price floor that creates a surplus. non-binding price floor that creates a surplus

binding price ceiling that creates a shortage.

Policymakers use taxes to raise revenue for public purposes but not to influence market outcomes. both to raise revenue for public purposes and to influence market outcomes. when they realize that price controls alone are insufficient to correct market inequities. only in those markets in which the burden of the tax falls clearly on the sellers.

both to raise revenue for public purposes and to influence market outcomes.

If a tax is imposed on a market with inelastic demand and elastic supply, then buyers will bear most of the burden of the tax. sellers will bear most of the burden of the tax. the burden of the tax will be shared equally between buyers and sellers. it is impossible to determine how the burden of the tax will be shared.

buyers will bear most of the burden of the tax.

Because natural monopolies have a declining average cost curve, regulating natural monopolies by setting price equal to marginal cost would cause the monopolist to operate at a loss. result in a less than optimal total surplus. maximize producer surplus. result in higher profits for the monopoly.

cause the monopolist to operate at a loss.

Land of Many Lakes (LML) sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML does not choose the quantity of butter to produce. set marginal revenue equal to marginal cost to maximize profit. have any fixed costs of production. choose the price at which it sells its butter.

choose the price at which it sells its butter

The cross-price elasticity of demand can tell us whether goods are normal or inferior. elastic or inelastic. luxuries or necessities. complements or substitutes.

complements or substitutes

On a graph, the area below a demand curve and above the price measures producer surplus. consumer surplus. deadweight loss. willingness to pay.

consumer surplus

Susan quit her job as a teacher, which paid her $36,000 per year, in order to start her own catering business. She spent $12,000 of her savings, which had been earning 10 percent interest per year, on equipment for her business. She also borrowed $12,000 from her bank at 10 percent interest, which she also spent on equipment. For the past several months she has spent $1,000 per month on ingredients and other variable costs. Also for the past several months she has earned $4,500 in monthly revenue. In the short run, Susan should shut down her business, and in the long run she should exit the industry. continue to operate her business, but in the long run she should exit the industry. continue to operate her business, but in the long run she will probably face competition from newly entering firms. continue to operate her business, and she is also in long-run equilibrium.

continue to operate her business, but in the long run she will probably face competition from newly entering firms.

Refer to Figure 5-11. A decrease in price from $20 to $10 leads to a decrease in total revenue of $200, so the price elasticity of demand is greater than 1 in this price range. decrease in total revenue of $200, so the price elasticity of demand is less than 1 in this price range. decrease in total revenue of $120, so the price elasticity of demand is less than 1 in this price range. decrease in total revenue of $120, so demand is elastic in this price range.

decrease in total revenue of $120, so the price elasticity of demand is less than 1 in this price range.

If the government removes a binding price floor from a market, then the price paid by buyers will increase, and the quantity sold in the market will increase. increase, and the quantity sold in the market will decrease. decrease, and the quantity sold in the market will increase. decrease, and the quantity sold in the market will decrease.

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

Joan grows pumpkins. If Joan plants no seeds on her farm, she gets no harvest. If she plants 1 bag of seeds, she gets 500 pumpkins. If she plants 2 bags, she gets 800 pumpkins. If she plants 3 bags, she gets 900 pumpkins. A bag of seeds costs $100, and seeds are her only cost. Refer to Scenario 13-15.Joan's production function exhibits increasing marginal product. decreasing marginal product. constant marginal product. Any of the above could be correct.

decreasing marginal product

Total surplus is represented by the area below the demand curve and above the price. price and up to the point of equilibrium. demand curve and above the supply curve, up to the equilibrium quantity. demand curve and above the horizontal axis, up to the equilibrium quantity.

demand curve and above the supply curve, up to the equilibrium quantity.

If marijuana were legalized, it is likely that there would be an increase in the supply of marijuana. Advocates of marijuana legalization argue that this would significantly reduce the amount of revenue going to the criminal organizations that currently supply marijuana. These advocates believe that the supply for marijuana is elastic. demand for marijuana is elastic. supply for marijuana is inelastic. demand for marijuana is inelastic.

demand for marijuana is inelastic.

If a firm in a competitive market doubles its number of units sold, total revenue for the firm will more than double. double. increase but by less than double. may increase or decrease depending on the price elasticity of demand.

double

A long-run supply curve is flatter than a short-run supply curve because firms can enter and exit a market more easily in the long run than in the short run. long-run supply curves are sometimes downward sloping. competitive firms have more control over demand in the long run. firms in a competitive market face identical cost structures.

firms can enter and exit a market more easily in the long run than in the short run.

The long-run average total cost curve is always flatter than the short-run average total cost curve, but not necessarily horizontal. horizontal. falling as output increases. rising as output increases.

flatter than the short-run average total cost curve, but not necessarily horizontal.

Which of the following is likely to have the most price inelastic demand? strawberry-banana milk shakes gasoline in the short run diamond earrings box seats at a major league baseball game

gasoline in the short run

David's firm experiences diminishing marginal product for all ranges of inputs. The total cost curve associated with David's firm gets flatter as output increases gets steeper as output increases. is constant for all ranges of output. is unrelated to the production function

gets steeper as output increases.

A benefit of a monopoly is lower prices. a wide variety of similar products. decreasing long-run average total costs. greater creativity by authors who can copyright their novels.

greater creativity by authors who can copyright their novels.

A difference between explicit and implicit costs is that explicit costs must be greater than implicit costs. explicit costs do not require a direct monetary outlay by the firm, whereas implicit costs do. implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do. implicit costs must be greater than explicit costs.

implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do.

Refer to Figure 5-11. If price increases from $10 to $20, total revenue will increase by $120, so demand must be inelastic in this price range. increase by $320, so demand must be inelastic in this price range. decrease by $120, so demand must be elastic in this price range. decrease by $320, so demand must be elastic in this price range.

increase by $120, so demand must be inelastic in this price range.

The marginal product of any input is the increase in total cost associated with a one-unit increase in production. change in total output associated with a $1.00 increase in total cost. increase in total cost resulting from the hiring of an additional worker. increase in total output obtained from one additional unit of that input.

increase in total output obtained from one additional unit of that input.

Refer to Table 13-9.For the firm whose production function and costs are specified in the table, its average-variable-cost curve is constant. decreasing. increasing. U-shaped.

increasing

Joan grows pumpkins. If Joan plants no seeds on her farm, she gets no harvest. If she plants 1 bag of seeds, she gets 500 pumpkins. If she plants 2 bags, she gets 800 pumpkins. If she plants 3 bags, she gets 900 pumpkins. A bag of seeds costs $100, and seeds are her only cost. Refer to Scenario 13-15.Joan's total-cost curve is increasing at an increasing rate increasing at a decreasing rate. increasing at a constant rate. decreasing.

increasing at an increasing rate.

Refer to Table 13-9.For the firm whose production function and costs are specified in the table, its total-cost curve is constant. increasing at a decreasing rate. increasing at an increasing rate. unknown because there is no relationship between a firm's production function and its total-cost curve.

increasing at an increasing rate.

Consumer surplus is closely related to the supply curve for a product. is represented by a rectangle on a supply-demand graph when the demand curve is a straight, downward-sloping line. is measured using the demand curve for a product. does not reflect economic well-being in most marke

is measured using the demand curve for a product.

An example of an explicit cost of production would be the cost of forgone labor earnings for an entrepreneur. lost opportunity to invest in capital markets when the money is invested in one's business. lease payments for the land on which a firm's factory stands. Both a and c are correct.

lease payments for the land on which a firm's factory stands.

In the short-run, a firm's supply curve is equal to the marginal cost curve above its average variable cost curve. marginal cost curve above its average total cost curve. average variable cost curve above its marginal cost curve. average total cost curve above its marginal cost curve.

marginal cost curve above its average variable cost curve.

Suppose ABC Aluminum Inc. owns 80% of the world's bauxite, a mineral used in the production of aluminum. Which of the following reasons describes the fundamental barrier to entry for the aluminum industry? monopoly resources government regulation the production process Both a and b are correct.

monopoly resources

Goods with many close substitutes tend to have more elastic demands. less elastic demands. price elasticities of demand that are unit elastic. income elasticities of demand that are negative.

more elastic demands.

For a monopolist, when does marginal revenue exceed average revenue? never when output is less than the profit-maximizing level of output when output is greater than the profit-maximizing level of output for all levels of output greater than zero

never

Refer to Figure 6-16.In this market, a minimumwage of $2.75 is binding and creates a labor shortage. binding and creates unemployment. nonbinding and creates a labor shortage. nonbinding and creates neither a labor shortage nor unemployment.

nonbinding and creates neither a labor shortage nor unemployment

If the government removes a $1 tax on sellers of gasoline and imposes the same $1 tax on buyers of gasoline, then the price paid by buyers will increase, and the price received by sellers will increase. increase, and the price received by sellers will not change. not change, and the price received by sellers will increase. not change, and the price received by sellers will not change.

not change, and the price received by sellers will not change.

For a monopolist, when the output effect is greater than the price effect, marginal revenue is positive. negative. zero. maximized.

positive

Antitrust laws have economic benefits that outweigh the costs if they prevent mergers that would decrease competition and lower the costs of production. prevent mergers that would decrease competition and raise the costs of production. allow mergers that would decrease competition and raise the costs of production. None of the above is correct because antitrust laws never have economic benefits that outweigh the costs.

prevent mergers that would decrease competition and raise the costs of production

When a local grocery store offers discount coupons in the Sunday paper it is most likely trying to reduce prices for all customers. encourage literacy. encourage arbitrage. price discriminate.

price discriminate.

In the short run, a firm operating in a competitive industry will produce the quantity of output where price equals marginal cost as long as the price is less than average total cost. marginal revenue exceeds the marginal cost. price is greater than average variable cost. price is greater than average fixed cost but less than average variable cost.

price is greater than average variable cost.

Diminishing marginal product suggests that the marginal cost of an extra worker is unchanged. cost of an extra worker is less than the previous worker's marginal cost. product of an extra worker is less than the previous worker's marginal product. product of an extra worker is greater than the previous worker's marginal product.

product of an extra worker is less than the previous worker's marginal product.

For a firm, the relationship between the quantity of inputs and quantity of output is called the profit function. production function. total-cost function. quantity function.

production function

The price elasticity of demand measures how much quantity demanded responds to a change in price. quantity demanded responds to a change in income. price responds to a change in demand. demand responds to a change in supply.

quantity demanded responds to a change in price.

Which of the following governmental actions would eliminate some or all of the inefficiency that results from monopoly pricing? The government could regulate the monopoly. prohibited the monopoly from price discriminating. force the monopoly to operate at a point where its marginal revenue is equal to its marginal cost. None of the above would eliminate anyinefficiency associated with a monopoly.

regulate the monopoly.

Suppose that a given firm experiences decreasing marginal product of labor with the addition of each worker regardless of the current output level. Refer to Scenario 13-20. Marginal cost will be rising at all points. falling at all points. U-shaped. constant.

rising at all points

Price discrimination is the business practice of bundling related products to increase total sales. selling the same good at different prices to different customers. pricing above marginal cost. hiring marketing experts to increase consumers' brand loyalty.

selling the same good at different prices to different customers.

If a pharmaceutical company discovers a new drug and successfully patents it, patent law gives the firm partial ownership of the right to sell the drug for a limited number of years. partial ownership of the right to sell the drug for an unlimited number of years. sole ownership of the right to sell the drug for a limited number of years. sole ownership of the right to sell the drug for an unlimited number of years.

sole ownership of the right to sell the drug for a limited number of years.

When economists refer to a production cost that has already been committed and cannot be recovered, they use the term implicit cost. explicit cost. variable cost. sunk cost.

sunk cost

Which of the following industries is most likely to exhibit the characteristic of free entry? electricity satellite radio mineral mining tennis shoes

tennis shoes

If a price ceiling is not binding, then the equilibrium price is above the price ceiling. the equilibrium price is below the price ceiling. it has no legal enforcement mechanism. None of the above is correct because all price ceilings must be binding.

the equilibrium price is below the price ceiling.

Demand is said to be inelastic if buyers respond substantially to changes in the price of the good. demand shifts only slightly when the price of the good changes. the quantity demanded changes only slightly when the price of the good changes. the price of the good responds only slightly to changes in demand.

the quantity demanded changes only slightly when the price of the good changes.

Efficiency in a market is achieved when a social planner intervenes and sets the quantity of output after evaluating buyers' willingness to pay and sellers' costs. the sum of producer surplus and consumer surplus is maximized. all firms are producing the good at the same low cost per unit. no buyer is willing to pay more than the equilibrium price for any unit of the good.

the sum of producer surplus and consumer surplus is maximized

Refer to Figure 7-25.Suppose the government imposes a price floor of $28 in this market. If the sellers with the lowest cost are the ones who sell the good and the government does not purchase any excess units produced, then total surplus will be $400. $800. $1,120. $1,184.

$1,120

Refer to Figure 5-14. Over which range is the supply curve in this figure the most elastic? $16 to $40 $40 to $100 $100 to $220 $220 to $430

$16 to $40

Refer to Table 6-3.Following the imposition of a price floor $2 above the equilibrium price, irate buyers convince Congress to repeal the price floor and to impose a price ceiling $1 below the former price floor. The resulting market price is $2 $3. $4. $5

$3

At price of $1.30 per pound, a local apple orchard is willing to supply 150 pounds of apples per day. At a price of $1.50 per pound, the orchard is willing to supply 170 pounds of apples per day. Using the midpoint method, the price elasticity of supply is about 1.14 1.00. 0.875. 0.50.

0.875

Refer to Figure 5-1. Between point A and point B, price elasticity of demand is equal to 0.33 0.67. 1.5 2.67.

1.5

Refer to Table 5-2.Using the midpoint method, if the price falls from $200 to $150, the absolute value of the price elasticity of demand is 5.3. 2.8. 0.8. 0.36.

2.8

Refer to Figure 6-18. The effective price that sellers receive after the tax is imposed is $6. $10. $16. $24.

$10

Total revenue minus both explicit and implicit costs is called accounting profit. economic profit. average total cost total cost

economic profit

Refer to Figure 6-29. Suppose D1 represents the demand curve for gasoline in both the short run and long run, S1 represents the supply curve for gasoline in the short run, and S2 represents the supply curve for gasoline in the long run. After the imposition of the $2, the price paid by buyers will be higher in the long run than in the short run. higher in the short run than in the long run. equivalent in the short run and the long run. unable to be determined without additional information.

higher in the long run than in the short run.

If the government levies a $5 tax per ticket on buyers of NFL game tickets, then the price paid by buyers of NFL game tickets would increase by less than $5. increase by exactly $5. increase by more than $5. decrease by an indeterminate amount.

increase by less than $5

f a market is allowed to move freely to its equilibrium price and quantity, then an increase in supply will increase consumer surplus. reduce consumer surplus. not affect consumer surplus. Any of the above are possible.

increase consumer surplus.

Refer to Table 5-2.Using the midpoint method, if the price falls from $100 to $50, the price elasticity of demand is zero. inelastic. unit elastic. elastic.

inelastic

Refer to Figure 6-1. The price ceiling shown in panel (a) is not binding. creates a surplus. creates a shortage. Both a) and b) are correct.

is not binding

If a tax is levied on the sellers of a product, then the supply curve will shift up. shift down. become flatter. not shift.

shift up

Refer to Table 7-1. If price of the product is $135, then the total consumer surplus is $-50. $-35. $15. $150.

$15

Refer to Figure 7-11.If the supply curve is S, the demand curve is D, and the equilibrium price is $100, what is the producer surplus? $625 $1,250 $2,500 $5,000

$2,500

The Three Amigo's company produced and sold 500 dog beds. The average cost of production per dog bed was $50. Each dog be sold for a price of $65. The Three Amigo's total costs are $7,500. $25,000. $32,500. $67,500.

$25,000.

Refer to Figure 7-14.At the equilibrium price, producer surplus is $800. $400. $450. $900.

$400

Walter builds birdhouses. He spends $5 on the materials for each birdhouse. He can build one in 30 minutes. He is semi-retired but earns $8 per hour at the local hardware store. He can sell a birdhouse for $20 each.Refer to Scenario 13-11.The explicit cost for one birdhouse is $4. $5. $8. $9.

$5

Refer to Figure 7-11.If the supply curve is S', the demand curve is D, and the equilibrium price is $150, what is the producer surplus? $625 $1,250 $2,500 $5,000

$625

Refer to Figure 7-22. The efficient price is $80, and the efficient quantity is 50. $70, and the efficient quantity is 60. $70, and the efficient quantity is 100. $50, and the efficient quantity is 60.

$70, and the efficient quantity is 100.

A binding price floor will reduce a firm's total revenue always. when demand is elastic. when demand is inelastic. never.

when demand is elastic

Refer to Figure 7-10. When the price rises from P1 to P2, which area represents the increase in producer surplus to existing producers? BCG ACH DGH ABGD

ABGD

If the price of milk rises, when is the price elasticity of demand likely to be the lowest? immediately after the price increase one month after the price increase three months after the price increase one year after the price increase

immediately after the price increase

Suppose the income elasticity of demand is -0.5 for good X. This implies that a 5% decrease in income will cause the quantity demanded of good X to increase by 2.5%, and X is an inferior good. decrease by 2.5% and X is a normal good. increase by 10% and X is an inferior good. decrease by 10% and X is a normal good.

increase by 2.5%, and X is an inferior good.

If the government levies a $1,000 tax per boat on sellers of boats, then the price paid by buyers of boats would increase by more than $1,000. increase by exactly $1,000. increase by less than $1,000. decrease by an indeterminate amount.

increase by less than $1,000.

If the price elasticity of supply for wheat is less than 1, then the supply of wheat is inelastic. elastic. unit elastic. quite sensitive to changes in income.

inelastic

The Federal Insurance Contribution Act (FICA) tax is an example of a(n) payroll tax. sales tax. farm subsidy. income subsidy.

payroll tax

When calculating a firm's profit, an economist will subtract only explicit costs from total revenue because these are the only costs that can be measured explicitly. implicit costs from total revenue because these include both the costs that can be directly measured as well as the costs that can be indirectly measured. the opportunity costs from total revenue because these include both the implicit and explicit costs of the firm. the marginal cost because the cost of the next unit is the only relevant cost.

the opportunity costs from total revenue because these include both the implicit and explicit costs of the firm.

For a vertical demand curve, the slope is undefined, and the price elasticity of demand is equal to 0. the slope is equal to 0, and the price elasticity of demand is undefined. both the slope and price elasticity of demand are undefined. both the slope and price elasticity of demand are equal to 0.

the slope is undefined, and the price elasticity of demand is equal to 0.

A dairy produces and sells organic milk. Last year it sold 500,000 gallons of milk at a price of $7 per gallon. For last year, the firm's total revenue was $3.5 million. economic profit was$3.5 million. accounting profit was $3.5 million. explicit costs were $3.5 million.

total revenue was $3.5 million.

Ellie has been working for an engineering firm and earning an annual salary of $80,000. She decides to open her own engineering business. Her annual expenses will include $15,000 for office rent, $3,000 for equipment rental, $1,000 for supplies, $1,200 for utilities, and a $35,000 salary for a secretary/bookkeeper. Ellie will cover her start-up expenses by cashing in a $20,000 certificate of deposit on which she was earning annual interest of $500. Refer to Scenario 13-9.Ellie's annual implicit costs will equal $55,200. $75,200. $80,500. $165,700.

$80,500.

Refer to Table 13-1. What is total output when 3 workers are hired? 15 60 105 135

135

Refer to Table 6-3.How many units of the good are sold after the imposition of the price floor? 5 9 10 15

5

Refer to Figure 15-19. If the monopoly firm perfectly price discriminates, then consumer surplus amounts to $0. $1,562.50. $3,125. $6,250.

$0

Refer to Figure 15-19. If the monopoly firm perfectly price discriminates, then the deadweight loss amounts to $0. $1,562.50. $3,125. $6,250.

$0

Refer to Figure 7-22. Assume demand increases, which causes the equilibrium price to increase from $50 to $70. The increase in producer surplus to producers already in the market would be $1,600. $600. $800. $1,200.

$1,200

Refer to Figure 14-9. When 100 identical firms participate in this market, at what price will 15,000 units be supplied to this market? $1.00 $1.50 $2.00 The price cannot be determined from the information provided.

$1.50

Refer to Figure 15-7.A profit-maximizing monopolist would earn profits of $96. $117. $120. $126.

$120

When a certain monopoly sets its price at $8 it sells 64 units. When the monopoly sets its price at $10 it sells 60 units. The marginal revenue for the firm over this range is $11. $22. $33. $44.

$22

Refer to Figure 7-18. Suppose the willingness to pay of the marginal buyer of the 3rd unit is $125. Then total surplus is maximized if 1 unit of the good is produced and sold. 2 units of the good are produced and sold. 3 units of the good are produced and sold. 4 units of the good are produced and sold

3 units of the good are produced and sold.

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? Improvements in production technology reduce the costs of producing laptop computers. The number of firms selling laptop computers decreases. Consumers' income decreases, and laptop computers are a normal good. The number of consumers buying laptop computers decreases.

The number of firms selling laptop computers decreases.

Suppose good X has a negative income elasticity of demand. This implies that good X is a normal good. a necessity. an inferior good. a luxury.

an inferior good

If the cross-price elasticity of two goods is negative, then the two goods are necessities. complements. normal goods. inferior goods.

complements

In "Venezuela Versus the Market," the price control placed on coffee created a shortage of coffee. resulted in higher profits for coffee growers. increased coffee exports to other countries. increased the amount of land and coffee used in production

created a shortage of coffee.

If an increase in income results in a decrease in the quantity demanded of a good, then for that good, the cross-price elasticity of demand is negative. price elasticity of demand is elastic. income elasticity of demand is negative. income elasticity of demand is positive.

income elasticity of demand is negative.