Economics Midterm Review

At 100 units of output, a firm's total cost is $10,000. If the firm's total fixed cost is $4,000, its average variable cost is equal to

$60

The table above shows the demand schedules for Jill and for all other consumers, as well as the market supply schedule for the same good. The equilibrium price in this market is

$7

Which of the following will cause the supply curve for shoes to shift to the right?

An increase in the number of firms producing shoes

For a perfectly competitive, increasing-cost industry, an increase in the industry's demand will lead to which of the following in the long-run?

An upward shift in each firm's long-run average cost curve

If a new tax on capital increases a firm's fixed cost of production, which of the following will occur in the short run?

Average total cost will increase.

Refer to the above graph. In the short-run, the firm will realize an economic loss but will continue to produce if the price is

Between P2 and P3

Moving from left to right along a downward-sloping linear demand curve, price elasticity varies in which of the following ways?

First elastic, then unit elastic, and finally inelastic

Which of the following government actions can correct the inefficiency caused by the existence of a monopoly?

Granting a per-unit subsidy on the monopolist's output

An enreprenuer has earned enough total revenue to cover her accounting costs, but economic losses are being incurred. What must be true?

Her accounting profits are less than her implicit costs.

Compared to a perfectly competitive industry with the same demand and cost curves, a monopoly's price and output will be which of the following? Price Output

Higher Lower

Refer to the same graph. Which of the following MUST be true in the long run?

If the price is above P3, new firms will enter the industry.

Monopolistically competitive firms are considered inefficient in allocating society's resources for which of the following reasons?

In equilibrium, the marginal benefit exceeds the marginal cost of production.

Which of the following will tend to make the demand for a product more elastic?

New firms which produce similar products enter the industry.

For the firm shown in the above graph, which combination of output and price will maximize its profit? Output Price

Q1 P4

For the firm shown in the graph above, the short-run profit-maximizing strategy would be to set output at

Q1, price at P3, and earn an economic profit

Assuming a downward-sloping demand curve and an upward-sloping supply curve, which of the following will occur as a result of an increase in the sales tax on a good?

Quantity demanded will decrease

Public goods are underproduced in a competitive market because the free-rider problem causes which of the following?

Reduced market demand

The difference between what consumers are willing to pay for units of a good and the price consumers actually pay for units of the good is

consumer surplus

If a per-unit tax is imposed on a monopolist, how will the monopolist's marginal cost curve, output, and the price paid by consumer be affected? Marginal Cost Output Price

Shift up Decrease Increase

According to the above graph, which of the following segments of the marginal cost curve lies entirely on the firm's short-run supply curve?

TUV

Suppose that at the current output level the marginal social cost of producing a good is greater than its marginal private cost, and that the marginal social benefit associated with production of the good is equal to its marginal private benefit. Which of the following government actions would most likely increase efficiency?

Taxing the production of the good

In a perfectly competitive market, a change in which of the following could cause a shift in the supply curve?

Technology

If a perfectly competitive firm is producing where marginal cost is rising and greater than marginal revenue, to maximize its profits it should

decrease the level of production

Short-run marginal costs eventually increase because of the effects of

diminishing marginal product

The quantity of peanuts supplied increases from 40 tons per week to 60 tons per week when the price of peanuts increased from $4 per ton to $5 per ton. The price elasticity of supply for peanuts over this price range is

elastic

Farmingdale charges high price. Farmingdale charges low price. Agronomia charges high price. $150, $150 $50, $300 Agronomia charges low price. $30, $50 $100, $100 9. The above table shows the profits associated with the pricing strategies of two oligopolistic firms, Agronomia and Farmingdale. Each firm has two possible strategies: to charge a low price or a high price. The first entry in each cell shows the profits to Agronomia and the second the profits to Farmingdale. If the two firms do not cooperate, as a result of the firms' pricing decisions that profits of each firm will be which of the following Agronomia's Profit Farmingdale's Profit

$100 $100

If the marginal cost of producing the first unit of some good is $20 and the marginal cost of producing the second unit is $30, the average variable cost of producing 2 units is

$25

The table below represents point of an economy's current production possibilities curve. Good X GoodY 1000 0 990 100 980 200 970 300 The opportunity cost of increasing the production of good Y from 0 to 200 is

20 units of X

If cotton is used to produce towels, and increase in the price of cotton will result in which of the following changes in the towel market?

A decrease in the supply of towels, which leads to a shortage of towels followed by upward pressure on the price of towels

Which of the following best defines a pure public good?

A good whose benefits can be enjoyed by many consumers at the same time and from which consumers cannot be excluded

A monopolistically competitive firm's demand curve will be highly elastic if which of the following exists?

A high degree of product substitutability

Which of the following explains why a decrease in the price of a normal good will lead to an increase in the quantity demanded of the good?

A lower price will increase consumer' purchasing power.

Assume that the marginal social benefit of the last unit of vaccination provided is greater than the marginal social cost. Which of the following can be used to achieve efficiency in the market for vaccination?

A per-unit subsidy for vaccinations

Which of the following MUST be true of the long-run?

All factors of production are variable.

13. Which of the following changes in the demand for and the supply of a good would necessarily lead to a decrease in the equilibrium quantity of the good in the market in the short run? Demand Supply

Decrease Decrease

A city transit authority increases the price of subway and bus tickets from $1.25 to $1.50. If the demand for these tickets is price elastic, the number of people riding buses and subways and the city's revenues will most likely change in which of the following ways? Number of People riding City's Revenues

Decrease Increase

A monopolist introduces a technological innovation that lowers the marginal costs and average cost of production. The price of the good and the level of output are most likely to change in which of the following ways? Price Level of output

Decrease Increase

Assume that ice cream is a normal good. If the price of ice cream decreases, the substitution effect and the income effect will lead to which of the following changes in ice cream consumption? Substitution Effect Income Effect

Decrease Increase

Which of the following best represents a positive externality?

Enjoying watching birds at a neighbor's bird feeder

Which of the following statements correctly identifies a difference between perfect competition and monopolistic competition?

In perfect competition the firms all sell products that are exactly the same, but in monopolistic competition each firm sells a slightly differentiated product.

A cartel is difficult to maintain for which of the following reasons?

Individual cartel members are tempted to cheat on the agreement.

Which of the following is always true of a monopoly that is producing a level of output such that marginal revenue is negative?

It could decrease output to increase profits.

Which of the following is true for a monopolistically competitive firm in Long-run equilibrium?

It earns a normal profit

Which of the following is true of the marginal cost curve?

It intersects the average variable cost curve and the average total cost curve at each curve's minimum point.

Which of the following is a characteristic of a public good?

It is nonrival in consumption.

Jane spends all her weekly allowance to buy only two goods: soda and apples. According to the table above, if her preferences are characterized by the law of diminishing marginal utility, then which of the following statements is correct?

Jane can buy more apples and less soda to maximize her utility.

If a firm is experiencing economies of scale, which of the following will decrease as output increases?

Long-run average total cost

Which of the following must be true if a firm is experiencing economies of scale?

Long-run average total cost decreases as the firm's output increases.

A perfectly competitive manufacturing industry pollutes public water in its production process, leaving the water unsuitable for use by the surrounding communities. At the market equilibrium output level, which of the following is true?

Marginal social cost exceeds marginal social benefit

Which of the following is true when there are negative externalities associated with the production of a good?

Marginal social costs will exceed marginal private costs unless businesses are forced to internalize the external costs.

After graduating from high school, Maria chose to go to college, while Omar chose to work full-time. Which of the following best describes the opportunity costs for these decisions?

Maria's opportunity cost includes the salary she could have earned if she had gone to work.

If the market depicted in the diagram above is initially in equilibrium, which of the following will result from the government's setting a price ceiling at P3

Market price will be unaffected

Over the past 5 years, 50 new restaurants have opened and 30 have closed in the city of Philadelphia. Currently there are 110 restaurants operating in the city. Which of the following best represents the market structure, barriers to entry, and economic profits in the long-run? Market Structure Barriers to Entry Long-Run Economic Profits

Monopolistic competition Low Zero

Which of the following is the best example of a negative externality?

Oil leakages from drilling platforms in the Gulf of Mexico

The use of game theory to explain strategic behavior among firms is most associated with which of the following market structures?

Oligopoly

Which of the following market structures results in allocative efficiency?

Perfect competition

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

Price equals average total cost but is greater than marginal cost.

Which of the following indicates that a perfectly competitive firm is in long-run equilibrium?

Price equals marginal coat, which equals average total cost.

Which of the following is true in a capitalist economy?

Prices serve as incentives for factors of production to move to the markets where they are most valued.

Given an increase in the price of material K - which is an input used to produce good X - and an increase in the price of good Y - which is a substitute for good X - which of the following will definitely occur?

The equilibrium price of good X will increase

According to the production possibilities curve above, which of the following is true?

The opportunity cost of producing another unit of either good remains constant as the production of the other good increases.

11. The diagram below depicts demand and supply curves in a city's rental housing market. If a price ceiling of $1,000 is imposed on the market, which of the following will occur?

The quantity of rental housing demanded will increase

Which of the following is true if consuming one unit of a good yields 100 utils and consuming the second unit of the good increases satisfaction by 20 utils?

The total utility of consuming two units is 120.

All of the following are essential characteristics of a perfectly competitive industry EXCEPT:

There are barriers to entry into and exit from the industry.

An increase in the supply of coffee could be caused by

a decrease in the cost of labor used to produce coffee

In which of the following cases in the government's action appropriate for reducing inefficiency?

a toll on a congested bridge

In order for a firm to engage in price discrimination, it must be

able to separate consumers into different groups based on demand elasticities

The market for goldfish is perfectly competitive. From year 1 to year 2, both the price and quantity of goldfish sold increases. This is most likely caused by

an increase in the demand

Assume that an economy produces televisions and shoes. Which of the following would cause the production possibilities curve for this economy to shift outward?

an increase in the labor force

Improvements in technology for producing all goods must result in

an outward shift in the production possibilities curve

As output of a firm increases, the difference between the firm's average total cost and its average variable cost gets smaller because the firm's

average fixed cost is decresing

Productive efficiency occurs when a firm produces output at a level at which

average total cost is a a minimum

Assume that mustard and ketchup are considered substitutes by consumers. If the price of mustard increases, which of the above graphs represents the most likely response in the ketchup market?7. Assume that mustard and ketchup are considered substitutes by consumers. If the price of mustard increases, which of the above graphs represents the most likely response in the ketchup market?

c

The characteristic of oligopolistic firms that makes them different from all other types of firms is that oligopolistic firms

consider each other's decisions

For an unregulated monopolist, the profit-maximizing quantity will always be

in the elastic region of the demand curve

A monopolist is inefficient from society's point of view because

it underproduces output and charges a price above marginal cost

Private supply of public goods is most likely to result in

less than the efficient level of output, due to the free-rider problem

The basic economic problem of all countries is the existence of

limited resources and unlimited wants

The basic economic problem of all economies is essentially one of deciding how to make the best use of

limited resources to satisfy unlimited wants

Consider the above payoff matrix. If lock chooses to charge the low price, the best course of action for star would be to charge the

low price and earn a profit of $40

Garcia is currently spending his entire lunch budget on 3 sodas and 4 hot dogs. At his current level of consumption, Garcia's marginal utility for sodas is 5 utils and his marginal utility for hot dogs is 10 utils. In order to maximize his total utility, Garcia should

maintain his current level of consumption if the price of soda i $1 and the price of a hot dog is $2

A chemical plant pollutes a river that serves as the water supply for a nearby town. From an economist's point of view, pollution from the plant should be reduced until the

marginal benefit from cleaner water is equal to the marginal cost of making the water cleaner

The most profitable level of output for any firm operating in the short-run is the level of output at which

marginal revenue equals marginal cost

All of the following are included in computing the opportunity cost of attending college EXCEPT

money spent on clothing expenses

The diagram above shows an economy's current production possibilities curve for capital goods and consumer goods. If society chooses point B over point A, society is choosing

more future consumption in exchange for less current consumption

A free rider problem arises when a good is

nonexcludable

If the demand for a good is perfectly price inelastic in the short run and the supply curve is upward sloping, imposing a sales tax on the good will

not change the after-tax revenues received by suppliers

Assume that, for a perfectly competitive firm, marginal cost equals average variable cost at $10, marginal cost equals average total cost at $15, and marginal revenue equals marginal cost at $12. On the basis of this information, the firm should

operate in the short run, even though it will sustain a loss

One difference between a firm in a perfectly competitive market and an unregulated monopoly is that the

perfectly competitive firm can increase the quantity it sells at the market price, whereas the monopoly must lower its price to sell more.

If the government imposes a per-unit tax on the output of a monopoly with a downward-sloping demand curve, the burden of the tax will be

shared by consumers and the monopolist

Assume that olive oil is produced in a constant-cost, perfectly competitive industry, which is currently in long-run equilibrium. If the current price of olive oil is $5 per quart and the demand for olive oil increases, then the price of olive oil will change in which of the following ways in the short run and long run?

short run- be more than $5 long run- be equal to $5

Whenever the production of a good creates negative externalities, an unregulated market will result in

society's marginal cost being higher that the firms marginal cost

In the United State, the federal government redistributes income primarily by

taxing different incomes at different levels

Which of the following is necessary for a firm to practice price discrimination?

the firm can prevent resale of its goods.

If Chris Wizzart Incorporated is a monopolistic producer of diamonds, the firm's demand curve is downward sloping because

the number of diamonds Wizzart Inc offers for sale affects the price of diamonds

The cross-price elasticy of demand between good X and good Z measures the percentage change in the quantity demanded of good X in the response to a percentage change in

the price of good Z

If a government eliminated an effective price floor in a market, all of the following would occur EXCEPT

the supply of the good would increase

A country can consume beyond its present production possibilities curve when it

trades with other countries, thus taking advantage of different opportunity costs