Micro Final (Sapling)
Kaile Cakes produces 10 cakes per day. The marginal cost of the tenth cake is $24, and average total cost of 10 cakes is $6. The average total cost of 9 cakes is: A. $4. B. $5. C. $6. D. $8. E. None of the above.
$4.
Mark and Rasheed are at the bookstore buying new calculators for the semester. Mark is willing to pay $75 and Rasheed is willing to pay $100 for a calculator. The price for a calculator at the bookstore is $65. How much is their total consumer surplus? A. $35 B. $45 C. $175 D. $10 E. $60
$45
A business produces 10 pairs of eyeglasses. It incurs $30 in average variable cost and $35 in average total cost. The total fixed cost of producing 10 pairs of eyeglasses is: A. $3. B. $35. C. $50. D. $300. E. None of the above.
$50.
Mountain River Adventures offers whitewater rafting trips down the Colorado River. It costs the firm $100 for the first raft trip per day, $120 for the second, $140 for the third, and $160 for the fourth. If the market price for a raft trip was $120 but has now increased to $150, the gain in producer surplus is equal to: A. $90 B. $60 C. $70 D. $20 E. $80
$70
Suppose a local hardware store has explicit costs of $2 million per year and implicit costs of $44,000 per year. If the store earned an economic profit of $50,000 last year, this means that the store's accounting profit equaled: A. $94,000. B. $6,000. C. $2.05 million. D. $2.044 million. E. none of the above
$94,000.
Consider the following two statements in quotes (i) Suppose all of the firms in an industry form a cartel and succeed in raising the price to the monopoly level by reducing output. "Any single firm will find that it can increase its profits by cheating on the cartel agreement." (ii) "Oligopolists will earn zero profits unless they can collude." Which of the following answers is correct? A. (i) is false and (ii) is true B. (i) is true and (ii) is false C. Both (i) and (ii) are true D. Both (i) and (ii) are false
(i) is true and (ii) is false
Tony is a wheat farmer, but he spends part of his day teaching guitar lessons. He has more students requesting lessons than he has time to teach and still maintain his farm. Tony charges $25/hr for guitar lessons. One spring day he spends 10 hours in his field planting $130 worth of seeds, which he expects will produce $300 worth of wheat. What will Tony's economic profit equal? A. -$80 B. $130 C. $170 D. $300 E. $140
-$80
Consider a monopolist that sells cable subscriptions. When the price is $10 a week, it can sell 175 subscriptions. When the price is $15 a week, it can sell 100 subscriptions. The monopolist has fixed costs of $200. The MC for the provision of the cable is $6 a week. If this monopolist must choose between selling 100 or 175 subscriptions, it will choose to sell _____ units at a price of _____ and earn economic profits equal to _____: A. 175; $10; $700 B. 100; $15; $700 C. 175; $15; $900 D. 100; $15; $900 E. none of the above
100; $15; $700
Patty delivers pizza using her own car, and she is paid according to the number of pizzas she delivers. If she doesn't work her total benefit is zero and her total cost is zero. Her total benefit of working 1 hour is $29 and her total cost of working 1 hour is $11. Her total benefit of working 2 hours is $54 and her total cost of working 2 hours is $30. Her total benefit of working 3 hours is $74 and her total cost of working 3 hours is $59. Her total benefit of working 4 hours is $89 and her total cost of working 4 hours is $89. What is the optimal number of hours for Patty to work? A. 1 B. 2 C. 3 D. 4
2
Mark and Julie are going to sell brownies and cookies for their third annual fundraiser bake sale. In one day, Mark can make 40 brownies or 20 cookies, and Julie can make 15 brownies or 15 cookies. With specialization, _____ brownies and _____ cookies will be made in one day: A. 40; 15 B. 40; 20 C. 55; 35 D. 15; 20
40; 15
There are several close substitutes for Bayer aspirin but fewer substitutes for a complete medical examination. Therefore, all other things equal, you would expect the demand for: A. medical examinations to be more price-elastic than is the demand for Bayer aspirin. B. Bayer aspirin to be more price-elastic than is the demand for medical examinations. C. Bayer aspirin to be perfectly price-inelastic. D. Bayer aspirin to be perfectly price-elastic. E. both (b) and (d)
Bayer aspirin to be more price-elastic than is the demand for medical examinations.
Suppose that the market for lollipops operates under conditions of perfect competition. Suppose the industry is initially in long-run equilibrium and that the price of each lollipop is $0.10. Assume that the market demand curve is downward sloping. The price of sugar rises, increasing the marginal and average total cost of producing lollipops by $0.08. Once all of the adjustments to long-run equilibrium have been made, the price of lollipops will equal: A. $0.08. B. $0.10. C. $0.18. D. The question is impossible to answer without knowing exactly how many firms entered and/or left the industry. E. None of the above
$0.18.
Pauli's Pizza offers one slice for $2, two slices for $3.50, three slices for $4.50, and four slices for $5.00. Sal orders two slices. From this we know that Sal's marginal benefit from the second slice must be at least _____ and the marginal benefit from the third slice must be less than _____. A. $3.50; $4.50 B. $3.50; $1.00 C. $1.50; $1.00 D. $1.50; $4.50 E. none of the above
$1.50; $1.00
Werner installs custom sound systems in cars. If he installs seven systems per day, his total costs are $300. If he installs eight systems per day, his total costs are $400. Werner will install eight sound systems per day only if the eighth customer is willing to pay at least: A. $300. B. $100. C. $50. D. $400.
$100.
Why are collusive agreements difficult for cartels to maintain? A. Because each firm can increase profits by producing more than the quantity that maximizes joint profits. B. Because each firm can increase profits by producing less than the quantity that maximizes joint profits. C. Because each firm can increase profits by charging more than the price that maximizes joint cartel profits. D. Because each firm can increase profits by advertising less than will maximize joint cartel profits. E. (a), (c) and (d) are correct
Because each firm can increase profits by producing more than the quantity that maximizes joint profits.
Suppose the government has imposed a price floor on the market for soybeans. Which of the following events could transform the price floor from one that is not binding into one that is binding? A. Farmers use improved, draught-resistant seeds, which lowers the cost of growing soybeans. B. The number of farmers selling soybeans decreases. C. Consumers' income increases, and soybeans are a normal good. D. All of the above E. None of the above
Farmers use improved, draught-resistant seeds, which lowers the cost of growing soybeans.
Suppose the absolute value of the price elasticity of demand for fur coats equals 4.04, while the price elasticity of supply for fur coats equals 0.22. If Congress imposes a luxury tax on fur coats, who will bear more of the burden tax? A. Fur coats sellers and buyers will bear equal burdens. B. It's impossible to tell without additional information. C. Fur coats buyers will bear more of the burden. D. Fur coats suppliers will bear more of the burden.
Fur coats suppliers will bear more of the burden.
When will firms adopt a tit-for-tat strategy? A. if they are sure that cheating behavior will go unnoticed. B. If they expect that price wars will ultimately provide benefits for the dominant firm. C. If they believe that the firms in the industry will be competing with each other for a long time. D. none of the answers provided are correct. E. If they do not believe interdependence is a prominent characteristic of the industry.
If they believe that the firms in the industry will be competing with each other for a long time.
If they spend all night writing computer programs, Laurence can write 10 programs, and Carrie Anne can write 5. If they spend all night making sunglasses, Laurence can make 6 pairs, and Carrie Anne can make 4. Given this information and supposing Laurence and Carrie Anne have constant opportunity costs, we know that _____ has an absolute advantage in _____: A. Laurence; programs but not in sunglasses. B. Laurence; both programs and sunglasses. C. Carrie Anne; programs but not in sunglasses. D. Carrie Anne; both programs and sunglasses. E. none of the above.
Laurence; both programs and sunglasses.
Which of the following events could cause a movement along the supply curve of ceiling fans? A. There is an increase in the price of the motor that powers ceiling fans. B. There is an increase in the price of air conditioners, and consumers regard air conditioners and ceiling fans as substitutes. C. The number of sellers of ceiling fans increases. D. Both (a) and (b) are correct E. Both (b) and (c) are correct F. Both (a) and (c) are correct.
There is an increase in the price of air conditioners, and consumers regard air conditioners and ceiling fans as substitutes.
The price elasticity of demand for fresh tomatoes has been estimated to be 2.22. If a new insecticide and fertilizer treatment yields a 20% increase in the nation's fresh tomato crop, how will that affect total revenue from fresh tomatoes, all other things unchanged? A. Total revenue will remain unchanged. B. The information is insufficient to answer the question. C. Total revenue will rise. D. Total revenue will fall.
Total revenue will rise.
Other things remaining the same, as Japanese imports from the U.S. increase, the quantity of: A. U.S. dollars supplied increases. B. U.S. dollars demanded increases. C. yen supplied decreases. D. U.S. dollars demanded decreases. E. none of the above.
U.S. dollars demanded increases.
Missouri can produce 10,000 tons of pecans per year or 5,000 tons of pears per year. Washington can produce 12,000 tons of pecans per year or 48,000 tons of pears per year. Which of the following statements is true? A. Both answers A and C are correct. B. Washington has an absolute advantage in the production of both pecans and pears. C. Washington has a comparative advantage in producing pecans and Missouri has a comparative advantage in producing pears. D. Washington has a comparative advantage in the production of both pecans and pears.
Washington has an absolute advantage in the production of both pecans and pears.
The only two providers of gasoline in town are Nan Zhi and Mriga Bansal. Nan and Mriga decide to form a cartel. Later, Nan summarizes her pricing strategy as, "I'll cheat on the cartel because, regardless of what Mriga does, cheating gives me the best payoff." This is an example of: A. both a dominant and a tit-for-tat strategy. B. a tit-for-tat strategy. C. product differentiation. D. an irrational strategy. E. a dominant strategy.
a dominant strategy.
Using the production possibility frontier model, labor unemployment is described as producing at: A. a point on either end of the PPF curve. B. a point outside the PPF curve. C. a point inside the PPF curve. D. a point on the middle of the PPF curve.
a point inside the PPF curve.
The total surplus in a market is the: A. net benefit to consumers, defined as the excess of consumer surplus over producer surplus. B. sum of consumer surplus and producer surplus. C. excess supply due to a price above the equilibrium price. D. surplus that accrues when a good is not scarce, defined as the total amount (if any) by which quantity supplied exceeds quantity demanded at a zero price.
sum of consumer surplus and producer surplus.
The total producer surplus in the Wisconsin milk market is the: A. sum of all prices paid multiplied by the number of gallons of milk sold. B. total revenue of the milk producers in Wisconsin. C. sum of the individual producer surpluses in this market. D. total cost of selling milk in Wisconsin.
sum of the individual producer surpluses in this market.
The market price of airline flights increased recently. Some economists suggest that the price increased because several airlines went out of business. They believe that, in the market for flights: A. supply increased. B. the law of demand does not hold for airlines C. demand increased. D. demand decreased. E. supply decreased.
supply decreased.
In one hour, the United States can produce 25 tons of steel or 250 automobiles. In one hour, Japan can produce 30 tons of steel or 275 automobiles. This information implies that: A. Japan has a comparative advantage in the production of both goods. B. the United States has an absolute advantage in the production of steel. C. the United States has a comparative advantage in the production of both goods. D. Japan has a comparative advantage in the production of automobiles. E. the United States has a comparative advantage in the production of automobiles.
the United States has a comparative advantage in the production of automobiles.
Producer surplus is measured by: A. profits. B. the area above the supply curve but below the price. C. the area below the demand curve but above the price. D. the area below the supply curve. E. the area above the average cost curve but below the price
the area above the supply curve but below the price.
To achieve gains from trade, each nation should specialize in the production of a good or service if: A. its production possibility frontier is farther from the origin than that of any other country. B. its production possibility frontier is closer to the origin than that of any other country. C. the country can make that good or service using fewer resources than any other country. D. the country has the absolute advantage in that good or service. E. the country can make that good or service while forgoing the production of fewer alternative products than any other country.
the country can make that good or service while forgoing the production of fewer alternative products than any other country.
You own a deli. Which input of production is MOST likely fixed at your deli? A. the dining room B. the bread used to make sandwiches C. the tomato sauce used to make soups D. the employees E. none of the above
the dining room
You own a small deli that sells sandwiches, salads, and soup. Which factor is an implicit cost of the business? A. wages paid to part-time employees B. the job offer you did not accept at a local catering service C. bread, meat, and vegetables used to produce the items on your menu D. your monthly utility bill E. none of the above.
the job offer you did not accept at a local catering service
Suppose that a binding price floor is in place in a particular market. If the market is deregulated and the price floor is removed: A. the quantity demanded will decrease. B. excess demand will develop. C. the quality of the good supplied will decrease. D. total surplus will decrease. E. both c. and d.
the quality of the good supplied will decrease.
If the price elasticity of demand for radios is 2.5, then a 50 percent reduction in the price of radios will lead to: A. the sale of 200 additional radios. B. the sale of 125 percent more radios than before. C. the sale of 150 percent more radios than before. D. the sale of 50 percent more radios than before. E. the sale of 25 percent more radios than before.
the sale of 50 percent more radios than before
The market for apples is in equilibrium at a price of $0.50 per pound. If the government imposes a price ceiling in the market at $0.40 per pound: A. quantity demanded will decrease. B. quantity supplied will increase. C. there will be a shortage of the good. D. all of the above E. none of the above
there will be a shortage of the good.
Suppose that the average cost of a doctor visit is $100. If the government imposes a price ceiling of $50 on the cost of a doctor visit: A. there will be an excess supply of doctor visits. B. there will be an excess demand for doctor visits. C. total surplus will increase since people will have to spend less money on doctor's visits. D. (a) and (c) E. (b) and (c)
there will be an excess demand for doctor visits.
If marginal costs of production are greater than marginal benefits of production: A. costs will eventually decrease. B. too much of the good is being produced. C. more of the good should be produced. D. not all costs are being considered. E. none of the above.
too much of the good is being produced.
There is one gas station in a small rural town. The owner of the station claims that he will sell the same quantity of gas no matter how high or low the price. If he is correct in this assertion, the demand curve for gas at his station must be _____, with a price elasticity of _____: A. horizontal ; zero B. vertical; infinity C. horizontal; infinity D. vertical ; zero E. there is not enough information provided to answer this question.
vertical ; zero
Peanut butter is an inferior good. Assume the demand curve is upward sloping and the supply curve is downward sloping. If there is an increase in income, total surplus in the peanut butter market: A. will decrease. B. will increase. C. will not change. D. may change, but we cannot determine the change without more information.
will decrease.
Coffee and tea are substitutes in consumption. If there is an increase in the price of coffee, assuming a positively sloped supply curve and a negatively sloped demand curve, total surplus in the tea market: A. will not change. B. will increase. C. will decrease. D. may change, but we cannot determine the change without more information.
will increase.
Suppose it is discovered that drinking cranberry juice prevents the common cold. What effect do you predict this discovery will have on the price and quantity of cranberry juice sold, other things equal? A. both price and quantity will increase B. both price and quantity will decrease C. price will increase while quantity will decrease D. price will decrease while quantity will increase E. price and quantity will both remain constant
both price and quantity will increase
You plan to attend a movie on Saturday night. You buy a ticket for $7 and then lose it. According to marginal analysis, you should: A. go to the movie only if you can find the lost ticket. B. buy another ticket and attend the movie. C. go home. D. buy another ticket and attend the movie only if your marginal benefit of seeing the movie is more than $14.
buy another ticket and attend the movie.
Suppose the world's iron mines are running out of ore, and new sources of iron are not being discovered. In a market system, the users of iron (such as auto manufacturers who buy steel) will: A. continue buying the same amount of iron. B. be surprised when the world suddenly runs out of iron. C. increase their buying of iron in the long run. D. decrease their use of iron in response to rising iron prices. E. need a government agency to inform them of the impending iron shortage.
decrease their use of iron in response to rising iron prices.
In the short run, the average total cost curve slopes upward because of: A. implicit costs. B. diminishing returns. C. increasing returns. D. diseconomies of scale. E. economies of scale.diminishing returns.
diminishing returns.
White Lion Bakery operates in a perfectly competitive industry. White Lion has standard cost curves. The variable costs at the bakery increase, so all of the cost curves except fixed cost shift upward. The demand for White Lion's baked goods does not change, nor does White Lion shut down. To maximize profits after the variable cost increase, White Lion will _____ its price and _____ its level of production: A. raise; increase B. do nothing to; do nothing to C. do nothing to; decrease D. decrease; increase E. raise; decrease
do nothing to; decrease
Large barriers to entry allow monopolies to: A. earn positive economic profits in the long run. B. produce at their minimum average total cost in the long run. C. produce with no fixed costs in the long run. D. maximize their profits by producing where P = MC. E. all of the above
earn positive economic profits in the long run.
In the short run Farmer Jane produces 100 pounds of spinach. Farmer Jane's average total cost per pound is $1.75, total revenue is $450, and total fixed costs are $100. Farmer Jane's: A. average fixed cost is $1.50. B. economic profit is $250. C. economic profit per pound is $2.75. D. average variable cost is $1.25. E. economic profit is negative
economic profit per pound is $2.75.
Product differentiation under monopolistic competition means that each firm: A. receives economic profits. B. faces a downward-sloping demand curve. C. maximizes profit where MC = P. charges the same price. D. none of these answers is correct
faces a downward-sloping demand curve.
A rancher in Oklahoma decides to raise the price of her beef by 19% over the prevailing market price. If the demand for beef is perfectly elastic, this rancher's quantity demanded will: A. increase slightly. B. fall slightly. C. not change. D. fall to 0.
fall to 0.
French fries and hamburgers are complements in consumption. Suppose the cost of the ingredients used to make hamburgers rises, so that the price of a hamburger rises. Then the equilibrium price of french fries _____ and the equilibrium quantity _____: A. rises; decreases B. falls; increases C. rises; increases D. falls; decreases E. falls; does not change
falls; decreases
The U.S. and China produce guns and rice. The country with the lowest opportunity cost of guns (in terms of rice) will: A. import guns. B. have an absolute advantage in guns. C. export rice. D. have a comparative advantage in rice. E. have a comparative advantage in guns
have a comparative advantage in rice.
A binding price floor is likely to cause deadweight loss because: A. buyers incur additional search costs looking for the scarce good. B. the quantity of the good transacted is less than the equilibrium quantity transacted. C. a black market emerges and the good sells at prices above the price floor. D. some buyers who want to buy at the controlled price are unable to find a seller willing to sell at that price.
he quantity of the good transacted is less than the equilibrium quantity transacted.
A major state university in the South recently raised tuition by 12%. An economics professor at this university asked his students, "How many of you will transfer to another university because of the increase in tuition?" One student in about 300 said that he or she would transfer. Based on this information, the price elasticity of demand for education at this university is: A. 0. B. highly inelastic. C. 1. D. highly elastic. E. infinity.
highly inelastic.
For a perfectly competitive firm in the short run: A. if the firm produces the quantity at which P > ATC, then the firm is profitable. B. if the firm produces the quantity at which P < ATC, then the firm breaks even. C. if the firm produces the quantity at which P = ATC, then the firm incurs a loss. D. if the firm produces the quantity at which P < ATC, then the firm is profitable.
if the firm produces the quantity at which P > ATC, then the firm is profitable.
In the short run, the price elasticity of supply for foods low in carbohydrates is lower than it will be in the long run because: A. in the short run, inputs are more available to produce these foods than in the long run. B. in the short run, food producers do not have much time to respond to changes in demand. C. in the short run, prices tend to stay constant. D. in the long run, the price elasticity of supply tends to be perfectly inelastic. E. all of the above.
in the short run, food producers do not have much time to respond to changes in demand.
When a nation's economy grows: A. it has moved to a more consumer-oriented position on its production possibility frontier. B. it has been able to reach full employment. C. its production possibility frontier shifts outward. D. its production possibility frontier shifts inward. E. its production possibility frontier rotates outward.
its production possibility frontier shifts outward.
The equilibrium price of a picture frame is $45 in the perfectly competitive picture frame industry. Your company produces 10,000 picture frames for an average total cost of $48, marginal cost of $40, and average variable cost of $40. Your company, in the short run, should: A. keep output the same because the firm is producing at minimum average variable cost. B. lower the price of picture frames because demand for picture frames is elastic. C. raise the price of picture frames because the firm is losing money. D. shut down because the firm is losing money. E. produce more picture frames because the next picture frame produced will increase profit by $5.
keep output the same because the firm is producing at minimum average variable cost.
Suppose the price elasticity of demand for fishing lures equals 1.5 in South Carolina and 0.63 in Alabama. To increase revenue, fishing lure manufacturers should: A. lower prices in each state. B. raise prices in each state. C. lower prices in South Carolina and raise prices in Alabama. D. leave prices unchanged in South Carolina and raise prices in Alabama. E. none of the above.
lower prices in South Carolina and raise prices in Alabama.
In contrast with perfect competition, a monopolist: A. produces more at a lower price. B. produces where MR > MC, and a perfectly competitively firm produces where P = MC. C. may have economic profits in the long run. D. earns zero economic profits in the long run. E. a. and b. and c.
may have economic profits in the long run.
When a market is in equilibrium and there is no outside intervention to change the equilibrium price: A. total surplus is minimized. B. inefficiency is maximized. C. no mutually beneficial trades are missed. D. some mutually beneficial trades may be missed.
no mutually beneficial trades are missed.
The market for milk is initially in equilibrium. Milk producers successfully advertise to encourage milk drinking. At the same time, more milk producers enter the market. Standard demand and supply analysis tells us that the: A. equilibrium price and quantity of milk will rise. B. equilibrium price and quantity of milk will fall. C. equilibrium quantity of milk will fall, but we can't determine how the equilibrium price will be affected. D. equilibrium price of milk will rise, but we can't determine how the equilibrium quantity will be affected. E. none of the above
none of the above
The law of demand implies that: A. consumers are not responsive to price changes. B. consumers will buy less at lower prices. C. sellers will offer more on the market at higher prices. D. sellers will offer less on the market at lower prices. E. none of the above.
none of the above.
Kayla and Jada are roommates in New York City. Both Kayla and Jada recently received raises. Kayla now purchases more mp3 albums online than before, but Jada buys fewer. Kayla behaves as if mp3 albums are _____ goods, and Jada's income elasticity of demand for mp3 albums is _____: A. normal; positive B. normal; negative C. inferior; positive D. inferior; negative E. none of the above.
normal; negative
One of the major differences between a monopolist and a purely competitive firm is that the purely competitive firm has a _____ demand curve, while the monopolist has a _____ demand curve: A. perfectly elastic; downward-sloping; B. perfectly elastic; perfectly inelastic C. perfectly inelastic; downward-sloping D. downward-sloping; perfectly elastic; E. none of the above
perfectly elastic; downward-sloping;
Two players in a game both have an incentive to cheat no matter what the other player does. Furthermore, if both players cheat in this manner, both players will be worse off. This is a: A. tit-for-tat strategy. B. price leadership model. C. none of these answers is correct D. prisoners' dilemma. E. duopoly equilibrium.
prisoners' dilemma.
In the long run, all of the firms in a perfectly competitive industry will: A. produce at an output level at which average total cost equals marginal cost. B. earn an economic profit greater than zero. C. exit the industry if price is greater than average total cost. D. produce an output level at which price is greater than average total cost.
produce at an output level at which average total cost equals marginal cost.
If the government levies an excise tax in a market whose supply curve is perfectly inelastic, the burden of the tax will fall completely on the _____, and the deadweight loss will equal _____: A. consumers; zero B. producers; zero C. consumers; the tax revenue D. producers; the tax revenue E. none of the above.
producers; zero
In the short run, if P> ATC,a perfectly competitive firm: A. produces output and earns zero economic profit. B. produces output and earns an economic profit. C. produces output and incurs an economic loss. D. does not produce output and earns economic profit.
produces output and earns an economic profit.
If supply and demand both shift to the right at the same time, what can we say about equilibrium price and quantity? A. both will increase B. price will increase, quantity may increase or decrease C. both will decrease D. quantity will increase, price may increase or decrease E. price will decrease, and quantity will increase
quantity will increase, price may increase or decrease
A good has a downward-sloping demand curve and a perfectly elastic supply. Imposing a sales tax of $1 on the good: A. raises the price paid by demanders by less than $1.00. B. does not change the price paid by demanders. C. raises the price paid by demanders by more than $1.00. D. raises the price paid by demanders by $1.00.
raises the price paid by demanders by $1.00.
Suppose that a profit-maximizing monopoly firm undergoes a substantial technological change that reduces its marginal and average total costs by $40. If in response to its reduction in cost the firm changes its price in a profit-maximizing way, then we can predict that its total output will: A. remain unchanged. B. fall. C. rise. D. It is not possible to make a determination from the information given.
rise.
For consumers, pizza and hamburgers are substitutes. A rise in the price of a pizza causes a _____ in the equilibrium price of a hamburger and a(n) _____ in the equilibrium quantity of hamburgers: A. rise; no change B. fall; increase C. rise; increase D. rise; decrease E. fall; decrease
rise; increase
When marginal cost is ABOVE average variable cost, average variable cost must be: A. at its maximum. B. rising. C. negative D. greater than average total cost. E. at its minimum.
rising.
People are willing to buy insurance because of: A. risk aversion. B. the status quo. C. the miscalculation of opportunity costs. D. bounded rationality. E. all of the above
risk aversion.
Sticky Cakes is a bakery. A decrease in the wage rate that Sticky Cakes pays its workers: A. shifts its MC curve downward but not its ATC curve. B. does not shift its MC curve or its ATC curve. C. does not shift its MC curve but shifts its ATC curve downward. D. shifts both its MC curve and its ATC curve downward.
shifts both its MC curve and its ATC curve downward.
A perfectly competitive furniture factory produces 800 chairs in the short run. At this quantity, ATC = $120 and AFC = $40. The market price is $60 per chair and is equal to marginal cost. To maximize profits or to minimize losses, this factory should: A. reduce output but continue to produce in the short run. B. shut down in the short run. C. increase output in the short run. D. do nothing because it is already maximizing profits. E. increase prices to attract a more sophisticated customer.
shut down in the short run.
Suppose the price elasticity of supply for a product is zero. This means that: A. There is a shortage. B. The firm makes the same amount of product even if the price changes some. C. The firm makes the same amount of revenue even if the price changes some. D. No one wants to buy the good. E. The supply curve is horizontal.
The firm makes the same amount of product even if the price changes some
France can produce either 30 pounds of spaghetti and no meatballs, or 50 pounds of meatballs and no spaghetti, or any combination in between each month. Germany can produce 40 pounds of spaghetti and no meatballs, or 30 pounds of meatballs and no spaghetti, or any combination in between. Assume constant opportunity costs (both country's production possibilities frontiers are straight lines). Suppose France and Germany decide to trade. Each country specializes in producing the good for which it has a comparative advantage. Which of the following statements are true? (i) France will be willing to trade 10 pounds of meatballs for 10 pounds of spaghetti. (ii) Germany will not be willing to trade 10 pounds of spaghetti for 10 pounds of meatballs: A. (i) is false and (ii) is false B. (i) is true and (ii) is true C. (i) is true and (ii) is false D. (i) is false and (ii) is true
(i) is true and (ii) is false
Individual profit earned by Dave, an oligopolist, depends on which of the following? (i) The quantity of output that Dave produces (ii) The quantities of output that the other firms in the market produce (iii) The extent of collusion between Dave and the other firms in the market A. (i) and (ii) B. none of these answers is correct C. (iii) only D. (ii) and (iii) E. (i), (ii), and (iii)
(i), (ii), and (iii)
The drug company Pfizer is considering whether to invest in the developing of a new cancer drug. Development will require an initial investment of $10 million now; beginning one year from now, the drug will generate annual profits of $4 million for three years. What is the present discounted value of the drug? Assume the interest rate is i%: A. -$10 million + $4 million*(1+i) +$4 million*(1+i)2+ $4 million*(1+i)3 B. $2 million regardless of the interest rate C. $6 million + $4 million/(1+i) + $4 million/(1+i)2 D. -$10 million + $4 million/(1+i) + $4 million/(1+i)2 + $4 million/(1+i)3 E. $6 million +$4 million*(1+i)2+ $4 million*(1+i)3
-$10 million + $4 million/(1+i) + $4 million/(1+i)2 + $4 million/(1+i)3
You have won a small lottery. There are two ways you can claim the prize. You can either have (i) $200,000 now or (ii) $100,000 now and $105,000 a year from now. If the interest rate is 10%, which do you prefer? A. I would prefer $100,000 now and $105,000 a year from now. B. Neither. I would be indifferent. C. I would prefer $200,000 now D. I would prefer to not have won the lottery since this is such a difficult question.
I would prefer $200,000 now
Which of the following is a normative statement? A. Low rents will restrict the supply of housing. B. Low rents are good because they make apartments more affordable. C. Housing costs are rising. D. Owners of apartment buildings are free to charge whatever rent they want. E. None of the above.
Low rents are good because they make apartments more affordable.
In perfect competition, the profit-maximizing level of output occurs where the: A. MR= MC above minimum AVC. B. price < marginal cost above minimum AVC. C. MR> MC below minimum AVC. D. P= MR above MC.
MR= MC above minimum AVC.
As a group, oligopolists would always be better off if they would act collectively: A. as a single monopolist. B. as a single perfectly competitive firm. C. as if they were each seeking to maximize their own individual profits. D. in a manner that would prohibit collusive agreements.
as a single monopolist.
As the number of firms in the market increases: A. the price effect becomes smaller B. the oligopoly looks more and more like a competitive market C. price approaches marginal cost D. the market quantity approaches the socially efficient quantity E. all of the above
all of the above
In much of the country, homeowners choose to heat their houses with either natural gas or heating oil, both of which are normal goods. Which factor would cause an increase in the demand for natural gas? A. an increase in the price of natural gas B. a decrease in the price of natural gas C. a decrease in the price of heating oil D. an increase in consumer incomes E. none of the above
an increase in consumer incomes
Which of the following is true if all of the firms in a particular industry are price takers: A. each firm can sell at the price it wants to charge, provided it is not too different from the prices other firms are charging. B. each firm takes the market price as given for its output level, recognizing that the price will change if it alters its output significantly. C. an individual firm cannot alter the market price even if it doubles its output. D. the market sets the price, and each firm can take it or leave it by setting a different price. E. none of the above
an individual firm cannot alter the market price even if it doubles its output.
In oligopoly, a firm must realize that: A. collusion was made legal in 2004. B. what it does has no effect on the other firms in the industry. C. all of these choices are correct. D. its behavior will be ignored by other firms in the industry. E. another major firm may dominate choices in the industry, and it will have to behave accordingly.
another major firm may dominate choices in the industry, and it will have to behave accordingly.
The average total cost of producing cell phones in a factory is $20 at the current output level of 100 units per week. If the fixed cost is $1,200 per week: A. average fixed cost is $20. B. total cost is $3,200. C. variable cost is $2,000. D. average variable cost is $8. E. none of the above
average variable cost is $8.
A binding rent-control price ceiling does NOT result in: A. consumer surplus being transferred to producers B. inefficient allocation of the good to consumers. C. inefficiently low transaction costs. D. wasted resources of consumers caused by time spent searching for the good. E. inefficiently low quality of the good being sold.
consumer surplus being transferred to producers
If you obtain a special license from the local government for the exclusive right to sell donuts in town, your monopoly would result from: A. technological superiority. B. increasing returns to scale. C. government-set barriers. D. control of a scarce resource or input. E. network externalities
government-set barriers.
Following the events of 9/11, the airlines have been forced to increase security at a cost of $800 million per year. The number of inspectors and machines does not vary with the number of passengers -- the airlines must have sufficient staff to handle the full-capacity load. These security expenditures will: A. increase MC and ATC. B. increase MC and leave ATC unchanged. C. increase ATC and leave MC unchanged. D. increase MC and AVC. E. increase MC and leave AVC unchanged.
increase ATC and leave MC unchanged
An increase in the consumer surplus in the market for milkshakes may result from a(n) _____ in the _____ of milkshakes: A. increase; price B. increase; supply C. decrease; demand D. decrease; supply
increase; supply
In the short run, for a perfectly competitive firm, the portion of the MC curve at or above the shut-down price is also its: A. individual short-run supply curve. B. ATC curve. C.AVC curve. D. individual demand curve.
individual short-run supply curve.
The persistent unwanted surplus that results from a binding price floor causes inefficiencies that do NOT include: A. the temptation to break the law by selling below the legal price. B. inefficiently low quality. C. deadweight loss. D. inefficient allocation of sales among sellers. E. wasted resources.
inefficiently low quality.
Price discrimination: A. is an attempt by a monopoly to increases its profit by selling the same good to different customers at different prices. B. forces monopolies to charge a lower price as a result of government regulation. C. is an attempt by a monopoly to prevent some customers from purchasing its product by charging a high price. D. increases the consumer surplus associated with a monopolistic market E. both a and d are true
is an attempt by a monopoly to increases its profit by selling the same good to different customers at different prices.
Which statement is TRUE? A. Monopolies usually are economically efficient because they have economic profits with which to work. B. Monopolies usually are economically efficient because they have decreasing returns to scale. C. Monopolies produce too little and charge too much from the standpoint of efficiency. D. Monopolies produce too much and charge too much from the standpoint of efficiency. E. Monopolies cause an efficiency problem but are not associated with a deadweight loss.
monopolies produce too little and charge too much from the standpoint of efficiency.
The New York City transit system charges lower fares to elderly citizens than to other passengers on city busses. Assuming that this pricing strategy increases the profits of the transit system, we can conclude that elderly citizens must have a _____ demand for bus travel than do other passengers: A. less elastic B. identical C. more elastic D. lower E. greater
more elastic
Consider a business that is producing a level of output that is lower than its most profitable one. An increase in output adds: A. more to total cost than to total revenue. B. the same amount to total revenue as to total cost. C. more to total revenue than to total cost. D. to total cost but not to total revenue. E. to total revenue but not to total cost
more to total revenue than to total cost.
