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Microeconomics Final

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Refer to Figure 16-2. The firm's profit-maximizing level of output is a. 16 units. b. 24 units. c. 32 units. d. 48 units.

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

Suppose the American Medical Association announces that men who shave their heads are less likely to die of heart failure. We could expect the current demand for a. hair gel to increase. b. razors to increase. c. combs to increase. d. shampoo to increase.

What will happen to the equilibrium price of new textbooks if more students attend college, paper becomes cheaper, textbook authors accept lower royalties, and fewer used textbooks are sold? a. Price will rise. b. Price will fall. c. Price will stay exactly the same. d. The price change will be ambiguous.

Which of the following is not a determinant of the demand for a particular good? a. the prices of related goods b. income c. tastes d. the prices of the inputs used to produce the good

1-C 2-B 3-D 4-D 5-B

1. Refer to Figure 4-22. What is the equilibrium price in this market? a. $8 b. $12 c. $16 d. $20 2. Refer to Figure 4-22. What is the equilibrium quantity in this market? a. 4 units b. 8 units c. 12 units d. 16 units 3. Refer to Figure 4-22. At a price of $12, there is a a. surplus of 2 units. b. surplus of 4 units. c. shortage of 2 units. d. shortage of 4 units. 4.Refer to Figure 4-22. At a price of $8, there is a a. surplus of 4 units. b. surplus of 8 units. c. shortage of 4 units. d. shortage of 8 units. 5. Refer to Figure 4-22. At a price of $24, there is a a. surplus of 4 units. b. surplus of 8 units. c. shortage of 4 units. d. shortage of 8 units.

1-B 2-C 3-A

1. Refer to Figure 4-26. Which of the following movements would illustrate the effect in the market for golf balls of an increase in green fees? a. Point A to Point B b. Point C to Point B c. Point C to Point D d. Point A to Point D 2.Refer to Figure 4-26. Which of the following movements would illustrate the effect in the market for wedding cakes resulting from a decrease in the number of pastry chefs? a. Point A to Point B b. Point C to Point B c. Point C to Point D d. Point A to Point D 3. Refer to Figure 4-26. Which of the following movements would illustrate the effect in the market for fences of a decrease in the price of wood? a. Point A to Point B b. Point C to Point B c. Point C to Point D d. Point A to Point D

1- A 2- A 3- B

1. Refer to Figure 4-27. Panel (a) shows which of the following? a. an increase in demand and an increase in quantity supplied b. an increase in demand and an increase in supply c. an increase in quantity demanded and an increase in quantity supplied d. an increase in quantity demanded and an increase in supply 2. Refer to Figure 4-27. Which of the four panels represents the market for pizza delivery in a college town as we go from summer to the beginning of the fall semester? a. Panel (a) b. Panel (b) c. Panel (c) d. Panel (d) Refer to Figure 4-27. Which of the four panels represents the market for winter coats as we progress from winter to spring? a. Panel (a) b. Panel (b) c. Panel (c) d. Panel (d)

1-C 2-A

1. Refer to Figure 5-3. The demand curve representing the demand for a luxury good with several close substitutes is a. A. b. B. c. C. d. D. 2. Refer to Figure 5-3. Jenna says she would buy 10 gallons of gas per week regardless of the price. If this is true, then Jenna's demand for gas is represented by demand curve a. A. b. B. c. C. d. D.

1-A 2-B

1. Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1? a. A is a luxury and B is a necessity. b. A is a good after an increase in income and B is that same good after a decrease in income. c. A has fewer substitutes than B. d. A is a good immediately after a price increase and B is that same good 3 years after the price increase. 2.Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1? a. A is laundry detergent and B is Tide. b. A is Diet Pepsi and B is soda. c. AisfoodandBisayacht. d. A is toilet paper and B is candles.

Consider the market for portable air conditioners in equilibrium. A summer of unseasonably cool weather would cause a. both the equilibrium price and quantity to decrease. b. both the equilibrium price and quantity to increase. c. the equilibrium price to increase and the equilibrium quantity to decrease. d. the equilibrium price to decrease and the equilibrium quantity to increase.

For a particular good, a 10 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? a. The relevant time horizon is short. b. The good is a luxury. c. The market for the good is narrowly defined. d. There are many close substitutes for this good.

Stephen is restoring a car and has already spent $4,000 on the restoration. He expects to be able to sell the car for $5800. Stephen discovers that he needs to do an additional $2,400 of work to make the car worth $5,800 to potential buyers. He could also sell the car now, without completing the additional work, for $3,800. What should he do? a. He should sell the car now for $3,800. b. He should keep the car since it wouldn't be rational to spend $6,400 restoring a car and then sell it for only $5,800. c. He should complete the additional work and sell the car for $5,800. d. It does not matter which action he takes since the outcome will be the same either way.

Suppose the incomes of buyers in a market for a particular normal good decrease and there is also a reduction in input prices. What would we expect to occur in this market? a. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous. b. Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous. c. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous. d. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.

Suppose the number of buyers in a market decreases and a technological advancement occurs also. What would we expect to happen in the market? a. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous. b. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous. c. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous. d. None of the above is correct.

The flatter the demand curve through a given point, the a. greater the price elasticity of demand at that point. b. smaller the price elasticity of demand at that point. c. closer the price elasticity of demand will be to the slope of the curve. d. greater the absolute value of the change in total revenue when there is a movement from that point upward and to the left along the demand curve.

The price elasticity of demand measures a. buyers' responsiveness to a change in the price of a good. b. the extent to which demand increases as additional buyers enter the market. c. how much more of a good consumers will demand when incomes rise. d. the movement along a supply curve when there is a change in demand.

What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and the price of tea fell? a. Price would fall, and the effect on quantity would be ambiguous. b. Price would rise, and the effect on quantity would be ambiguous. c. Quantity would fall, and the effect on price would be ambiguous. d. Quantity would rise, and the effect on price would be ambiguous.

What would happen to the equilibrium price and quantity of lattés if consumers' incomes rise and lattés are a normal good? a. Both the equilibrium price and quantity would increase. b. Both the equilibrium price and quantity would decrease. c. The equilibrium price would increase, and the equilibrium quantity would decrease. d. The equilibrium price would decrease, and the equilibrium quantity would increase.

When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is a. inelastic. b. elastic. c. unit elastic. d. perfectly inelastic.

If macaroni and cheese is an inferior good, what would happen to the equilibrium price and quantity of macaroni and cheese if consumers' incomes rise? a. Both the equilibrium price and quantity would increase. b. Both the equilibrium price and quantity would decrease. c. The equilibrium price would increase, and the equilibrium quantity would decrease. d. The equilibrium price would decrease, and the equilibrium quantity would increase.

Jerome says that he will spend exactly $25 each month on new apps for his mobile device, regardless of the price of apps. Jerome's demand for apps is a. perfectly elastic. b. unit elastic. c. perfectly inelastic. d. somewhat inelastic, but not perfectly inelastic.

Skip's Sealcoating Service increased its total monthly revenue from $12,000 to $13,500 when it raised the price of driveway repairs from $600 to $750. The price elasticity of demand for Skip's Sealcoating Service is a. 0.11. b. 0.47. c. 1.12. d. 2.11.

Suppose demand is perfectly inelastic, and the supply of the good in question decreases. As a result, a. the equilibrium quantity decreases, and the equilibrium price is unchanged. b. the equilibrium price increases, and the equilibrium quantity is unchanged. c. the equilibrium quantity and the equilibrium price both are unchanged. d. buyers' total expenditure on the good is unchanged.

Suppose the income of buyers in a market for an inferior good decreases and a technological advancement occurs also. What would we expect to happen in the market? a. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous. b. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous. c. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous. d. None of the above is correct.

The University of Iowa was voted the #1 "party school" in 2013. The University of Iowa is located in Iowa City. At the end of August each year, the market demand for beer in Iowa City a. decreases. b. increases. c. remains constant, but we observe a movement downward and to the right along the demand curve. d. remains constant, but we observe a movement upward and to the left along the demand curve.

The price elasticity of demand for mobile phones a. will be higher if there is an improvement in the production technology. b. will be lower if consumers perceive mobile phones to be a necessity. c. is computed as the percentage change in the price of mobile phones divided by the percentage change in quantity of mobile phones. d. All of the above are correct.

Today's demand curve for gasoline could shift in response to a change in a. today's price of gasoline. b. the expected future price of gasoline. c. the number of sellers of gasoline. d. All of the above are correct.

When demand is inelastic, a decrease in price will cause a. an increase in total revenue. b. a decrease in total revenue. c. no change in total revenue but an increase in quantity demanded. d. no change in total revenue but a decrease in quantity demanded.

When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about a. 0.22. b. 0.67. c. 1.33. d. 1.50.

Which of the following events must cause equilibrium quantity to fall? a. demand increases and supply decreases b. demand and supply both decrease c. demand decreases and supply increases d. demand and supply both increase

Beef is a normal good. You observe that both the equilibrium price and quantity of beef have fallen over time. Which of the following explanations would be most consistent with this observation? a. Consumers have experienced an increase in income, and beef-production technology has improved. b. The price of chicken has risen, and the price of steak sauce has fallen. c. New medical evidence has been released that indicates a negative correlation between a person's beef consumption and life expectancy. d. The demand curve for beef must be positively sloped.

Candice is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that a. people respond to incentives. b. rational people think at the margin. c. people face tradeoffs. d. improvements in efficiency sometimes come at the expense of equality.

Hilda's Hair Hysteria earned $3,750 in total revenue last month when it sold 125 haircuts. This month it earned $3,600 in total revenue when it sold 90 haircuts. The price elasticity of demand for Hilda's Hair Hysteria is a. 0.33. b. 0.88. c. 1.14. d. 7.98.

If Jane attends graduate school, it will take her two years, during which time she will earn no income. She will pay a total of $100,000 for tuition, $20,000 for room and board, and $2,000 for books. If she spends the two years working rather than attending college, she will pay a total of $18,000 for room and board, pay no intuition, and buy no books. Based on this information, Jane's economic cost of attending graduate school would be $175,000 if, over the two years, she could earn a total of a. $53,000 instead of attending graduate school. b. $55,000 instead of attending graduate school. c. $71,000 instead of attending graduate school. d. $73,000 instead of attending graduate school.

If Kindle e-readers and Nook e-readers are substitutes, a higher price for Nooks would result in a(n) a. increase in the demand for Nooks. b. decrease in the demand for Nooks. c. increase in the demand for Kindles. d. decrease in the demand for Kindles.

If a change in the price of a good results in no change in total revenue, then a. the demand for the good must be elastic. b. the demand for the good must be inelastic. c. the demand for the good must be unit elastic. d. buyers must not respond very much to a change in price.

Lead is an important input in the production of crystal. If the price of lead decreases, then we would expect the supply of a. crystal to be unaffected. b. crystal to decrease. c. crystal to increase. d. lead to increase.

Suppose that when the price of a 16 oz. to-go cup of gourmet coffee is $4.25, students purchase 750 cups per day. If the price decreases to $3.75 per cup, which of the following is the most likely outcome? a. Students would purchase fewer than 750 cups per day. b. Student would continue to purchase 750 cups per day. c. Students would purchase more than 750 cups per day. d. We do not have enough information to answer this question.

The adage, "There is no such thing as a free lunch," means a. even people on welfare have to pay for food. b. the cost of living is always increasing. c. people face tradeoffs. d. all costs are included in the price of a product.

An early frost in the vineyards of Napa Valley would cause a(n) a. increase in the demand for wine, increasing price. b. increase in the supply of wine, decreasing price. c. decrease in the demand for wine, decreasing price. d. decrease in the supply of wine, increasing price.

An increase in the price of a good will a. increase demand. b. decrease demand. c. increase quantity demanded. d. decrease quantity demanded.

Demand is said to be price elastic if a. the price of the good responds substantially to changes in demand. b. demand shifts substantially when income or the expected future price of the good changes. c. buyers do not respond much to changes in the price of the good. d. buyers respond substantially to changes in the price of the good.

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

The demand for Godiva mint chocolates is likely quite elastic because a. there are many close substitutes. b. this particular type of chocolate is viewed as a luxury by many chocolate lovers. c. the market is narrowly defined. d. All of the above are correct.

The law of demand states that, other things equal, when the price of a good a. falls, the demand for the good rises. b. rises, the quantity demanded of the good rises. c. rises, the demand for the good falls. d. falls, the quantity demanded of the good rises.

The quantity supplied of a good is the amount that a. buyers are willing and able to purchase. b. sellers are able to produce. c. buyers and sellers agree will be brought to market. d. sellers are willing and able to sell.

The unique point at which the supply and demand curves intersect is called a. market harmony. b. coincidence. c. equivalence. d. equilibrium.

When quantity demanded has increased at every price, it might be because a. the number of buyers in the market has decreased. b. income has increased, and the good is an inferior good. c. the costs incurred by sellers producing the good have decreased. d. the price of a complementary good has decreased.

Which of the following is a determinant of the market supply curve but not a determinant of an individual seller's supply? a. production technology b. expectations c. input prices d. the number of sellers

Which of the following is likely to have the most price inelastic demand? a. white chocolate chip with macadamia nut cookies b. Mrs. Field's chocolate chip cookies c. milk chocolate chip cookies d. cookies

Which of the following is not an example of the opportunity cost of going to school? a. The money a student could have earned by working if he had not gone to college. b. The nap a student could have enjoyed if he had not attended class. c. The party a student could have enjoyed if he had not stayed in to study for his exam. d. The money a student spends on rent for his apartment while attending school.

Which of the following statements is correct? a. The demand for flat-screen computer monitors is more elastic than the demand for monitors in general. b. The demand for grandfather clocks is more elastic than the demand for clocks in general. c. The demand for cardboard is more elastic over a long period of time than over a short period of time. d. All of the above are correct.

Which of the following would shift the supply of Green Bay Packers football jerseys to the left? a. The Green Bay Packers make it to the Super Bowl. b. The price of the jerseys increases by $15. c. The technology of sewing machines use to make the jerseys improves. d. The cost of the fabric used to make the jerseys increases.

You have eaten two bowls of ice cream at Sundae School Ice Cream store. You consider eating a third. As a rational consumer you should make your choice by comparing a. the benefits from eating all three bowls of ice cream to how much three bowls of ice cream costs. b. the benefits from eating all three bowls of ice cream to how much one more bowl of ice cream costs. c. the benefits from eating one more bowl of ice cream to how much three bowls of ice cream costs. d. the benefits from eating one more bowl of ice cream to how much one more bowl of ice cream costs.

1-b 2-c

1. Refer to Table 13-7. What is the value of A? a. $25 b. $50 c. $100 d. $200 2. Refer to Table 13-7. What is the value of B? a. $25 b. $50 c. $100 d. $200

A cooperative agreement among oligopolists is less likely to be maintained, a. the greater the number of oligopolists. b. the larger the number of buyers of the oligopolists' product. c. the smaller the number of buyers of the oligopolists' product. d. the more likely it is that the game among the oligopolists will be played over and over again.

A firm operating in a monopolistically competitive market can earn economic profits in a. the short run but not in the long run. b. the long run but not in the short run. c. both the short run and the long run. d. neither the short run nor the long run.

Although most citizens have access to police protection, they also take measures, such as putting locks on their doors, to protect themselves. We can explain this because police protection is a(n) ________ good, while self-protection is a(n) ________ good. A)public; private B)public; artificially scarce good C)common resource; private D)artificially scarce good; common resource

Four roommates share an off-campus house and equally share the cost of rent. Everyone says that she values a clean house, yet the house is usually dirty. To an economist, a clean house in this case represents a. a common resource problem. b. a public good. c. a club good. d. All of the above are correct.

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

If scientists discover that steamed milk, which is used to make lattés, prevents heart attacks, what would happen to the equilibrium price and quantity of lattés? a. Both the equilibrium price and quantity would increase. b. Both the equilibrium price and quantity would decrease. c. The equilibrium price would increase, and the equilibrium quantity would decrease. d. The equilibrium price would decrease, and the equilibrium quantity would increase.

If, at the current price, there is a surplus of a good, then a. sellers are producing more than buyers wish to buy. b. the market must be in equilibrium. c. the price is below the equilibrium price. d. quantity demanded equals quantity supplied.

In a competitive market, the actions of any single buyer or seller will a. have a negligible impact on the market price. b. have little effect on market equilibrium quantity but will affect market equilibrium price. c. affect marginal revenue and average revenue but not price. d. adversely affect the profitability of more than one firm in the market.

Inefficiency exists in an economy when a good is a. not being consumed by buyers who value it most highly. b. not distributed fairly among buyers. c. not produced because buyers do not value it very highly. d. being produced with less than all available resources.

Let L represent the number of workers hired by a firm, and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L = 12, Q = 122) and (L = 13, Q = 130). Then the marginal product of the 13th worker is a. 8 units of output. b. 10 units of output. c. 122 units of output. d. 132 units of output.

Price discrimination adds to social welfare in the form of (i)increased total surplus. (ii)reduced costs of production. (iii)increased consumer surplus. a. (i) only b. (i) and (ii) only c. (i) and (iii) only d. (i), (ii), and (iii)

Ramona decides to spend two hours taking a nap rather than attending her classes. Her opportunity cost of napping is a. the value of the knowledge she would have received had she attended class. b. the $24 she could have earned if she had worked at her job for those two hours. c. the value of her nap minus the value of attending class. d. nothing, since she valued sleep more than attendance at class.

Robin owns a horse stables and riding academy and gives riding lessons for children at "pony camp." Her business operates in a competitive industry. Robin gives riding lessons to 20 children per month. Her monthly total revenue is $4,000. The marginal cost of pony camp is $100 per child. In order to maximize profits, Robin should a. give riding lessons to more than 20 children per month. b. give riding lessons to fewer than 20 children per month. c. continue to give riding lessons to 20 children per month. d. We do not have enough information to answer the question.

Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $11.50 at the profit-maximizing output level, then in the long run a. more firms will enter the market. b. some firms will exit from the market. c. the equilibrium price per bottle will rise d. average total costs will rise.

Suppose that cigarette smokers create a negative externality. Further suppose that the government imposes a tax on cigarettes equal to the per-unit externality. What is the relationship between the after- tax equilibrium quantity and the socially optimal quantity of cigarettes? a. They are equal. b. The after-tax equilibrium quantity is greater than the socially optimal quantity. c. The after-tax equilibrium quantity is less than the socially optimal quantity. d. There is not enough information to answer the question.

The following table contains a demand schedule for a good. Price / Quantity Demanded $10 100 $20 Q1 If the law of demand applies to this good, then Q1 could be a. 0. b. 100. c. 200. d. 400.

The relationship between advertising and product differentiation is a. positive; the more differentiated the product, the more a firm is likely to spend on advertising. b. negative; the more differentiated the product, the less a firm is likely to spend on advertising. c. zero; there is no relationship between product differentiation and advertising. d. irrelevant; firms with differentiated products do not need to advertise.

There are very few, if any, good substitutes for motor oil. Therefore, the a. demand for motor oil would tend to be inelastic. b. demand for motor oil would tend to be elastic. c. demand for motor oil would tend to respond strongly to changes in prices of other goods. d. supply of motor oil would tend to respond strongly to changes in people's tastes for large cars relative to their tastes for small cars.

When firms are said to be price takers, it implies that if a firm raises its price, a. buyers will go elsewhere. b. buyers will pay the higher price in the short run. c. competitors will also raise their prices. d. firms in the industry will exercise market power.

When price is below average variable cost, a firm in a competitive market will a. shut down and incur fixed costs. b. shut down and incur both variable and fixed costs. c. continue to operate as long as average revenue exceeds marginal cost. d. continue to operate as long as average revenue exceeds average fixed cost.

Which of the following is likely to have the most price inelastic demand? a. athletic shoes b. running shoes c. Nike running shoes d. Nike Shox running shoes

Which of the following is the most likely explanation for the imposition of a price ceiling on the market for milk? a. Policymakers have studied the effects of the price ceiling carefully, and they recognize that the price ceiling is advantageous for society as a whole. b. Buyers of milk, recognizing that the price ceiling is good for them, have pressured policymakers into imposing the price ceiling. c. Sellers of milk, recognizing that the price ceiling is good for them, have pressured policymakers into imposing the price ceiling. d. Buyers and sellers of milk have agreed that the price ceiling is good for both of them and have therefore pressured policymakers into imposing the price ceiling.

Which of the following is true about a monopolistically competitive firm? a. It can earn an economic profit in the short run, but not the long run. b. It can earn an economic profit in the short run and the long run c. It can earn an economic profit in the long run, but not the short run d. It cannot earn an economic profit in either the short or long run

14. One way to characterize the difference between positive statements and normative statements is as follows: a. Positive statements tend to reflect optimism about the economy and its future, whereas normative statements tend to reflect pessimism about the economy and its future. b. Positive statements offer descriptions of the way things are, whereas normative statements offer opinions on how things ought to be. c. Positive statements involve advice on policy matters, whereas normative statements are supported by scientific theory and observation. d. Economists outside of government tend to make normative statements, whereas

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

A concentration ratio a. measures the percentage of total sales of the top firm in the industry. b. reflects the level of competition in an industry. c. is inversely related to the price charged by the top firm in the industry. d. All of the above are correct.

A university's football stadium is always sold out, and students who wait in line for hours may be turned away. This indicates a. the ticket price is above the equilibrium price. b. the ticket price is below the equilibrium price. c. the ticket price is at the equilibrium price. d. nothing about the equilibrium price.

Adibok knows that it produces and sells high quality athletic shoes. Wurkout knows that it produces and sells low quality athletic shoes. According to the signaling theory of advertising, a. both Adibok and Wurkout have incentives to spend large amounts of money on advertising for their athletic shoes. b. Adibok has an incentive to spend a large amount of money on advertising for its athletic shoes, but Wurkout does not. c. Wurkout has an incentive to spend a large amount of money on advertising for its athletic shoes, but Adibok does not. d. neither Adibok nor Wurkout has an incentive to spend a large amount of money on advertising for their athletic shoes.

An externality is a. the costs that parties incur in the process of agreeing and following through on a bargain. b. the uncompensated impact of one person's actions on the well-being of a bystander. c. the proposition that private parties can bargain without cost over the allocation of resources. d. a market equilibrium tax.

An outcome that can result from either a price ceiling or a price floor is a. an enhancement of efficiency. b. undesirable rationing mechanisms. c. a surplus. d. a shortage.

Because a monopolist is the sole producer in its market, it can necessarily alter the price of its good (i)without affecting the quantity sold. (ii)without affecting its average total cost. (iii)by adjusting the quantity it supplies to the market. a. (ii) only b. (iii) only c. (i) and (ii) only d. (ii) and (iii) only

Equilibrium price must increase when demand a. increases and supply does not change, when demand does not change and supply decreases, and when demand decreases and supply increases simultaneously. b. increases and supply does not change, when demand does not change and supply decreases, and when demand increases and supply decreases simultaneously. c. decreases and supply does not change, when demand does not change and supply increases, and when demand decreases and supply increases simultaneously. d. decreases and supply does not change, when demand does not change and supply increases, and when demand increases and supply decreases simultaneously.

Excludability is the property of a good whereby a. one person's use diminishes other peoples' use. b. a person can be prevented from using it. c. the government rations the quantity of a good that is available. d. the resource is congestible.

Firms that operate in perfectly competitive markets try to a. maximize revenues. b. maximize profits. c. equate marginal revenue with average total cost. d. All of the above are correct.

For a construction company that builds houses, which of the following costs would be a fixed cost? a. the $20 per hour wage paid to a construction foreman b. the $30,000 per year salary paid to the company's bookkeeper c. the $2 per worker-hour paid to the state government for workers' compensation insurance d. All of the above are correct.

For which of the following goods is the income elasticity of demand likely highest? a. water b. diamonds c. hamburgers d. housing

New cars are normal goods. What will happen to the equilibrium price of new cars if the price of gasoline rises, the price of steel falls, public transportation becomes cheaper and more comfortable, auto-workers accept lower wages, and automobile insurance becomes more expensive? a. Price will rise. b. Price will fall. c. Price will stay exactly the same. d. The price change will be ambiguous.

Oligopolies can end up looking like competitive markets if the number of firms is a. large and they all cooperate. b. large and they do not cooperate. c. small and they all cooperate. d. small and they do not cooperate.

One way in which monopolistic competition differs from oligopoly is that a. there are no barriers to entry in oligopolies. b. in oligopoly markets there are only a few sellers. c. all firms in an oligopoly eventually earn zero economic profits. d. strategic interactions between firms are rare in oligopolies.

Pete owns a shoe-shine business. His accountant most likely includes which of the following costs on his financial statements? (i)shoe polish (ii)rent on the shoe stand (iii)wages Pete could earn delivering newspapers (iv)interest that Pete's money was earning before he spent his savings to set up the shoe-shine business a. (i) only b. (i) and (ii) only c. (iii) and (iv) only d. (i), (ii), (iii), and (iv)

Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that when the firm hires 2 workers, the total cost of production is $100. When the firm hires 3 workers, the total cost of production is $120. In addition, assume that the variable cost per unit of labor is the same regardless of the number of units of labor that are hired. What is the firm's fixed cost? a. $40 b. $60 c. $80 d. $100

The prisoners' dilemma game a. provides insight into why cooperation is individually rational. b. provides insight into why cooperation is difficult. c. is a game in which neither player has a dominant strategy. d. is a game in which exactly one of the two players has a dominant strategy.

When existing firms in a competitive market are profitable, an incentive exists for a. new firms to seek government subsidies that would allow them to enter the market. b. new firms to enter the market, even without government subsidies. c. existing firms to raise prices. d. existing firms to increase production.

When the price of a bracelet was $28 each, the jewelry shop sold 128 per month. When it raised the price to $32 each, it sold 112 per month. Using the midpoint method, the price elasticity of demand for bracelets is a. 1.14. b. 1. c. 0.25. d. 0.13.

Which of the following would cause a movement along the supply curve for cupcakes? a. an improvement in technology for commercial mixers b. a decrease in the price of cupcakes c. an increase in the price of cake flour d. All of the above are correct.

Which of the following would shift the demand curve for gasoline to the right? a. a decrease in the price of gasoline b. an increase in consumer income, assuming gasoline is a normal good c. an increase in the price of cars, a complement for gasoline d. a decrease in the expected future price of gasoline

You lose your job and, as a result, you buy more frozen pizzas. For you, frozen pizza are a(n) a. luxury good. b. inferior good. c. normal good. d. complementary good.

15. In principle, we can a. ignore positive statements when choosing among various public policy alternatives. b. ignore normative statements when choosing among various public policy alternatives. c. confirm or refute positive statements by examining evidence. d. confirm or refute normative statements by examining evidence.

A benefit of a monopoly is a. efficient production. b. decreasing long-run marginal costs. c. profit that can be invested in research and development. d. All of the above are correct.

A binding price floor (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. a. (i) only b. (iii) only c. (i) and (iii) only d. (ii) and (iv) only

A city street is a. always a public good, whether or not it is congested. b. a public good when it is congested, but it is a common resource when it is not congested. c. a common resource when it is congested, but it is a public good when it is not congested. d. always a common resource, whether or not it is congested.

A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will a. fall in the short run. All firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. b. fall in the short run. No firms will shut down, but some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. c. fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. d. not fall in the short run because firms will exit to maintain the price.

At Nick's Bakery, the cost to make a cheese danish is $1.50/danish. As a result of selling 10 danishes, Nick experiences a producer surplus in the amount of $20. Nick must be selling his danishes for a. $2.00 each. b. $0.50 each. c. $3.50 each. d. $5.00 each.

Frank owns a dog-grooming business. Which of the following costs would be implicit costs? (i)dog shampoo (ii)rent on the storefront (iii)wages Frank could earn as a substitute elementary-school teacher (iv)interest that Frank's money was earning before he spent his savings to set up the dog-grooming business a. (i) and (ii) only b. (iv) only c. (iii) and (iv) only d. (i), (ii), (iii), and (iv)

Free entry and exit means that the number of firms in the market adjusts until a. producers continuously enter the market freely. b. the market grows to a profitable level. c. economic profits are driven to zero. d. products are free.

In a perfectly competitive market, the process of entry and exit will end when a. price equals minimum marginal cost. b. marginal revenue equals marginal cost. c. economic profits are zero. d. accounting profits are zero.

In class action lawsuits, interested parties to the lawsuit are not required to pay attorney fees directly. This is an example of an attempt to a. maximize attorney fees. b. reduce the incentive of attorneys to file class action lawsuits. c. reduce the transaction costs of finding a private solution to an externality. d. regulate attorney fees.

It would always be a mistake to view a. many species of animals as common resources. b. a road as a public good. c. national defense as a common resource. d. a fireworks display as a public good.

Resources are a. scarce for households but plentiful for economies b. plentiful for households but scarce for economies c. scarce for households and scarce for economies d. plentiful for households and plentiful for economies

Something that induces a person to act is called a. a trade-off. b. a policy. c. an incentive. d. an opportunity cost.

Suppose after graduating from college you get a job working at a bank earning $30,000 per year. After two years of working at the bank earning the same salary, you have an opportunity to enroll in a one- year graduate program that would require you to quit your job at the bank. Which of the following should not be included in a calculation of your opportunity cost? a. the cost of tuition and books to attend the graduate program b. the $30,000 salary that you could have earned if you retained your job at the bank c. the $45,000 salary that you will be able to earn after having completed your graduate program d. the value of insurance coverage and other employee benefits you would have received if you retained your job at the bank

Suppose that a firm operating in perfectly competitive market sells 400 units of output at a price of $4 each. Which of the following statements is correct? (i)Marginal revenue equals $4. (ii)Average revenue equals $100. (iii)Total revenue equals $1,600. a. (i) only b. (iii) only c. (i) and (iii) only d. (i), (ii), and (iii)

Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $6-per-shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced? a. They are equal. b. The equilibrium quantity is greater than the socially optimal quantity. c. The equilibrium quantity is less than the socially optimal quantity. d. There is not enough information to answer the question.

The fundamental reason that marginal cost eventually rises as output increases is because of a. economies of scale. b. diseconomies of scale. c. diminishing marginal product. d. rising average fixed cost.

The local bakery makes such great cinnamon rolls that consumers do not respond much at all to a change in the price. If the owner is only interested in increasing revenue, she should a. lower the price of the cinnamon rolls. b. leave the price of the cinnamon rolls unchanged. c. raise the price of the cinnamon rolls. d. reduce costs.

The mayor of Workerville proposes a local payroll tax to fund a new water park for the city. The mayor proposes to collect half the tax from workers and half the tax from firms. The mayor will be able to successfully divide the burden of the tax equally if the a. demand for labor is more elastic than the supply of labor. b. supply of labor is more elastic than the demand for labor. c. demand for labor and supply of labor are equally elastic. d. It is not possible for the tax burden to fall equally on firms and workers.

The minimum wage, if it is binding, raises the incomes of a. no workers. b. only those workers who cannot find jobs. c. only those workers whose jobs would pay less than the minimum wage if it didn't exist. d. all workers.

The price paid by buyers in a market will decrease if the government a. increases a binding price floor in that market. b. increases a binding price ceiling in that market. c. decreases a tax on the good sold in that market. d. All of the above are correct.

Today, producers changed their expectations about the future. This change a. can cause a movement along a supply curve. b. can affect future supply, but not today's supply. c. can affect today's supply. d. cannot affect either today's supply or future supply.

Total surplus in a market is equal to a. value to buyers - amount paid by buyers. b. amount received by sellers - costs of sellers. c. value to buyers - costs of sellers. d. amount received by sellers - amount paid by buyers.

Under rent control, landlords cease to be responsive to tenants' concerns about the quality of the housing because a. with rent control, the government guarantees landlords a minimum level of profit. b. they become resigned to the fact that many of their apartments are going to be vacant at any given time. c. with shortages and waiting lists, they have no incentive to maintain and improve their property. d. with rent control, it becomes the government's responsibility to maintain rental housing.

We can say that the allocation of resources is efficient if a. producer surplus is maximized. b. consumer surplus is maximized. c. total surplus is maximized. d. sellers' costs are minimized.

When a binding price floor is imposed on a market to benefit sellers, a. no sellers actually benefit. b. some sellers benefit, but no sellers are harmed. c. some sellers benefit, and some sellers are harmed. d. all sellers benefit.

When a profit-maximizing firm is earning profits, those profits can be identified by a. P × Q. b. (MC - AVC) × Q. c. (P - ATC) × Q. d. (P - AVC) × Q.

Which of the following demonstrates the law of demand? a. After Jon got a raise at work, he bought more pretzels at $1.50 per pretzel than he did before his raise. b. Melissa buys fewer muffins at $0.75 per muffin than at $1 per muffin, other things equal. c. Dave buys more donuts at $0.25 per donut than at $0.50 per donut, other things equal. d. Kendra buys fewer Snickers at $0.60 per Snickers after the price of Milky Ways falls to $0.50 per Milky Way.

Which of the following events would cause a movement downward and to the left along the supply curve for mangos? a. The number of sellers of mangos decreases. b. There is an advance in technology that reduces the cost of producing mangos. c. The price of mangos falls. d. The price of fertilizer increases, and fertilizer is an input in the production of mangos.

Which of the following goods is rival in consumption and excludable? a. a fireworks display b. national defense c. a box of sparklers d. a parade

Workers at a bicycle assembly plant currently earn the mandatory minimum wage. If the federal government increases the minimum wage by $1.00 per hour, then it is likely that the a. demand for bicycle assembly workers will increase. b. supply of bicycles will shift to the right. c. supply of bicycles will shift to the left. d. firm must increase output to maintain profit levels.

You have driven 800 miles on a vacation and then you notice that you are only 15 miles from an attraction you hadn't known about, but would really like to see. In computing the opportunity cost of visiting this attraction you had not planned to visit, you should include a. both the cost of driving the first 800 miles and the next 15 miles. b. the cost of driving the first 800 miles, but not the cost of driving the next 15 miles. c. the cost of driving the next 15 miles, but not the cost of driving the first 800 miles. d. neither the cost of driving the first 800 miles nor the cost of driving the next 15 miles.

A tornado siren is a a. private good. b. club good. c. common resource. d. public good.

Because oligopoly markets have only a few sellers, the actions of any one seller a. do not affect other sellers in the market. b. can have a large impact on the profits of other sellers in the market. c. will affect how other firms behave in the market. d. Both b and c are correct.

Bev is opening her own court-reporting business. She financed the business by withdrawing money from her personal savings account. When she closed the account, the bank representative mentioned that she would have earned $300 in interest next year. If Bev hadn't opened her own business, she would have earned a salary of $25,000. In her first year, Bev's revenues were $30,000, and she spent $1,000 on materials and supplies. Which of the following statements is correct? a. Bev's total explicit costs are $26,300. b. Bev's total implicit costs are $300. c. Bev's accounting profits exceed her economic profits by $300. d. Bev's economic profit is $3,700.

Both public goods and common resources are a. rival in consumption. b. nonrival in consumption. c. excludable. d. nonexcludable.

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 a. $0.95. b. $1.15. c. $1.30. d. $1.85.

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 a. $100. b. $200. c. $300. d. $500.

If the price of natural gas rises, when is the price elasticity of demand likely to be the highest? a. immediately after the price increase b. one month after the price increase c. three months after the price increase d. one year after the price increase

In a competitive market with identical firms, a. an increase in demand in the short run will result in a new price above the minimum of average total cost, allowing firms to earn a positive economic profit in both the short run and the long run. b. firms cannot earn positive economic profit in either the short run or long run. c. firms can earn positive economic profit in the long run if the long-run market supply curve is upward sloping. d. free entry and exit into the market requires that firms earn zero economic profit in the long run even though they may be able to earn positive economic profit in the short run.

In general, elasticity is a measure of a. the extent to which advances in technology are adopted by producers. b. the extent to which a market is competitive. c. how firms' profits respond to changes in market prices. d. how much buyers and sellers respond to changes in market conditions.

In the housing market, supply and demand are a. more elastic in the short run than in the long run, and so rent control leads to a larger shortage of apartments in the short run than in the long run. b. more elastic in the short run than in the long run, and so rent control leads to a larger shortage of apartments in the long run than in the short run. c. more elastic in the long run than in the short run, and so rent control leads to a larger shortage of apartments in the short run than in the long run. d. more elastic in the long run than in the short run, and so rent control leads to a larger shortage of apartments in the long run than in the short run.

In the long run, the quantity supplied of most goods a. will increase in almost all cases, regardless of what happens to price. b. cannot respond at all to a change in price. c. can respond to a change in price, but the change is almost always inconsequential. d. can respond substantially to a change in price.

Mrs. Smith operates a business in a competitive market. The current market price is $7.50. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should a. shut down her business in the short run but continue to operate in the long run. b. continue to operate in the short run but shut down in the long run. c. continue to operate in both the short run and long run. d. shut down in both the short run and long run.

Music compact discs are normal goods. What will happen to the equilibrium price and quantity of music compact discs if musicians accept lower royalties, compact disc players become cheaper, more firms start producing music compact discs, and music lovers experience an increase in income? a. Price will fall, and the effect on quantity is ambiguous. b. Price will rise, and the effect on quantity is ambiguous. c. Quantity will fall, and the effect on price is ambiguous. d. Quantity will rise, and the effect on price is ambiguous.

One economist has argued that rent control is "the best way to destroy a city, other than bombing." Why would an economist say this? a. He fears that low rents will cause low-income people to move into the city, reducing the quality of life for other people. b. He fears that rent control will benefit landlords at the expense of tenants, increasing inequality in the city. c. He fears that rent controls will cause a construction boom, which will make the city crowded and more polluted. d. He fears that rent control will eliminate the incentive to maintain buildings, leading to a deterioration of the city.

Suppose televisions are a normal good and buyers of televisions experience a decrease in income. As a result, consumer surplus in the television market a. decreases. b. is unchanged. c. increases. d. may increase, decrease, or remain unchanged.

Suppose that you have received $300 as a birthday gift. You can spend it today or you can put the money in a bank account for a year and earn 5 percent interest. The opportunity cost of spending the money today, in terms of what you could have after one year, is a. $0. b. $15. c. $305. d. $315.

Suppose the demand function for good X is given by: where is the quantity demanded of good X, is the price of good X, and is the price of good Y, which is related to good X. 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 a. 0.57, and X and Y are substitutes. b. -0.22, and X and Y are complements. c. -0.80, and X and Y are complements. d. -2.57, and X and Y are complements.

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

When marginal cost is rising, average variable cost a. must be rising. b. must be falling. c. must be constant. d. could be rising or falling.

Which of the following is likely to have the most price elastic demand? a. dental floss b. milk c. salt d. diamond earrings

Which of the following would be most likely to have monopoly power? a. a national florist b. an online bookstore c. a local restaurant d. a local electrical cooperative

Refer to Figure 13-6. Why doesn't the total cost curve begin at the origin (the point 0,0)? a. because variable costs are positive when output is zero b. because fixed costs are positive when output is zero c. because the firm is producing at the efficient scale d. because the firm is maximizing profits

Refer to Figure 7-8. At the equilibrium price, consumer surplus is a. $1,050. b. $1,225. c. $1,575. d. $2,450.

Refer to Table 14-15. What is the lowest price at which this firm would operate in the short run? a. $3. b. $4. c. $5. d. $6.

The firm has total fixed costs of $100 and a constant marginal cost of $25 per unit. The firm will maximize profit with the production of a. 4 units of output. b. 10 units of output. c. 16 units of output. d. 22 units of output.

To maximize profit (or minimize losses), the firm will produce a. 20 units. b. 30 units. c. 40 units. d. 50 units.

1-b 2-a 3-d 4-c 5-b 6-a

1.Refer to Figure 15-4. The demand curve for a monopoly firm is depicted by curve a. A. b. B. c. C. d. D. 2. Refer to Figure 15-4. The marginal revenue curve for a monopoly firm is depicted by curve a. A. b. B. c. C. d. D. 3.Refer to Figure 15-4. The marginal cost curve for a monopoly firm is depicted by curve a. A. b. B. c. C. d. D. 4.Refer to Figure 15-4. If the monopoly firm is currently producing Q4 units of output, then a decrease in output will necessarily cause profit to a. remain unchanged. b. decrease. c. increase as long as the new level of output is at least Q2. d. None of the above is correct. The monopolist currently maximizing profits at Q4. 5.Refer to Figure 15-4. If the monopoly firm is currently producing Q3 units of output, then a decrease in output will necessarily cause profit to a. remain unchanged. b. decrease. c. increase as long as the new level of output is at least Q2. d. increase as long as the new level of output is at least Q1. 6.Refer to Figure 15-4. A profit-maximizing monopoly's total revenue is equal to a. P5 x Q3. b. P4 x Q5. c. (P5-P3) x Q3. d. (P5-P4) x Q3.

1-c 2-b

1.Refer to Table 15-8. At what price will the monopolist maximize his profit? a. $6 b. $12 c. $18 d. $24 2.Refer to Table 15-8. What is the maximum profit that the monopolist can earn? a. $10 b. $20 c. $30 d. $40

1-C 2-C

1.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? a. 0.00 b. 0.50 c. 1.00 d. 1.50 2. Refer to Table 5-7. Using the midpoint method, at a price of $8, what is the income elasticity of demand when income rises from $7,500 to $10,000? a. 0.00 b. 0.41 c. 1.00 d. 2.45

55. Refer to Table 15-2. What is Tanya's profit-maximizing level of output? a. 1 b. 2 c. 3 d. 4

For a profit-maximizing monopolist, a. P > MR = MC. b. P = MR = MC. c. P > MR > MC. d. MR < MC < P.

Cross-price elasticity of demand measures how a. the price of one good changes in response to a change in the price of another good. b. the quantity demanded of one good changes in response to a change in the quantity demanded of another good. c. the quantity demanded of one good changes in response to a change in the price of another good. d. strongly normal or inferior a good is.

1-b 2-a

1. Refer to Figure 15-19. If the monopoly firm is not allowed to price discriminate, then consumer surplus amounts to a. $0. b. $1,562.50. c. $3,125. d. $6,250. 2.Refer to Figure 15-19. If the monopoly firm perfectly price discriminates, then consumer surplus amounts to a. $0. b. $1,562.50. c. $3,125. d. $6,250.

1-a 2-c

1. Refer to Figure 15-22. Based upon the information shown, how many units will Bearclaws produce to maximize profits? a. 70. b. 90. c. 105. d. 130 2. Refer to Figure 15-22. Based upon the information shown, what is the deadweight loss created by Bearclaws? a. $140. b. $60. c. $70. d. $14.

Corrective taxes a. encourage consumers to avoid sales taxes by shopping online. b. are frequently used to discourage imports. c. are less efficient than direct regulation. d. give factory owners an economic incentive to reduce pollution.

1-b 2-c 3-d 4-b 5-c

1. Refer to Figure 15-7. In order to maximize profits, the monopolist should produce a. 9 units. b. 12 units. c. 15 units. d. more than 15 units. 2.Refer to Figure 15-7. In order to maximize profits, the monopolist should charge a price of a. $9. b. $12. c. $20. d. $23. 3.Refer to Figure 15-7. A profit-maximizing monopolist would earn total revenues of a. $81. b. $144. c. $225. d. $240. 4. Refer to Figure 15-7. A profit-maximizing monopolist would incur total costs of a. $81. b. $120. c. $144. d. $240. 5.Refer to Figure 15-7. A profit-maximizing monopolist would earn profits of a. $96. b. $117. c. $120. d. $126.

1-a 2-c

1. Refer to Table 13-12. What is the total cost associated with making 890 boxes of earrings per week? a. $1,250 b. $1,325 c. $1,400 d. $1,575 2. Refer to Table 13-12. One week, Eileen earns a profit of $125. If her revenue for the week is $1100, how many boxes of earrings did she produce? a. 140 b. 330 c. 780 d. 950

1-a 2-b

1. Refer to Table 13-2. What is the marginal product of the first worker? a. 300 units b. 200 units c. 100 units d. 50 units 2. Refer to Table 13-2. What is the marginal product of the second worker? a. 300 units b. 200 units c. 100 units d. 50 units

Which of the following industries is least likely to exhibit the characteristic of free entry? a. bookstores b. hairstyling salons c. yoga studios d. satellite radio

If textbooks and study guides are complements, then an increase in the price of textbooks will result in a. more textbooks being sold. b. more study guides being sold. c. fewer study guides being sold. d. no difference in the quantity sold of either good.

Bob owns 5 acres of land. Bob sells the land to a real estate developer who builds a subdivision with 10 houses. The land is an example of a good that is a. both rival in consumption and excludable. b. neither rival in consumption nor excludable. c. excludable, but not rival in consumption. d. rival in consumption, but not excludable.

(Table: Marginal Benefit from Additional Streetlights) Dave and Art live in a new housing development and would like to have streetlights installed to illuminate the streets and sidewalks at night. The table shows Dave and Art's individual marginal benefits of different quantities of streetlights that could be installed in the neighborhood. Suppose that the marginal cost of installing a streetlight is $6. If Dave had to pay for streetlights on his own, how many streetlights would there be? A)0 B)1 C)2 D)3

(Table: Street Cleanings) Peter and Wendy both benefit from having cleaner streets. The table shows the relationship between the number of street cleanings per month and the total benefit they get. Suppose that the marginal cost of street cleaning is $18 per cleaning. Then: a. if the city decides to clean the streets only once per month, Peter would be willing to pay the entire cost of the cleaning. b. if the city decides to clean the streets only once per month, Wendy would be willing to pay the entire cost of the cleaning. c. if Wendy and Peter are the only people in society, the efficient number of street cleanings would be one per month. d. if Wendy and Peter are the only people in society, the efficient number of street cleanings would be at least two per month.

(Table: Total Cost and Total Individual Benefit) The table shows the total cost and total individual benefit of animal control for residents of a small town. If the residents act together, how many officers would they hire? A)0 B)1 C)3 D)5

1-b 2-b

1. Refer to Figure 15-1. The shape of the average total cost curve reveals information about the nature of the barrier to entry that might exist in a monopoly market. Which of the following monopoly types best coincides with the figure? a. ownership of a key resource by a single firm b. natural monopoly c. government-created monopoly d. a patent or copyright monopoly 2. Refer to Figure 15-1. Considering the relationship between average total cost and marginal cost, the marginal cost curve for this firm must a. lie entirely above the average total cost curve. b. lie entirely below the average total cost curve. c. be U-shaped. d. be horizontal.

Bubba is a shrimp fisherman who catches 4,000 pounds of shrimp per year. He can sell the shrimp for $5 per pound. His average total cost of catching shrimp is $3 per pound. Bubba's annual total profit is a. $8,000. b. $12,000. c. $20,000. d. $32,000.

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 1. Refer to Scenario 14-1. At Q = 1,000, the firm's profits equal a. -$200. b. $1,000. c. $3,000. 2. Refer to Scenario 14-1. At Q = 999, the firm's total costs equal a. $10,985. b. $10,990. c. $10,995. d. $10,999. 3. Refer to Scenario 14-1. At Q = 999, the firm's profits equal a. $993. b. $997. c. $1,003. d. $1,007. 4.Refer to Scenario 14-1. To maximize its profit, the firm should a. increase its output. b. continue to produce 1,000 units. c. decrease its output but continue to produce. d. shut down.

1-b 2-a 3-c 4-c

Suppose a monopolist has a demand curve that can be expressed as P=90-Q. The monopolist's marginal revenue curve can be expressed as MR=90-2Q. The monopolist has constant marginal costs and average total costs of $10. 1. Refer to Scenario 15-4. The profit-maximizing monopolist will produce an output level of a. 80 units. b. 40 units. c. 20 units. d. 10 units. 2. Refer to Scenario 15-4. The profit-maximizing monopolist will charge a price of a. $50. b. $40. c. $20. d. $10. 3. Refer to Scenario 15-4. The profit-maximizing monopolist will earn profits of a. $6,400. b. $3,200. c. $1,600. d. $800. 4. Refer to Scenario 15-4. The profit-maximizing monopolist will have a deadweight loss of a. $6,400. b. $3,200. c. $1,600. d. $800.

1-b 2-a 3-c 4-d

Black Box Cable TV is able to purchase an exclusive right to sell a premium movie channel (PMC) in its market area. Let's assume that Black Box Cable pays $150,000 a year for the exclusive marketing rights to PMC. Since Black Box has already installed cable to all of the homes in its market area, the marginal cost of delivering PMC to subscribers is zero. The manager of Black Box needs to know what price to charge for the PMC service to maximize her profit. Before setting price, she hires an economist to estimate demand for the PMC service. The economist discovers that there are two types of subscribers who value premium movie channels. First are the 4,000 die-hard TV viewers who will pay as much as $150 a year for the new PMC premium channel. Second, the PMC channel will appeal to 20,000 occasional TV viewers who will pay as much as $20 a year for a subscription to PMC. 1. Refer to Scenario 15-7. If Black Box Cable TV is unable to price discriminate, what price will it choose to maximize its profit, and what is the amount of the profit? a. price = $20; profit = $400,000 b. price = $20; profit = $330,000 c. price = $150; profit = $450,000 d. price = $150; profit = $600,000 2. Refer to Scenario 15-7. If Black Box Cable TV is able to price discriminate, what would be the maximum amount of profit it could generate? a. $500,000 b. $600,000 c. $850,000 d. $925,000

1-c 2-c

An airline knows that there are two types of travelers: business travelers and vacationers. For a particular flight, there are 100 business travelers who will pay $600 for a ticket while there are 50 vacationers who will pay $300 for a ticket. There are 150 seats available on the plane. Suppose the cost to the airline of providing the flight is $20,000, which includes the cost of the pilots, flight attendants, fuel, etc. 1. Refer to Scenario 15-5. How much profit will the airline earn if it sets the price of each ticket at $600? a. -$5,000 b. $15,000 c. $40,000 d. $60,000 2. Refer to Scenario 15-5. How much profit will the airline earn if it sets the price of each ticket at $300? a. -$15,000 b. -$5,000 c. $25,000 d. $45,000 3. Refer to Scenario 15-5. How much profit will the airline earn if it engages in price discrimination? a. -$5,000 b. $40,000 c. $55,000 d. $75,000 4. Refer to Scenario 15-5. How much additional profit can the airline earn by charging each customer their willingness to pay relative to charging a flat price of $600 per ticket? a. $15,000 b. $25,000 c. $40,000 d. $70,000

1-c 2-c 3-c 4-a

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. 1. Refer to Scenario 15-3. The firm's profit-maximizing price is a. $30. b. between $30 and $34. c. between $34 and $60. d. $60. 2. Refer to Scenario 15-3. At Q = 500, the firm's profit is a. $13,000. b. $15,000. c. $17,000. d. $30,000. 3. Refer to Scenario 15-3. At Q = 500, the firm's marginal cost is a. less than $30. b. $30. c. $34. d. greater than $34.

1-d 2-a 3-b

Suppose market demand for a product is given by the equation P = 20 - Q. For this market demand curve, marginal revenue is MR = 20 - 2Q. 1. Refer to Scenario 16-2. If the marginal cost of producing this good is 0, what quantity would a profit- maximizing monopolist produce? a. Q = 0 b. Q = 2 c. Q = 5 d. Q = 10 2. Refer to Scenario 16-2. If the marginal cost of producing this good is 0, what price would a profit- maximizing monopolist charge for the product? a. P = 0 b. P = 5 c. P = 10 d. P = 20 3. Refer to Scenario 16-2. If the marginal cost of producing this good is 0, how much total consumer surplus would consumers receive in this market? a. 10 b. 20 c. 50 d. 100

1-d 2-c 3-c

1-a 2-c 3-a 4-d

1. Refer to Figure 15-17. Which of the following areas represents the profit earned by this profit- maximizing monopolist? a. BCFE b. ABE c. EFG d. CFIH 2.Refer to Figure 15-17. Which of the following areas represents the deadweight loss from this profit- maximizing monopolist? a. ABE b. BCFE c. EFG d. ACG 3.Refer to Figure 15-17. Which of the following areas represents the consumer surplus from this profit- maximizing monopolist? a. ABE b. BCFE c. EFG d. ACG 4.Refer to Figure 15-17. If this firm were able to perfectly price discriminate, which of the following areas would represent the profit to this perfectly discriminating monopolist? a. ABE b. BCFE c. EFG d. ACG

1-b 2-c 3-a 4-b 5-c

1. Refer to Figure 10-13. Each unit of plastics that is produced results in an external a. cost of $6. b. cost of $8. c. benefit of $6. d. benefit of $8. 2. Refer to Figure 10-13. In order to reach the social optimum, the government could a. impose a tax of $2 per unit on plastics. b. impose a tax of $6 per unit on plastics. c. impose a tax of $8 per unit on plastics. d. offer a subsidy of $6 per unit on plastics. 3. Refer to Figure 10-13. If 250 units of plastics are produced and consumed, then the a. social optimum has been reached. b. market equilibrium has been reached. c. negative externality associated with plastics has been eliminated. d. positive externality associated with plastics has been eliminated. 4. Refer to Figure 10-13. If 325 units of plastics are produced and consumed, then the a. social optimum has been reached. b. market equilibrium has been reached. c. government must have imposed a corrective tax to guide the market to this outcome. d. government must have offered a corrective subsidy to guide the market to this outcome. 5. Refer to Figure 10-13. If the government imposed a corrective tax that successfully moved the market from the market equilibrium to the social optimum, then tax revenue for the government would amount to a. $1,250. b. $1,600. c. $2,000. d. $2,500.

1-c 2-a 3-d

1. Refer to Figure 10-16. This graph shows the market for pollution when permits are issued to firms and traded in the marketplace. The equilibrium price of pollution is a. $50 b. $500 c. $1,000 d. $2,000 2.Refer to Figure 10-16. This graph shows the market for pollution when permits are issued to firms and traded in the marketplace. The equilibrium number of permits is a. 50 b. 100 c. 1,000 d. 2,000 3.Refer to Figure 10-16. This graph shows the market for pollution when permits are issued to firms and traded in the marketplace. In the absence of a pollution permit system, the quantity of pollution would be a. 25 b. 50 c. 75 d. 100

1-c 2-b 3-c 4-c 5-a

1. Refer to Figure 10-19. Which of the following decreases as the quantity of the good is increased? a. the private cost of the good b. the social cost of the good c. the private value of the good d. the external benefit of the good 2.Refer to Figure 10-19. Each additional unit of the good that is produced yields an external a. benefit of $15. b. benefit of $36. c. cost of $15. d. cost of $36. 3.Refer to Figure 10-19. Each additional unit of the good that is produced yields an external benefit of a. $15. b. $23. c. $36. d. $89. 4.Refer to Figure 10-19. Note that the lines labeled "Demand" and "Social Value"are parallel. Also, the slopes of the lines on the graph reflect the following facts: (1) Private value and social value decrease by $1.00 with each additional unit of the good that is consumed, and (2) private cost increases by $1.40 with each additional unit of the good that is produced. Thus, when the 59th unit of the good is produced and consumed, social well-being increases by a. $28.00. b. $31.40. c. $33.60. d. $36.00. 5.Refer to Figure 10-19. Note that the lines labeled "Demand" and "Social Value"are parallel. Also, the slopes of the lines on the graph reflect the following facts: (1) Private value and social value decrease by $1.00 with each additional unit of the good that is consumed, and (2) private cost increases by $1.40 with each additional unit of the good that is produced. Thus, when the 74th unit of the good is produced and consumed, social well-being a. decreases by $2.40. b. decreases by $1.60. c. increases by $1.00. d. increases by $1.40.

1-a 2-a 3-a

1. Refer to Figure 13-2. As the number of workers increases, a. total output increases but at a decreasing rate. b. marginal product increases but at a decreasing rate. c. marginal product increases at an increasing rate. d. total output decreases. 2.Refer to Figure 13-2. As the number of workers increases, a. marginal product decreases. b. total output decreases. c. marginal product increases but at a decreasing rate. d. Both a and b are correct. 3. Refer to Figure 13-2. The graph illustrates a typical production function. Based on its shape, what does the corresponding total cost curve look like? a. an upward-sloping curve that increases at an increasing rate b. an upward-sloping curve that increases at a decreasing rate c. a downward-sloping curve d. a horizontal straight line

1-b 2-a

1. Refer to Figure 13-3. The graph illustrates a typical total cost curve. Based on its shape, what does the corresponding production function look like? a. an upward-sloping curve that increases at an increasing rate b. an upward-sloping curve that increases at a decreasing rate c. a downward-sloping curve d. a horizontal straight line 2.Refer to Figure 13-3. Assuming that the firm depicted produces cookies, which of the statements below is most consistent with the shape of the total cost curve? a. Producing an additional cookie is always more costly than producing the previous cookie. b. Total production of cookies decreases with additional units of input. c. Producing additional cookies is equally costly, regardless of how many cookies are already being produced. d. Producing additional cookies becomes increasingly costly only when the number of cookies already being produced is large.

1-d 2-b

1. Refer to Figure 13-5. Curve A represents which type of cost curve? a. marginal cost b. average total cost c. average variable cost d. average fixed cost 2. Refer to Figure 13-5. Curve C represents which type of cost curve? a. marginal cost b. average total cost c. average variable cost d. average fixed cost

1-d 2-a 3-d

1. Refer to Figure 14-1. The firm should shut down if the market price is a. above $8. b. above $6.30 but less than $8. c. above $4.50 but less than $6.30. d. less than $4.50. 2. Refer to Figure 14-1. The firm will earn a positive economic profit in the short run if the market price is a. above $6.30. b. less than $6.30 but more than $4.50. c. less than $4.50. d. exactly $6.30. 3. Refer to Figure 14-1. If the market price is $6.30, the firm will earn a. positive economic profits in the short run. b. negative economic profits in the short run but remain in business. c. negative economic profits and shut down. d. zero economic profits in the short run.

1-b 2-a

1. Refer to Figure 14-3. If the market price is $10, what is the firm's short-run economic profit? a. $9 b. $15 c. $30 d. $50 2.Refer to Figure 14-3. If the market price is $6, what is the firm's short-run economic profit? a. $0 b. $12 c. $15 d. $18

1-d 2-c

1. Refer to Figure 14-7. Suppose AVC = $113 when the firm produces 515 units of output. Then the firm's fixed cost amounts to a. $5,500, and its profit amounts to $20,375. b. $5,750, and its profit amounts to $20,375 c. $5,980, and its profit amounts to $25,750. d. $6,180, and its profit amounts to $25,750. 2.Refer to Figure 14-7. Suppose the price of the good is $175. If the firm produces and sells 514 units of output, its profit is approximately a. $24,995. b. $25,550. c. $25,750. d. $26,025.

1-b 2-a 3-b 4-b

1. Refer to Figure 15-8. What is the socially efficient price and quantity? a. price = A; quantity = X b. price = B; quantity = Y c. price = B; quantity = X d. price = C; quantity = X 2. Refer to Figure 15-8. What is the monopoly price and quantity? a. price = A; quantity = X b. price = B; quantity = Y c. price = B; quantity = X d. price = C; quantity = X 3.Refer to Figure 15-8. What is the area of deadweight loss? a. the rectangle (A-C)*X b. the triangle 1/2[(A-C)*(Y-X)] c. the triangle 1/2[(A-B)*(Y-X)] d. the rectangle (A-C)*X plus the triangle 1/2[(A-C)*(Y-X)] 4.Refer to Figure 15-8. What area represents the total surplus lost due to monopoly pricing? a. the rectangle (A-C)*X b. the triangle 1/2[(A-C)*(Y-X)] c. the triangle 1/2[(A-B)*(Y-X)] d. the rectangle (A-C)*X plus the triangle 1/2[(A-C)*(Y-X)]

1-c 2-b 3-d 4-b

1. Refer to Figure 15-9. To maximize total surplus, a benevolent social planner would choose which of the following outcomes? a. 100 units of output and a price of $20 per unit b. 150 units of output and a price of $20 per unit c. 150 units of output and a price of $30 per unit d. 200 units of output and a price of $20 per unit 2. Refer to Figure 15-9. To maximize its profit, a monopolist would choose which of the following outcomes? a. 100 units of output and a price of $20 per unit b. 100 units of output and a price of $40 per unit c. 150 units of output and a price of $30 per unit d. 200 units of output and a price of $40 per unit 3.Refer to Figure 15-9. The monopolist's maximum profit a. is $1,600. b. is $2,000. c. is $2,500. d. cannot be determined from the diagram. 4.Refer to Figure 15-9. The deadweight loss caused by a profit-maximizing monopoly amounts to a. $250. b. $500. c. $750. d. $1,000.

1-b 2-b 3-c

1. Refer to Figure 16-1. Which of the graphs illustrates the demand curve most likely faced by a firm in a monopolistically competitive market? a. Panel A b. Panel B c. Panel C d. Panel D 2.Refer to Figure 16-1. Which of the graphs illustrates a relatively elastic, though not perfectly elastic, demand curve consistent with a market that has many substitute products? a. Panel A b. Panel B c. Panel C d. Panel D 3.Refer to Figure 16-1. Which of the following sets of explanations best describes the differences between the graphs above? a. Panel A: monopolistically competitive firm's demand curve Panel B: monopoly firm's demand curve Panel C: oligopoly firm's demand curve Panel D: perfectly competitive firm's demand curve b. Panel A: oligopoly firm's demand curve Panel B: perfectly competitive firm's demand curve Panel C: monopolistically competitive firm's demand curve Panel D: supply curve c. Panel A: perfectly competitive firm's demand curve Panel B: monopolistically competitive firm's demand curve Panel C: monopoly firm's demand curve Panel D: supply curve d. Panel A: monopolistically competitive firm's demand curve Panel B: monopoly firm's demand curve Panel C: perfectly competitive firm's demand curve Panel D: supply curve

1-b 2-a 3-a

1. Refer to Figure 16-11. The profit for this firm is a. $375. b. $500. c. $1000. d. $1250. 2.Refer to Figure 16-11. How much consumer surplus will be derived from the purchase of this product at the monopolistically competitive price? a. $250. b. $500 c. $562.50. d. $1250. 3.Refer to Figure 16-11. The graph depicts a monopolistically competitive firm in the short run. Which of the following explanations best describes the long run adjustment? a. More firms will enter this market and each firm will have a smaller share of the total market demand, shifting this firm's demand curve to the left. b. More firms will enter this market and each firm will have a larger share of the total market demand, shifting this firm's demand to the right. c. Firms will exit this market and each firm will have a smaller share of the total market demand, shifting this firm's demand to the left. d. Firms will exit this market and each firm will have a larger share of the total market demand, shifting this firm's demand to the right.

1-b 2-a 3-b

1. Refer to Figure 16-3. What is the profit-maximizing price, quantity, and resulting profit? a. P=$60, Q=20 units, profit=$200 b. P=$80, Q=20 units, profit=$200 c. P=$75, Q=25 units, profit=$100 d. P=$60, Q=40 units, profit=$0 2. Refer to Figure 16-3. How much consumer surplus will be derived from the purchase of this product at the monopolistically competitive price? a. $200 b. $312.50 c. $400 d. $800 3.Refer to Figure 16-3. Which of the following will occur in the long run in this industry? a. Firms will exit this industry. b. Firms will enter this industry. c. This firm will continue to earn positive economic profits. d. This firm will incur losses.

1-b 2-c 3-d

1. Refer to Figure 16-4. The firm in this figure is monopolistically competitive. This firm a. is operating in the long run. b. is earning a short-run economic profit. c. is incurring a short-run loss. d. The answer cannot be determined from the information given. 2.Refer to Figure 16-4. At the profit-maximizing, or loss-minimizing, output level, the firm in this figure has total costs of approximately a. $12,000. b. $18,000. c. $21,000. d. $24,000. 3.Refer to Figure 16-4. What price will the monopolistically competitive firm charge in this market? a. $400 b. $600 c. $700 d. $800

1-c 2-b 3-a

1. Refer to Figure 16-5. Which of the graphs depicts a short-run equilibrium that will encourage the entry of other firms into a monopolistically competitive industry? a. panel a b. panel b c. panel c d. panel d 2.Refer to Figure 16-5. Which of the graphs depicts a short-run equilibrium that will encourage the exit of some firms from a monopolistically competitive industry? a. panel a b. panel b c. panel c d. panel d 3.Refer to Figure 16-5. Which of the graphs depicts a short-run equilibrium that will not encourage either the entry or exit of firms in a monopolistically competitive industry? a. panel a b. panel b c. panel c d. panel d

1-c 2-b 3-c

1. Refer to Figure 16-9. As the figure is drawn, the firm is in a. a short-run equilibrium but it is not in a long-run equilibrium. b. a long-run equilibrium but it is not in a short-run equilibrium. c. a short-run equilibrium as well as a long-run equilibrium. d. neither a short-run equilibrium nor a long-run equilibrium. 2. Refer to Figure 16-9. In order to maximize its profit, the firm will choose to produce a. 100 units of output, and its profit will be positive. b. 100 units of output, and its profit will be zero. c. 133.33 units of output, and its profit will be negative. d. 133.33 units of output, and its profit will be zero. 3. Refer to Figure 16-9. When the firm is maximizing its profit, the markup over marginal cost amounts to a. $16.67. b. $33.33. c. $50.00. d. $66.66.

1-b 2-c 3-d

1. Refer to Table 7-10. If the market price is $1,000, the producer surplus in the market is a. $1000. b. $300. c. $1,700. d. $700. 2.Refer to Table 7-10. If the price is $1,l50, who would be willing to supply the product? a. Abby and Bobby b. Abby, Bobby, and Dianne c. Carlos, Dianne, and Evaline d. Dianne and Evaline only 3. Refer to Table 7-10. Suppose each of the five sellers can supply at most one unit of the good. The market quantity supplied is exactly 4 if the price is a. $860. b. $1,050. c. $1,650. d. $1,400.

1-b 2-b

1. Refer to Figure 17-1. Suppose this market is served by two firms who each face the marginal cost curve shown in the diagram. The marginal revenue curve that a monopolist would face in this market is also shown. If the firms are able to collude successfully, a. the total output will be 2 units and the price will be $6.00 per unit. b. the total output will be 2 units and the price will be $8.00 per unit. c. the total output will be 4 units and the price will be $6.00 per unit. d. there will be no deadweight loss. 2. Refer to Figure 17-1. Suppose this market is served by two firms who each face the marginal cost curve shown in the diagram and have zero fixed cost. The marginal revenue curve that a monopolist would face in this market is also shown. If the firms are able to collude successfully, each firm should earn a profit equal to a. $1. b. $2. c. $4. d. $6.

1-D 2-B

1. Refer to Figure 5-9. Using the midpoint method, the price elasticity of demand between point A and point B is a. 0.33. b. 0.5. c. 2.0. d. 3.0. 2. Refer to Figure 5-9. Using the midpoint method, the price elasticity of demand between point C and point D is about a. 0.29. b. 0.54. c. 1.86. d. 2.0.

1-b 2-d

1. Refer to Figure 6-16. In this market, a minimum wage of $7.25 is a. binding and creates a labor shortage. b. binding and creates unemployment. c. nonbinding and creates a labor shortage. d. nonbinding and creates neither a labor shortage nor unemployment. 2. Refer to Figure 6-16. In this market, a minimum wage of $7.25 creates a labor a. shortage of 2,250 workers. b. shortage of 4,500 workers. c. surplus of 2,250 workers. d. surplus of 4,500 workers.

1-d 2-b 3-c 4-b 5-a

1. Refer to Figure 6-18. The price that buyers pay after the tax is imposed is a. $8. b. $10. c. $16. d. $24. 2. Refer to Figure 6-18. The effective price that sellers receive after the tax is imposed is a. $6. b. $10. c. $16. d. $24. 3.Refer to Figure 6-18. The amount of the tax per unit is a. $6. b. $8. c. $14. d. $18. 4.Refer to Figure 6-18. The per-unit burden of the tax on buyers is a. $6. b. $8. c. $14. d. $24. 5.Refer to Figure 6-18. The per-unit burden of the tax on sellers is a. $6. b. $8. c. $10. d. $14.

1-c 2-b 3-c 4-c

1. Refer to Figure 6-19. Suppose a tax of $2 per unit is imposed on this market. What will be the new equilibrium quantity in this market? a. less than 50 units b. 50 units c. between 50 units and 100 units d. greater than 100 units 2.Refer to Figure 6-19. Suppose a tax of $2 per unit is imposed on this market. How much will sellers receive per unit after the tax is imposed? a. $3 b. between $3 and $5 c. between $5 and $7 d. $7 3. Refer to Figure 6-19. Suppose a tax of $2 per unit is imposed on this market. How much will buyers pay per unit after the tax is imposed? a. $3 b. between $3 and $5 c. between $5 and $7 d. $7 4.Refer to Figure 6-19. Suppose a tax of $2 per unit is imposed on this market. Which of the following is correct? a. One-fourth of the burden of the tax will fall on buyers, and three-fourths of the burden of the tax will fall on sellers. b. One-third of the burden of the tax will fall on buyers, and two-thirds of the burden of the tax will fall on sellers. c. One-half of the burden of the tax will fall on buyers, and one-half of the burden of the tax will fall on sellers. d. Two-thirds of the burden of the tax will fall on buyers, and one-third of the burden of the tax will fall on sellers.

1-b 2-d 3-a 4-b 5-b

1. Refer to Figure 6-22. As the figure is drawn, who sends the tax payment to the government? a. The buyers send the tax payment. b. The sellers send the tax payment. c. A portion of the tax payment is sent by the buyers, and the remaining portion is sent by the sellers. d. The question of who sends the tax payment cannot be determined from the graph. 2.Refer to Figure 6-22. The effective price sellers receive after the tax is imposed is a. $2.00. b. $3.50. c. $5.00. d. $3.00. 3.Refer to Figure 6-22. The amount of the tax per unit is a. $2.00. b. $1.50. c. $3.00. d. $0.50. 4. Refer to Figure 6-22. Buyers pay how much of the tax per unit? a. $0.50. b. $1.50. c. $3.00. d. $5.00. 5.Refer to Figure 6-22. How much tax revenue does this tax generate for the government? a. $80. b. $60. c. $15. d. $45.

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 a. increase by 2.5%, and X is an inferior good. b. decrease by 2.5% and X is a normal good. c. increase by 10% and X is an inferior good. d. decrease by 10% and X is a normal good.

1-c 2-a 3-a 4-c 5-c

1. Refer to Figure 6-24. Which of the following statements is correct? a. The amount of the tax per unit is $6. b. The tax leaves the size of the market unchanged. c. The tax is levied on buyers of the good, rather than on sellers. d. All of the above are correct. 2.Refer to Figure 6-24. What is the amount of the tax per unit? a. $8 b. $6 c. $4 d. $2 3. Refer to Figure 6-24. The price paid by buyers after the tax is imposed is a. $24. b. $21. c. $18. d. $16. 4.Refer to Figure 6-24. The per-unit burden of the tax on buyers of the good is a. $2. b. $4. c. $6. d. $8. 5.Refer to Figure 6-24. In the after-tax equilibrium, government collects a. $1,440 in tax revenue; of this amount, $960 represents a burden on buyers and $480 represents a burden on sellers. b. $1,440 in tax revenue; of this amount, $720 represents a burden on buyers and $720 represents a burden on sellers. c. $1,680 in tax revenue; of this amount, $1,260 represents a burden on buyers and $420 represents a burden on sellers. d. $1,680 in tax revenue; of this amount, $840 represents a burden on buyers and $840 represents a burden on sellers.

1-b 2-a

1. Refer to Figure 6-28. Suppose a tax of $6 per unit is imposed on this market. What will be the new equilibrium quantity in this market? a. less than 20 units b. 20 units c. between 20 units and 35 units d. greater than 35 units 2. Refer to Figure 6-28. Suppose a tax of $6 per unit is imposed on this market. How much will sellers receive per unit after the tax is imposed? a. $4 b. between $4 and $7 c. between $7 and $10 d. $10

1-d 2-a 3-b

1. Refer to Figure 6-29. The buyers will bear a higher share of the tax burden than sellers if the demand is a. D1, and the supply is S1. b. D2, and the supply is S1. c. D1, and the supply is S2. d. D2, and the supply is S2. 2. Refer to Figure 6-29. The buyers and sellers will bear an equal share of the tax burden if the demand is a. D1, and the supply is S1. b. D2, and the supply is S1. c. D1, and the supply is S2. d. D2, and the supply is S2. 3.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, a. buyers bear a higher burden of the tax in the short run than in the long run. b. sellers bear a higher burden of the tax in the short run than in the long run. c. buyers and sellers bear an equal burden of the tax in both the short run and long run. d. buyers and sellers bear an equal burden of the tax in the short run, but buyers bear a higher burden of the tax in the long run.

1-d 2-d 3-d 4-a

1. Refer to Figure 6-6. Which of the following statements is correct? a. A price ceiling set at $12 would be binding, but a price ceiling set at $8 would not be binding. b. A price floor set at $8 would be binding, but a price ceiling set at $8 would not be binding. c. A price ceiling set at $9 would result in a surplus. d. A price floor set at $11 would result in a surplus. 2. Refer to Figure 6-6. Which of the following statements is not correct? a. A price ceiling set at $6 would be binding, but a price ceiling set at $12 would not be binding. b. A price floor set at $14 would be binding, but a price floor set at $8 would not be binding. c. A price ceiling set at $9 would result in a surplus. d. A price floor set at $6 would result in a shortage. 3.Refer to Figure 6-6. If the government imposes a price ceiling of $6 on this market, then there will be a. no shortage. b. a shortage of 10 units. c. a shortage of 20 units. d. a shortage of 30 units. 4.Refer to Figure 6-6. If the government imposes a price floor of $6 on this market, then there will be a. no surplus. b. a surplus of 20 units. c. a surplus of 30 units. d. a surplus of 40 units.

1-A 2-C

1. Refer to Figure 7-1. If the price of the good is $250, then consumer surplus amounts to a. $50. b. $100. c. $150. d. $200. 2.Refer to Figure 7-1. The value of the good to consumers minus the cost of the good to consumers amounts to $325 if the price of the good is a. $200. b. $150. c. $125. d. $100.

1-a 2-d 3-d

1. Refer to Figure 7-10. Which area represents producer surplus when the price is P1? a. BCG b. ACH c. ABGD d. DGH 2. Refer to Figure 7-10. Which area represents the increase in producer surplus when the price rises from P1 to P2? a. BCG b. ACH c. ABGD d. AHGB 3. Refer to Figure 7-10. When the price rises from P1 to P2, which area represents the increase in producer surplus to existing producers? a. BCG b. ACH c. DGH d. ABGD

1-C 2-B

1. 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? a. $625 b. $1,250 c. $2,500 d. $5,000 2.Refer to Figure 7-11. If the demand curve is D and the supply curve shifts from S' to S, what is the change in producer surplus? a. Producer surplus increases by $625. b. Producer surplus increases by $1,875. c. Producer surplus decreases by $625. d. Producer surplus decreases by $1,875.

1-c 2-d

1. Refer to Figure 7-22. At the equilibrium price, total surplus is a. $2,500. b. $1,000. c. $3,500. d. $7,000. 2.Refer to Figure 7-22. Assume demand increases, which causes the equilibrium price to increase from $50 to $70. The increase in producer surplus would be a. $2,500. b. $900. c. $800. d. $1,600.

1-A 2-C

1. Refer to Figure 7-27. Buyers who value this good more than the equilibrium price are represented by which line segment? a. AC. b. CK. c. BC. d. CH. 2.Refer to Figure 7-27. Sellers whose costs are less than the equilibrium price are represented by which line segment? a. AC. b. CK. c. BC. d. CH.

1-C 2-B 3-C

1. Refer to Figure 7-3. When the price is P1, consumer surplus is a. A. b. A+B. c. A+B+C. d. A+B+D. 2. Refer to Figure 7-3. Area C represents the a. decrease in consumer surplus that results from a downward-sloping demand curve. b. consumer surplus to new consumers who enter the market when the price falls from P2 to P1. c. increase in producer surplus when quantity sold increases from Q2 to Q1. d. decrease in consumer surplus to each consumer in the market when the price increases from P1 to P2. 3.Refer to Figure 7-3. When the price rises from P1 to P2, which of the following statements is not true? a. The buyers who still buy the good are worse off because they now pay more. b. Some buyers leave the market because they are not willing to buy the good at the higher price. c. Buyers place a higher value on the good after the price increase. d. Consumer surplus in the market falls.

1-d 2-c

1. Refer to Figure 7-9. If the price of the good is $9.50, then producer surplus is a. $3.00. b. $6.50. c. $10.50. d. $8.50. 2. Refer to Figure 7-9. If producer surplus is $19, then the price of the good is a. $11.50. b. $14.50. c. $13.50. d. $9.75.

1-b 2-c

1. Refer to Table 13-1. What is total output when 1 worker is hired? a. 10 b. 30 c. 45 d. 75 2.Refer to Table 13-1. What is total output when 2 workers are hired? a. 15 b. 45 c. 75 d. 120

1-c 2-b

1. Refer to Table 13-6. Each worker at the Wooden Chair Factory costs $12 per hour. The cost of each machine is $20 per day regardless of the number of chairs produced. If the factory produces at a rate of 70 chairs per hour and operates 8 hours per day, what is the factory's total labor cost per day? a. $72 b. $112 c. $576 d. $616 2. Refer to Table 13-6. Each worker at the Wooden Chair Factory costs $12 per hour. The cost of each machine is $20 per day regardless of the number of chairs produced. If the factory produces at a rate of 35 chairs per hour, what is the total labor cost per hour? a. $40 b. $48 c. $384 d. $424

1-a 2-d

1. Refer to Table 14-10. At which level of production will the firm maximize profit? a. 3 units b. 4 units c. 5 units d. 6 units 2. Refer to Table 14-10. At which level of output in the table is average variable cost equal to $6? a. 2 units b. 3 units c. 4 units d. 5 units

1-d 2-c 3-c

1. Refer to Table 14-2. This firm maximizes total revenue by producing a. 1 units. b. 3 units. c. 5 units. d. as many units as possible. 2. Refer to Table 14-2. For this firm, the average revenue from selling 3 units is a. $12. b. $4. c. $3. d. $1. 3.Refer to Table 14-2. For this firm, the marginal revenue from selling the 3rd unit is a. $12. b. $4. c. $3. d. $1.

1-d 2-b

1. Refer to Table 14-6. What is the total revenue from selling 7 units? a. $120 b. $490 c. $562 d. $840 2.Refer to Table 14-6. What is the average revenue when 4 units are sold? a. $60 b. $120 c. $125 d. $197

1-c 2-d

1. Refer to Table 14-7. If the firm is currently producing 14 units, what would you advise the owners? a. decrease quantity to 13 units b. increase quantity to 15 units c. continue to operate at 14 units d. increase quantity to 16 units 2. Refer to Table 14-7. If the firm is maximizing profit, how much profit is it earning? a. $0.50 b. $7.50 c. $10 d. There is insufficient data to determine the firm's profit.

1-b 2-c 3-c

1. Refer to Table 14-8. The firm should not produce an output level beyond a. 4 units. b. 5 units. c. 6 units. d. 7 units. 2.Refer to Table 14-8. The firm will produce a quantity greater than 3 because at 3 units of output, marginal cost a. is greater than marginal revenue. b. equals marginal revenue. c. is less than marginal revenue. d. is minimized. 3.Refer to Table 14-8. In order to maximize profits, the firm will produce a. 1 unit of output because marginal cost is minimized. b. 4 units of output because marginal revenue exceeds marginal cost. c. 5 units of output because marginal revenue equals marginal cost. d. 7 units of output because total revenue is maximized.

1-c 2-c 3-b

1. Refer to Table 15-1. If the monopolist sells 8 units of its product, how much total revenue will it receive from the sale? a. $14 b. $40 c. $112 d. $164 2.Refer to Table 15-1. If the monopolist wants to maximize its revenue, how many units of its product should it sell? a. 4 b. 5 c. 6 d. 8 3.Refer to Table 15-1. Assume this monopolist's marginal cost is constant at $12. What quantity of output (Q) will it produce and what price (P) will it charge? a. Q = 4, P = $29 b. Q = 4, P = $26 c. Q = 5, P = $23 d. Q = 7, P = $17

1-c 2-a 3-d

1. Refer to Table 16-1. What is the concentration ratio in Industry A? a. 38% b. 71% c. 92% d. 98% 2. Refer to Table 16-1. Which industry is the least competitive? a. Industry A b. Industry B c. Industry C d. Industry D 3. Refer to Table 16-1. Which industry is the most competitive? a. Industry A b. Industry B c. Industry C d. Industry D

1-b 2-d 3-b

1. Refer to Table 17-15. If player B chooses Right, player A should choose a. Up and earn a payoff of 1. b. Middle and earn a payoff of 5. c. Middle and earn a payoff of 7. d. Down and earn a payoff of 4. 2.Refer to Table 17-15. Which of the following statements regarding this game is true? a. Both players have a dominant strategy. b. Player A has a dominant strategy, but player B does not have a dominant strategy. c. Player A does not have a dominant strategy, but player B does have a dominant strategy. d. Neither player has a dominant strategy. 3.Refer to Table 17-15. Which of the following outcomes represents a Nash equilibrium in the game? a. Up-Center b. Middle-Right c. Down-Left d. Down-Center

1-b 2-a 3-b 4-a

1. Refer to Table 17-21. If Paul chooses Turn, what will John choose to do and what will John's payoff equal? a. Turn, 10 b. Drive Straight, 20 c. Turn, 5 d. Drive Straight, 0 2. Refer to Table 17-21. If Paul chooses Drive Straight, what will John choose to do and what will John's payoff equal? a. Turn, 5 b. Drive Straight, 0 c. Turn, 20 d. Drive Straight, 5 3.Refer to Table 17-21. If John chooses Turn, what will Paul choose to do and what will Paul's payoff equal? a. Turn, 10 b. Drive Straight, 20 c. Turn, 5 d. Drive Straight, 0 4.Refer to Table 17-21. If John chooses Drive Straight, what will Paul choose to do and what will Paul's payoff equal? a. Turn, 5 b. Drive Straight, 0 c. Turn, 10 d. Drive Straight, 200

1-d 2-a 3-c

1. Refer to Table 6-1. Which of the following price ceilings would be binding in this market? a. $80 b. $70 c. $60 d. $50 2.Refer to Table 6-1. Suppose the government imposes a price ceiling of $70 on this market. What will be the size of the shortage in this market? a. 0 units b. 400 units c. 600 units d. 1000 units 3.Refer to Table 6-1. Suppose the government imposes a price floor of $70 on this market. What will be the size of the surplus in this market? a. 0 units b. 400 units c. 600 units d. 1000 units

1-C 2-C

1. Refer to Table 7-1. If the price of the product is $110, then who would be willing to purchase the product? a. Calvin b. Calvin and Sam c. Calvin, Sam, and Andrew d. Calvin, Sam, Andrew, and Lori 2. Refer to Table 7-1. If price of the product is $135, then the total consumer surplus is a. $-50. b. $-35. c. $15. d. $150.

A monopolistically competitive firm is currently producing 20 units of output. At this level of output the firm is charging a price equal to $20, has marginal revenue equal to $12, has marginal cost equal to $12, and has average total cost equal to $18. From this information we can infer that a. the firm is currently maximizing its profit. b. the profits of the firm are negative. c. firms are likely to leave this market in the long run. d. All of the above are correct.

1-b 2-c

1. Refer to Table 7-12. You wish to purchase 10 piano lessons for yourself and for your brother, so you take bids from each of the sellers. You will take lessons at the same time, so one teacher cannot provide lessons to both of you. You must pay the same price for both sets of lessons, and you will not accept a bid below a seller's cost because you are concerned that the seller will not provide all 10 lessons. What bid will you accept? a. $351 b. $349 c. $201 d. $199 2.Refer to Table 7-12. You wish to purchase 10 piano lessons, so you take bids from each of the sellers. The bids are required to be rounded to the nearest dollar. You will not accept a bid below a seller's cost because you are concerned that the seller will not provide all 10 lessons. Your parents have given you $450 to spend on piano lessons. You believe that the sellers with higher opportunity costs offer higher quality lessons. You want the highest quality lessons that you can afford, but you can spend any remaining money on dinner with friends. From whom will you take lessons, and how much money will you spend? a. Peter; $450 b. Cindy; $450 c. Greg; $401 d. Cindy; $401

1-b 2-c

1. Refer to Table 7-16. At a price of $2.00, total surplus is a. larger than it would be at the equilibrium price. b. smaller than it would be at the equilibrium price. c. the same as it would be at the equilibrium price. d. There is insufficient information to make this determination. 2.Refer to Table 7-16. Both the demand curve and the supply curve are straight lines. At equilibrium, total surplus is a. $44. b. $56. c. $72. d. $96.

1-D 2-C 3-D

1. Refer to Table 7-3. If the market price for the good is $20, who will purchase the good? a. Ming-la only b. Carlos and Quilana only c. Quilana and Wilbur only d. Quilana, Wilbur, and Ming-la only 2. Refer to Table 7-3. If there is only one unit of the good and if the buyers bid against each other for the right to purchase it, then the good will sell for a. $15 or slightly less. b. $25 or slightly more. c. $35 or slightly more. d. $45 or slightly less. 3. Refer to Table 7-3. Who experiences the largest loss of consumer surplus when the price of the good increases from $20 to $22? a. Quilana b. Wilbur c. Ming-la d. All three buyers experience the same loss of consumer surplus.

1-d 2-d 3-b 4-a

1. Refer to Table 7-5. If the market price of an orange is $0.90, then the market quantity of oranges demanded per day is a. 5. b. 2. c. 3. d. 4. 2.Refer to Table 7-5. The market quantity of oranges demanded per day is exactly 7 if the price of an orange, P, satisfies a. $0.60 < P < $0.75. b. $0.60 < P < $2.00. c. $0.25 < P < $0.75. d. $0.25 < P < $0.60. 3.Refer to Table 7-5. If the market price of an orange increases from $0.80 to $1.05, then consumer surplus a. increases by $0.75. b. decreases by $0.95. c. decreases by $0.75. d. decreases by $1.00. 4.Refer to Table 7-5. Who experiences the largest gain in consumer surplus when the price of an orange decreases from $1.05 to $0.75? a. Allison b. Bob c. Charisse d. Allison and Bob experience the same gain in consumer surplus, and Charisse's gain is zero.

1-A 2-D

1. Refer to Table 7-8. The price that Chad paid for a latte on the first day is a. $3.75. b. $6.25. c. $5.00. d. $5.50. 2.Refer to Table 7-8. The price that Chad paid for a latte on the second day is a. $0.25 less than the amount he paid on the first day. b. $1.00 less than the amount he paid on the first day. c. $1.50 less than the amount he paid on the first day. d. $0.50 less than the amount he paid on the first day.

1-c 2-c 3-c 4-b 5-b 6-a 7-b 8-d

1.Refer to Table 17-13. Pursuing its own best interest, Lopes will a. increase the size of its store and parking lot only if HomeMax also increases the size of its store and parking lot. b. increase the size of its store and parking lot only if HomeMax does not increase the size of its store and parking lot. c. increase the size of its store and parking lot regardless of the decision made by HomeMax. d. not increase the size of its store and parking lot regardless of the decision made by HomeMax. 2.Refer to Table 17-13. Pursuing its own best interest, HomeMax will a. increase the size of its store and parking lot only if Lopes also increases the size of its store and parking lot. b. increase the size of its store and parking lot only if Lopes does not increase the size of its store and parking lot. c. increase the size of its store and parking lot regardless of the decision made by Lopes. d. not increase the size of its store and parking lot regardless of the decision made by Lopes. 3. Refer to Table 17-13. Increasing the size of its store and parking lot is a dominant strategy for a. Lopes, but not for HomeMax. b. HomeMax, but not for Lopes. c. both stores. d. neither store. 4.Refer to Table 17-13. If both stores follow a dominant strategy, HomeMax's annual profit will grow by a. $0.6 million. b. $1.5 million. c. $2.5 million. d. $3.4 million. 5.Refer to Table 17-13. If both stores follow a dominant strategy, Lopes's annual profit will grow by a. $0.4 million. b. $1.0 million. c. $2.0 million. d. $3.2 million. 6.Refer to Table 17-13. When this game reaches a Nash equilibrium, annual profit will grow by a. $1.5 million for HomeMax and by $1.0 million for Lopes. b. $3.4 million for HomeMax and by $0.4 million for Lopes. c. $0.6 million for HomeMax and by $3.2 million for Lopes. d. $2.5 million for HomeMax and by $2.0 million for Lopes. 7.Refer to Table 17-13. Suppose the owners of Lopes and HomeMax meet for a friendly game of golf one afternoon and happen to discuss a strategy to optimize growth related profit. They should both agree to a. increase their store and parking lot sizes. b. refrain from increasing their store and parking lot sizes. c. be more competitive in capturing market share. d. share the context of their conversation with the Federal Trade Commission. 8.Refer to Table 17-13. Suppose the owners of Lopes and HomeMax meet for a friendly game of golf one afternoon and happen to discuss a strategy to optimize growth related profit. If they both agree to cooperate on a strategy that maximizes their joint profits, annual profit will grow by a. $1.0 million for Lopes and by $1.5 million for HomeMax. b. $0.4 million for Lopes and by $3.4 million for HomeMax. c. $3.2 million for Lopes and by $0.6 million for HomeMax. d. $2.0 million for Lopes and by $2.5 million for HomeMax.

An increase in quantity demanded a. results in a movement downward and to the right along a demand curve. b. results in a movement upward and to the left along a demand curve. c. shifts the demand curve to the left. d. shifts the demand curve to the right.

A key determinant of the price elasticity of supply is the a. time horizon. b. income of consumers. c. price elasticity of demand. d. importance of the good in a consumer's budget.

Chad is willing to pay $5.00 to get his first cup of morning latté; he is willing to pay $4.50 for a second cup. He buys his first cup from a vendor selling latté for $3.75 per cup. He returns to that vendor later in the morning to find that the vendor has increased her price to $3.90 per cup. Chad buys a second cup. Which of the following statements is correct? a. Chad's willingness to pay for his second cup of latté was smaller than his willingness to pay for his first cup of latté. b. Chad's consumer surplus on his second cup of latté was larger than his consumer surplus on his first cup of latté. c. Chad is irrational in that he is willing to pay a different price for his second cup of latté than what he is willing to pay for his first cup of latté. d. Chad places a higher value on his second cup of latté than on his first cup of latté.

Consumer surplus is equal to the a. Value to buyers - Amount paid by buyers. b. Amount paid by buyers - Costs of sellers. c. Value to buyers - Costs of sellers. d. Value to buyers - Willingness to pay of buyers.

Corn chips and potato chips are substitutes. Good weather that sharply increases the corn harvest would a. increase consumer surplus in the market for corn chips and decrease producer surplus in the market for potato chips. b. increase consumer surplus in the market for corn chips and increase producer surplus in the market for potato chips. c. decrease consumer surplus in the market for corn chips and increase producer surplus in the market for potato chips. d. decrease consumer surplus in the market for corn chips and decrease producer surplus in the market for potato chips.

Dog owners do not bear the full cost of the noise their barking dogs create and often take too few precautions to prevent their dogs from barking. Local governments address this problem by a. making it illegal to "disturb the peace." b. having a well-funded animal control department. c. subsidizing local animal shelters. d. encouraging people to adopt cats.

For a monopolistically competitive firm, at the profit-maximizing quantity of output, a. price exceeds marginal cost. b. marginal revenue exceeds marginal cost. c. marginal cost exceeds average revenue. d. price equals marginal revenue.

For which pairs of goods is the cross-price elasticity most likely to be negative? a. peanut butter and jelly b. automobile tires and coffee c. pens and pencils d. paperback novels and electronic books for e-readers

For which pairs of goods is the cross-price elasticity most likely to be positive? a. canoes and kayaks b. pizza and college textbooks c. Halloween candy and rain coats d. cats and cat food

If Danielle sells 300 wrist bands for $0.50 each, her total revenues are a. $150. b. $299.50. c. $300. d. $600.

If Franco's Pizza Parlor knows that the marginal cost of the 500th pizza is $3.50 and that the average total cost of making 499 pizzas is $3.30, then a. average total costs are rising at Q = 500. b. average total costs are falling at Q = 500. c. total costs are falling at Q = 500. d. average variable costs must be falling.

If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost, then a. a one-unit increase in output will increase the firm's profit. b. a one-unit decrease in output will increase the firm's profit. c. total revenue exceeds total cost. d. total cost exceeds total revenue.

If the cost of producing sofas decreases, then consumer surplus in the sofa market will a. increase. b. decrease. c. remain constant. d. increase for some buyers and decrease for other buyers.

If the government allowed a free market for transplant organs such as kidneys to exist, the a. shortage of organs would be eliminated, and there would be no surplus of organs. b. shortage of organs would be eliminated, but a surplus of organs would develop. c. shortage of organs would persist. d. overall well-being of society would remain unchanged.

If the government allowed a free market in organs for transplant there would be a. a decrease in the shortage of organs for transplant. b. a decrease in producer surplus. c. an decrease in consumer surplus d. an increase in the waiting period for transplant organs.

If the government removes a tax on a good, then the quantity of the good sold will a. increase. b. decrease. c. not change. d. All of the above are possible.

If the price a consumer pays for a product is equal to a consumer's willingness to pay, then the consumer surplus relevant to that purchase is a. zero. b. negative, and the consumer would not purchase the product. c. positive, and the consumer would purchase the product. d. There is not enough information given to answer this question.

Katherine gives piano lessons for $15 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 a. $100, and her economic profits are $25. b. $100, and her economic profits are $75. c. $25, and her economic profits are $100. d. $75, and her economic profits are $125.

Lori and Maya are competitors in a local market. Each is trying to decide if it is better to advertise on TV, on radio, or not at all. If they both advertise on TV, each will earn a profit of $10,000. If they both advertise on radio, each will earn a profit of $14,000. If neither advertises at all, each will earn a profit of $20,000. If one advertises on TV and other advertises on radio, then the one advertising on TV will earn $16,000 and the other will earn $6,000. If one advertises on TV and the other does not advertise, then the one advertising on TV will earn $30,000 and the other will earn $4,000. If one advertises on radio and the other does not advertise, then the one advertising on radio will earn $24,000 and the other will earn $8,000. If both follow their dominant strategy, then Lori will a. advertise on TV and earn $10,000. b. advertise on radio and earn $14,000. c. not advertise at all and earn $20,000. d. None of the above is correct. Lori and Maya do not have dominant strategies.

On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers. He is able to produce 4,400 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent with the property of diminishing marginal product? a. The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers. b. The farmer is able to produce 5,800 bushels of wheat when he hires 4 workers. c. The farmer is able to produce 6,000 bushels of wheat when he hires 4 workers. d. Any of the above could be correct.

Patent and copyright laws encourage a. creative activity. b. lower prices due to decreasing average total costs. c. competition among firms. d. All of the above are correct.

Sebastian decides to open a tree farm. When deciding to open his own business, he turned down two separate job offers of $25,000 and $30,000 and withdrew $20,000 from his savings. Sebastian's savings account paid 3 percent interest. He also borrowed $20,000 from his brother, whom he pays 2 percent interest per year. He spent $15,000 to purchase supplies and earned $50,000 in revenue during his first year. Which of the following statements is correct? a. Sebastian's economic profit is $4,000, and his accounting profit is $34,600. b. Sebastian's economic profit is $4,600, and his accounting profit is $35,000. c. Sebastian's economic profit is -$16,000, and his accounting profit is $34,600. d. Sebastian's economic profit is -$16,000, and his accounting profit is $14,600.

Selling a good at a price determined by the intersection of the demand curve and the marginal cost curve is consistent with the (i)socially-optimal level of output. (ii)market solution for profit-maximizing competitive firms. (iii)market solution for a profit-maximizing monopoly. a. (i) and (ii) only b. (ii) and (iii) only c. (i) and (iii) only d. (i), (ii), and (iii)

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? a. monopoly resources b. government regulation c. the production process d. Both a and b are correct.

Suppose a firm has a monopoly on the sale of widgets and faces a downward-sloping demand curve. When selling the 100th widget, the firm will always receive a. less marginal revenue on the 100th widget than it received on the 99th widget. b. more average revenue on the 100th widget than it received on the 99th widget. c. more total revenue on the 100 widgets than it received on the first 99 widgets. d. a lower average cost per unit at 100 units of output than at 99 units of output.

Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be a. positive. b. negative. c. either positive or negative. It depends whether A and B are normal goods or inferior goods. d. either positive or negative. It depends whether the current price level is on the elastic or inelastic portion of the demand curve.

Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that when four units of output are produced, the total cost is $175, and the average variable cost is $33.75. What would the average fixed cost be if ten units were produced? a. $4 b. $10 c. $40 d. $135

Suppose that in a particular market, the supply curve is highly elastic and the demand curve is highly inelastic. If a tax is imposed in this market, then the a. buyers will bear a greater burden of the tax than the sellers. b. sellers will bear a greater burden of the tax than the buyers. c. buyers and sellers are likely to share the burden of the tax equally. d. buyers and sellers will not share the burden equally, but it is impossible to determine who will bear the greater burden of the tax without more information.

Suppose that monopolistically competitive firms in a certain market are experiencing losses. In the transition from this initial situation to a long-run equilibrium, a. the number of firms in the market decreases. b. each existing firm experiences a decrease in demand for its product. c. each firm experiences an upward shift of its marginal cost and average total cost curves. d. each existing firm's average total cost falls to bring economic profit back to zero.

Suppose that the demand for picture frames is highly inelastic, and the supply of picture frames is highly elastic. A tax of $1 per frame levied on picture frames will decrease the effective price received by sellers of picture frames by a. less than $0.50. b. $0.50. c. between $0.50 and $1. d. $1.

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. The number of consumers buying soybeans increases.

Suppose there is currently a tax of $50 per ticket on airline tickets. Buyers of airline tickets are required to pay the tax to the government. If the tax is reduced from $50 per ticket to $20 per ticket, then the a. demand curve will shift upward by $30, and the price paid by buyers will decrease by less than $30. b. demand curve will shift upward by $30, and the price paid by buyers will decrease by $30. c. supply curve will shift downward by $30, and the effective price received by sellers will increase by less than $30. d. supply curve will shift downward by $30, and the effective price received by sellers will increase by $30.

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

To determine whether a good is considered normal or inferior, one could examine the value of the a. income elasticity of demand for that good. b. price elasticity of demand for that good. c. price elasticity of supply for that good. d. cross-price elasticity of demand for that good.

Transaction costs a. can keep private parties from solving externality problems. b. are incurred in the production process due to externalities. c. increase when taxes are imposed to correct negative externalities. d. are eliminated when the government intervenes in a market with externalities.

Trevor's Tire Company produced and sold 500 tires. The average cost of production per tire was $50. Each tire sold for a price of $65. Trevor's Tire Company's total profits are a. $7,500. b. $25,000. c. $32,500. d. $67,500.

Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. After the two firms buy or sell pollution permits from each other, we would expect that Firm A will emit a. 20 fewer tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air. b. 100 fewer tons of pollution into the air, and Firm B will emit 20 fewer tons of pollution into the air. c. 50 fewer tons of pollution into the air, and Firm B will emit 50 fewer tons of pollution into the air. d. 20 more tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air.

Under rent control, bribery is a mechanism to a. bring the total price of an apartment (including the bribe) closer to the equilibrium price. b. allocate housing to the poorest individuals in the market. c. force the total price of an apartment (including the bribe) to be less than the market price. d. allocate housing to the most deserving tenants.

Under which of the following scenarios would a park be considered a club good? a. Visitors to the park must pay an admittance fee, but there are always plenty of empty picnic tables. b. Visitors to the park must pay an admittance fee and frequently all of the picnic tables are in use. c. Visitors can enter the park free of charge and there are always plenty of empty picnic tables. d. Visitors can enter the park free of charge, but frequently all of the picnic tables are in use.

What happens to the price and quantity sold of a drug when its patent runs out? (i)The price will fall. (ii)The quantity sold will fall. (iii)The marginal cost of producing the drug will rise. a. (i) only b. (i) and (ii) only c. (ii) and (iii) only d. (i), (ii), and (iii)

Which of the following conditions is characteristic of a monopolistically competitive firm in both the short-run and the long run? a. P > MC b. MC = ATC c. P < MR d. All of the above are correct.

Which of the following goods is both excludable and rival in consumption? a. a wristwatch b. fire protection in a small town c. fish in the ocean d. efforts to fight poverty

Which of the following is a commonly-cited benefit of advertising? a. Advertising can be a signal of the quality of a product. b. Advertising impedes competition. c. Advertising reduces the deadweight loss associated with monopolistic competition. d. Advertising encourages free entry, which increases profits.

Which of the following is an example of a normative, as opposed to positive, statement? a. Universal health care would be good for U.S. citizens. b. An increase in the cigarette tax would cause a decrease in the number of smokers. c. A decrease in the minimum wage would decrease unemployment. d. A law requiring the federal government to balance its budget would increase economic growth.

Which of the following is an example of a positive, as opposed to normative, statement? a. When the minimum wage is increased, unemployment is a predictable consequence. b. The income tax rate should be increased to offset the budget deficit. c. Increasing government spending is the best way to help the economy move out of a recession. d. More than one of the above are positive statements.

Which of the following observations would be consistent with the imposition of a binding price ceiling on a market? After the price ceiling becomes effective, a. a smaller quantity of the good is bought and sold. b. a smaller quantity of the good is demanded. c. a larger quantity of the good is supplied. d. the price rises above the previous equilibrium.

Which of the following statements is correct about a market in which pollution is emitted? a. Both corrective taxes and pollution permits internalize the externality of pollution. b. Corrective taxes internalize the externality of pollution, but pollution permits do not internalize that externality. c. Corrective taxes fail to internalize the externality of pollution, but corrective taxes internalize that externality. d. Neither corrective taxes nor pollution permits internalize the externality of pollution.

Which of the following statements is correct? a. Monopolistic competition is similar to monopoly because both market structures are characterized by firms being price makers rather than price takers. b. Monopolistic competition is similar to perfect competition because both market structures are characterized by differentiated products. c. Monopolistic competition is similar to oligopoly because both market structures are characterized by strategic interaction between firms in the market. d. Monopolistic competition is similar to perfect competition because both market structures are characterized by perfectly elastic demand curves for firms.

Willingness to pay a. measures the value that a buyer places on a good. b. is the amount a seller actually receives for a good minus the minimum amount the seller is willing to accept. c. is the maximum amount a buyer is willing to pay minus the minimum amount a seller is willing to accept. d. is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.

Dallas buys strawberries, and he would be willing to pay more than he now pays. Suppose that Dallas has a change in his tastes such that he values strawberries more than before. If the market price is the same as before, then a. Dallas's consumer surplus would be unaffected. b. Dallas's consumer surplus would increase. c. Dallas's consumer surplus would decrease. d. Dallas would be wise to buy fewer strawberries than before.

Economic profit is equal to total revenue minus the a. explicit cost of producing goods and services. b. opportunity cost of producing goods and services. c. accounting cost of producing goods and services. d. implicit cost of producing goods and services.

For a good that is a luxury, demand a. tends to be inelastic. b. tends to be elastic. c. has unit elasticity. d. cannot be represented by a demand curve in the usual way.

Ford Motor Company announces that next month it will offer $3,000 rebates on new Mustangs. As a result of this information, today's demand curve for Mustangs a. shifts to the right. b. shifts to the left. c. shifts either to the right or to the left, but we cannot determine the direction of the shift from the given information. d. will not shift; rather, the demand curve for Mustangs will shift to the right next month.

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

A distinguishing feature of an oligopolistic industry is the tension between a. profit maximization and cost minimization. b. cooperation and self interest. c. producing a small amount of output and charging a price above marginal cost. d. short-run decisions and long-run decisions.

A firm in a competitive market has the following cost structure: Output Total Costs 0 1 1 6 2 9 3 10 4 17 5 26 What is the lowest price at which this firm might choose to operate? a. $2 b. $3 c. $4 d. $5

A higher price for batteries would result in a(n) a. increase in the demand for flashlights. b. decrease in the demand for flashlights. c. increase in the demand for batteries. d. decrease in the demand for batteries.

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 301st unit of output is a. -$120.00. b. -$75.40. c. -$0.40. d. $75.40.

A monopolistically competitive industry is characterized by a. many firms, differentiated products, and barriers to entry. b. many firms, differentiated products, and free entry. c. a few firms, identical products, and free entry. d. a few firms, differentiated products, and barriers to entry.

A perfectly elastic demand implies that a. buyers will not respond to any change in price. b. any rise in price above that represented by the demand curve will result in a quantity demanded of zero. c. quantity demanded and price change by the same percent as we move along the demand curve. d. price will rise by an infinite amount when there is a change in quantity demanded.

A price ceiling is a. often imposed on markets in which "cutthroat competition" would prevail without a price ceiling. b. a legal maximum on the price at which a good can be sold. c. often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price ceiling. d. All of the above are correct.

A tax imposed on the buyers of a good will a. raise both the price buyers pay and the effective price sellers receive. b. raise the price buyers pay and lower the effective price sellers receive. c. lower the price buyers pay and raise the effective price sellers receive. d. lower both the price buyers pay and the effective price sellers receive.

A tax on the buyers of cameras encourages a. sellers to supply a smaller quantity at every price. b. buyers to demand a smaller quantity at every price. c. sellers to supply a larger quantity at every price. d. Both a) and b) are correct.

Carol Anne makes candles. If she charges $20 for each candle, her total revenue will be a. $1,000 if she sells 100 candles. b. $500 if she sells 25 candles. c. $20 regardless of how many candles she sells. d. $200 if she sells 5 candles.

Consider a competitive market with 50 identical firms. Suppose the market demand is given by the equation QD = 200 - 10P and the market supply is given by the equation QS = 10P. In addition, suppose the following table shows the marginal cost of production for various levels of output for firms in this market. Output Marginal Cost 0 -- 1 $5 2 $10 3 $15 4 $20 5 $25 How many units should a firm in this market produce to maximize profit? a. 1 unit b. 2 units c. 3 units d. 4 units

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 is the value of the deadweight loss created by the monopolist? a. $4 b. $6 c. $12 d. $16

The opportunity cost of an item is a. the number of hours needed to earn money to buy the item. b. what you give up to get that item. c. usually less than the dollar value of the item. d. the dollar value of the item.

How is the burden of a tax divided? (i)When the tax is levied on the sellers, the sellers bear a higher proportion of the tax burden. (ii)When the tax is levied on the buyers, the buyers bear a higher proportion of the tax burden. (iii)Regardless of whether the tax is levied on the buyers or the sellers, the buyers and sellers bear an equal proportion of the tax burden. (iv)Regardless of whether the tax is levied on the buyers or the sellers, the buyers and sellers bear some proportion of the tax burden. a. (i) and (ii) only b. (iv) only c. (i), (ii), and (iii) only d. (i), (ii), and (iv) only

If Martin sells a shirt for $40, and his producer surplus from the sale is $8, his cost must have been a. $48. b. $32. c. $8. d. $40.

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

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 needs to be produced. D) the perfect quantity of the good is being produced.

If the government allowed a free market for transplant organs such as kidneys to exist, critics argue that such a market would a. not reduce the shortage of organs. b. benefit rich people but not poor people. c. be inefficient because markets are not good at allocating scarce resources. d. be inferior to a plan imposed by a benevolent dictator.

If the government removes a binding price floor from a market, then the price received by sellers will a. decrease, and the quantity sold in the market will decrease. b. decrease, and the quantity sold in the market will increase. c. increase, and the quantity sold in the market will decrease. d. increase, and the quantity sold in the market will increase.

If the quantity supplied responds only slightly to changes in price, then a. supply is said to be elastic. b. supply is said to be inelastic. c. an increase in price will not shift the supply curve very much. d. even a large decrease in demand will change the equilibrium price only slightly.

Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is $300. In order to maximize profits, Laura should a. make more than 20 wedding cakes per month. b. make fewer than 20 wedding cakes per month. c. continue to make 20 wedding cakes per month. d. We do not have enough information to answer the question.

Many economists believe that restrictions against ticket scalping result in each of the following except a. a smaller audience for cultural and sporting events. b. shorter lines at cultural and sporting events. c. less tax revenue for the state. d. an increase in ticket prices.

Marginal revenue measures: A) the profit earned when revenue exceeds cost. B) the change in total revenue generated by an additional unit of output. C) the amount of revenue needed for a firm to earn a profit. D) the additional amount of revenue required for a firm to break even.

Most businesses advertise their products and services. Some business use SPAM emails to advertise because the cost of a mass e-mail is close to zero. Other business spend millions of dollars to advertise in a 30-second spot during the Super Bowl. Having observed this real world data, economists argue that the amount of money that a business spends on advertising is a proxy for a good or service's a. size. b. quality. c. newness. d. cost of production.

Moving production from a high-cost producer to a low-cost producer will a. lower total surplus. b. raise total surplus. c. lower producer surplus. d. raise producer surplus but lower consumer surplus.

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

Sizable economic profits can persist over time under monopoly if the monopolist a. produces that output where average total cost is at a maximum. b. is protected by barriers to entry. c. operates as a price taker rather than a price maker. d. earns revenues that exceed variable costs.

Suppose Brent, Callie, and Danielle each purchase a particular type of electric pencil sharpener at a price of $20. Brent's willingness to pay was $22, Callie's willingness to pay was $25, and Danielle's willingness to pay was $30. Which of the following statements is correct? a. Had the price of the pencil sharpener been $24 rather than $20, only Danielle would have been a buyer. b. Brent's consumer surplus is the smallest of the three individual consumer surpluses. c. For the three individuals together, consumer surplus amounts to $60. d. The fact that all three individuals paid $20 for the same type of pencil sharpener indicates that each one placed the same value on that pencil sharpener.

Suppose an airline determines that its customers traveling for business have inelastic demand and its customers traveling for vacations have an elastic demand. If the airline's objective is to increase total revenue, it should a. increase the price charged to vacationers and decrease the price charged to business travelers. b. decrease the price charged to vacationers and increase the price charged to business travelers. c. decrease the price to both groups of customers. d. increase the price for both groups of customers.

Suppose that Bieber and Rihanna are duopolists in the music industry. In May, they agree to work together as a monopolist, charging the monopoly price for their music and producing the monopoly quantity of songs. By June, each singer is considering breaking the agreement. What would you expect to happen next? a. Bieber and Rihanna will determine that it is in each singer's self interest to maintain the agreement. b. Bieber and Rihanna will each break the agreement. Both singers' profits will decrease. c. Bieber and Rihanna will each break the agreement. Both singers' profits will increase. d. Bieber and Rihanna will each break the agreement. The new equilibrium quantity of songs will increase, and the new equilibrium price also will increase.

Suppose that Company A's railroad cars pass through Farmer B's corn fields. The railroad causes an externality to the farmer because the railroad cars emit sparks that cause $1,500 in damage to the farmer's crops. There is a special soy-based grease that the railroad could purchase that would eliminate the damaging sparks. The grease costs $1,200. Suppose that the farmer has the right to compensation for any damage that his crops suffer. Assume that there are no transaction costs. Which of the following characterizes the efficient outcome? a. The railroad will continue to operate but will pay the farmer $1,500 in damages. b. The railroad will purchase the grease for $1,200 and pay the farmer nothing because no crop damage will occur. c. The farmer will incur $1,500 in damages to his crops. d. The farmer will pay the railroad $1,200 to purchase the grease so that no crop damage will occur.

Suppose the demand for peaches decreases. What will happen to producer surplus in the market for peaches? a. It increases. b. It decreases. c. It remains unchanged. d. It may increase, decrease, or remain unchanged.

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

Suppose the government has imposed a price floor on cellular phones. Which of the following events could transform the price floor from one that is binding to one that is not binding? a. Cellular phones become less popular. b. Traditional land line phones become more expensive. c. The components used to produce cellular phones become less expensive. d. Firms expect the price of cellular phones to fall in the future.

Suppose when a monopolist produces 50 units its average revenue is $8 per unit, its marginal revenue is $4 per unit, its marginal cost is $4 per unit, and its average total cost is $3 per unit. What can we conclude about this monopolist? a. The monopolist is currently maximizing profits, and its total profits are $200. b. The monopolist is currently maximizing profits, and its total profits are $250. c. The monopolist is not currently maximizing its profits; it should produce more units and charge a lower price to maximize profit. d. The monopolist is not currently maximizing its profits; it should produce fewer units and charger a higher price to maximize profit.

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 taken in $3,500 in monthly revenue. In the short run, Susan should a. shut down her business, and in the long run she should exit the industry. b. continue to operate her business, but in the long run she should exit the industry. c. continue to operate her business, but in the long run she will probably face competition from newly entering firms. d. continue to operate her business, and she is also in long-run equilibrium.

The Coase theorem suggests that private markets may not be able to solve the problem of externalities a. if the government does not become involved in the process. b. when the number of interested parties is large and bargaining costs are high. c. if the firm in the market is a monopoly. d. if some people benefit from the externality.

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

The profit-maximization problem for a monopolist differs from that of a competitive firm in which of the following ways? a. A competitive firm maximizes profit at the point where marginal revenue equals marginal cost; a monopolist maximizes profit at the point where marginal revenue exceeds marginal cost. b. A competitive firm maximizes profit at the point where average revenue equals marginal cost; a monopolist maximizes profit at the point where average revenue exceeds marginal cost. c. For a competitive firm, marginal revenue at the profit-maximizing level of output is equal to marginal revenue at all other levels of output; for a monopolist, marginal revenue at the profit-maximizing level of output is smaller than it is for larger levels of output. d. For a profit-maximizing competitive firm, thinking at the margin is much more important than it is for a profit-maximizing monopolist.

Tomato sauce and spaghetti noodles are complementary goods. A decrease in the price of tomatoes will a. increase consumer surplus in the market for tomato sauce and decrease producer surplus in the market for spaghetti noodles. b. increase consumer surplus in the market for tomato sauce and increase producer surplus in the market for spaghetti noodles. c. decrease consumer surplus in the market for tomato sauce and increase producer surplus in the market for spaghetti noodles. d. decrease consumer surplus in the market for tomato sauce and decrease producer surplus in the market for spaghetti noodles.

Two firms, A and B, each currently dump 50 tons of chemicals into the local river. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river. It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river, and it costs Firm B $50 for each ton of pollution that it eliminates before it reaches the river. The government gives each firm 20 pollution permits. Government officials are not sure whether to allow the firms to buy or sell the pollution permits to each other. What is the total cost of reducing pollution if firms are not allowed to buy and sell pollution permits from each other? What is the total cost of reducing pollution if the firms are allowed to buy and sell permits from each other? a. $3,000; $1,500 b. $4,500; $3,500 c. $4,500; $4,000 d. $4,500; $2,500

University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs. What could the federal government do to equate the equilibrium quantity of university research and the socially optimal quantity of university research produced? a. tax university researchers b. offer grants to university researchers c. eliminate subsidized student loans d. nothing

When a certain monopoly sets its price at $8 it sells 64 units. When the monopoly sets its price at $9 it sells 62 units. The marginal revenue for the firm over this range is a. $18. b. $23. c. $46. d. $92.

When a tax is placed on the sellers of a product, buyers pay a. more, and sellers receive more than they did before the tax. b. more, and sellers receive less than they did before the tax. c. less, and sellers receive more than they did before the tax. d. less, and sellers receive less than they did before the tax.

Which of the following is a difference between corrective taxes and tradable pollution permits? a. Corrective taxes are a market-based solution while tradable pollution permits are a command-and- control policy. b. With a corrective tax the government sets the price of pollution; with tradable pollution permits, demand and supply set the price of pollution. c. With corrective taxes firms pay for pollution; with tradable pollution permits firms do not. d. Corrective taxes internalize the pollution externality while tradable pollution permits do not.

Which of the following is not an example of price discrimination by a firm? a. children's meals at a restaurant b. a natural gas company charging customers a higher rate in the winter than in the summer c. a senior citizens' discount d. coupons in the Sunday newspaper

Which of the following is true when the price of a good or service rises? a. Buyers who were already buying the good or service are better off. b. Some buyers exit the market. c. The total consumer surplus in the market increases. d. The total value of purchases before and after the price change is the same.

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. a. (i), (iii), and (iv) only b. (i) and (iv) only c. (i), (ii), and (iv) only d. (i), (ii), (iii), and (iv)

Which of the following statements is correct? a. When duopoly firms reach a Nash equilibrium, their combined level of output is the monopoly level of output. b. When oligopoly firms collude, they are behaving as a cartel. c. In an oligopoly, self-interest drives the market to the competitive outcome. d. An oligopoly is an example of monopolistic competition.

Which of the following statements is not correct? a. In a long-run equilibrium, marginal firms make zero economic profit. b. To maximize profit, firms should produce at a level of output where price equals average variable cost. c. The amount of gold in the world is limited. Therefore, the gold jewelry market probably has a long- run supply curve that is upward sloping. d. Long-run supply curves are typically more elastic than short-run supply curves.

Which of the following statements regarding a competitive market is not correct? a. There are many buyers and many sellers in the market. b. Because of firm location or product differences, some firms can charge a higher price than other firms and still maintain their sales volume. c. Price and average revenue are equal. d. Price and marginal revenue are equal.

Which of the following will cause an increase in consumer surplus? a. an increase in the production cost of the good b. a technological improvement in the production of the good c. a decrease in the number of sellers of the good d. the imposition of a binding price floor in the market

Which of the following would be most likely to have monopoly power? a. a long-distance telephone service provider b. a local cable TV provider c. a large department store d. a gas station

Which of these situations produces the largest profits for oligopolists? a. The firms reach a Nash equilibrium. b. The firms reach the monopoly outcome. c. The firms reach the competitive outcome. d. The firms produce a quantity of output that lies between the competitive outcome and the monopoly outcome.

Which tools allow economists to determine if the allocation of resources determined by free markets is desirable? a. profits and costs to firms b. consumer and producer surplus c. the equilibrium price and quantity d. incomes of and prices paid by buyers

Winona's Fudge Shoppe is maximizing profits by producing 1,000 pounds of fudge per day. If Winona's fixed costs unexpectedly increase and the market price remains constant, then the short run profit-maximizing level of output a. is less than 1,000 pounds. b. is still 1,000 pounds. c. is more than 1,000 pounds. d. becomes zero.

You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. You still enjoy Ramen noodles very much and buy even more, but your roommate plans to buy fewer Ramen noodles in favor of foods she prefers more. When looking at income elasticity of demand for Ramen noodles, yours would a. be negative, and your roommate's would be positive. b. be positive, and your roommate's would be negative. c. be zero, and your roommate's would approach infinity. d. approach infinity, and your roommate's would be zero.

A firm in a competitive market has the following cost structure: Output ATC 0 --- 1 $10 2 $8 3 $7 4 $8 5 $10 If produce to maximize profit? a. 1 unit b. 2 units c. 3 units d. 4 units

A market is competitive if (i)firms have the flexibility to price their own product. (ii)each buyer is small compared to the market. (iii)each seller is small compared to the market. a. (i) and (ii) only b. (i) and (iii) only c. (ii) and (iii) only d. (i), (ii), and (iii)

A profit-maximizing firm in a monopolistically competitive market differs from a firm in a perfectly competitive market because the firm in the monopolistically competitive market a. chooses its profit-maximizing quantity where marginal revenue equals marginal cost. b. sells its product in a highly-concentrated market. c. faces a downward-sloping demand curve for its product. d. can earn profits in the long run.

A shortage results when a a. nonbinding price ceiling is imposed on a market. b. nonbinding price ceiling is removed from a market. c. binding price ceiling is imposed on a market. d. binding price ceiling is removed from a market.

A supply curve can be used to measure producer surplus because it reflects a. the actions of sellers. b. quantity supplied. c. sellers' costs. d. the amount that will be purchased by consumers in the market.

A view of a spectacular sunset along a private beach is an example of a a. private good. b. public good. c. nonrival but excludable good. d. rival but nonexcludable good.

Advertising that uses celebrity endorsements is most likely intended to a. increase elasticity of demand for the advertised product. b. reduce the ability of markets to allocate resources efficiently. c. provide a signal of product quality. d. be useful only for psychological effects.

After the patent runs out on a brand name drug, generic drugs enter the market. What happens next in the market? a. Price increases, and total surplus decreases. b. Price decreases, and total surplus decreases. c. Price decreases, and total surplus increases. d. Price increases, and total surplus increases.

All cartels are inherently reliant on a. a horizontal demand curve. b. an inelastic demand for their product. c. the cooperation of their members. d. enforcement of antitrust laws.

As competitors enter a monopolistically competitive industry, the incumbent firms demand curves shift a. To the left and become less elastic b. To the right and becomes less elastic c. To the left and becomes more elastic d. To the right and becomes more elastic

At the local park there is a playground for children to use. While anyone is allowed to use the playground, it is often very busy, reducing the enjoyment of many of the children who use it. The playground is a a. private good. b. club good. c. common resource. d. public good.

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

Brady Industries has average variable costs of $1 and average total costs of $3 when it produces 500 units of output. The firm's total fixed costs equal a. $2. b. $4. c. $1,000. d. $2,000.

Bubba is a shrimp fisherman who could earn $5,000 as a fishing tour guide. Instead, he is a full-time shrimp fisherman. In calculating the economic profit of his shrimp business, the $5,000 that Bubba gave up is counted as part of the shrimp business's a. total revenue. b. explicit costs. c. implicit costs. d. marginal costs.

Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an average total cost of production equal to $5, and is earning $240 economic profit in the short run. What is the current market price? a. $9 b. $10 c. $11 d. $12

Consider a profit-maximizing monopoly pricing under the following conditions. The profit- maximizing quantity is 40 units, the profit-maximizing price is $160, and the marginal cost of the 40th unit is $120. If the good were produced in a perfectly competitive market, the equilibrium quantity would be 50, and the equilibrium price would be $150. The demand curve and marginal cost curves are linear. What is the value of the deadweight loss created by the monopolist? a. $40 b. $100 c. $200 d. $400

Each firm in a monopolistically competitive industry faces a downward-sloping demand curve because a. there are many other sellers in the market. b. there are very few other sellers in the market. c. the firm's product is different from those offered by other firms in the market. d. the firm faces the threat of entry into the market by new firms.

Economists tend to see ticket scalping as a. a way for a few to profit without producing anything of value. b. an inequitable interference in the orderly process of ticket distribution. c. a way of increasing the efficiency of ticket distribution. d. an unproductive activity which should be made illegal everywhere.

For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $7 and a marginal cost of $10. It follows that the a. production of the 100th unit of output increases the firm's profit by $3. b. production of the 100th unit of output increases the firm's average total cost by $7. c. firm's profit-maximizing level of output is less than 100 units. d. production of the101st unit of output must increase the firm's profit by more than $3.

Gwen has decided to start her own photography studio. To purchase the necessary equipment, Gwen withdrew $2,000 from her savings account, which was earning 3% interest, and borrowed an additional $4,000 from the bank at an interest rate of 7%. What is Gwen's annual opportunity cost of the financial capital that has been invested in the business? a. $60 b. $280 c. $340 d. $660

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then a. average revenue exceeds marginal cost. b. the firm is earning a positive profit. c. decreasing output would increase the firm's profit. d. All of the above are correct.

If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will a. more than triple. b. less than triple. c. exactly triple. d. Any of the above may be true depending on the firm's labor productivity.

If marginal cost is rising, a. average variable cost must be falling. b. average fixed cost must be rising. c. marginal product must be falling. d. marginal product must be rising.

If sellers respond to very small changes in price by adjusting their quantity supplied by extremely large amounts, the price elasticity of supply approaches a. zero, and the supply curve is horizontal. b. zero, and the supply curve is vertical. c. infinity, and the supply curve is horizontal. d. infinity, and the supply curve is vertical.

If the government regulates the price that a natural monopolist can charge to be equal to the firm's marginal cost, the firm will a. earn zero profits. b. earn positive profits, causing other firms to enter the industry. c. earn negative profits, causing the firm to exit the industry. d. minimize costs in order to lower the price that it charges.

If the government were to impose a fine of $4,000 for each unit of air-pollution released by a fertilizer plant, the policy would be considered a. a subsidy. b. a regulation. c. a corrective tax. d. an application of the Coase theorem.

If we observe a great deal of advertising of men's shaving products, we can infer that a. the market for those products is perfectly competitive. b. it costs firms very little to produce those products. c. those products are highly differentiated. d. firms are irrational in their decisions to advertise.

Justin builds fences for a living. Justin's out-of-pocket expenses (for wood, paint, etc.) plus the value that he places on his own time amount to his a. producer surplus. b. producer deficit. c. cost of building fences. d. profit.

Kelly has decided to start his own business giving sailing lessons. To purchase equipment for the business, Kelly withdrew $1,000 from his savings account, which was earning 3% interest, and borrowed an additional $2,000 from the bank at an interest rate of 7%. What is Kelly's annual opportunity cost of the financial capital that has been invested in the business? a. $30 b. $140 c. $170 d. $300

Last month, sellers of good Y took in $100 in total revenue on sales of 50 units of good Y. This month sellers of good Y raised their price and took in $120 in total revenue on sales of 40 units of good Y. At the same time, the price of good X stayed the same, but sales of good X increased from 20 units to 40 units. We can conclude that goods X and Y are a. substitutes, and have a cross-price elasticity of 0.60. b. complements, and have a cross-price elasticity of -0.60. c. substitutes, and have a cross-price elasticity of 1.67. d. complements, and have a cross-price elasticity of -1.67.

Last year, Max bought 6 pairs of athletic shoes when his income was $35,000. This year, his income is $42,000, and he purchased 8 pairs of athletic shoes. Holding other factors constant, it follows that Max a. considers athletic shoes to be necessities. b. considers athletic shoes to be inferior goods. c. considers athletic shoes to be normal goods. d. has a low price elasticity of demand for athletic shoes.

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. a. (i) and (ii) only b. (ii) and (iii) only c. (iii) only d. (i), (ii), and (iii)

One reason that private solutions to externalities do not always work is that a. government intervention negates the benefits of positive externalities. b. some people benefit from externalities. c. interested parties incur costs in the bargaining process. d. charities are not well organized.

Randy is a minor-league baseball player. His current cumulative batting average is 0.270. Randy believes that if he can raise his cumulative batting average to 0.300, he will have a chance to play in the major leagues. Which of the following statements is correct? a. If Randy gets between 27 and 30 hits out of his next 100 at bats, he will be able to raise his cumulative batting average to 0.300. b. If Randy gets 30 hits out of his next 100 at bats, he will be able to raise his cumulative batting average to 0.300. c. Randy must get more than 30 hits out of his next 100 at bats in order to raise his cumulative batting average to 0.300. d. Either b or c could be correct.

Suppose that the demand for digital cameras is elastic, and the supply of digital cameras is inelastic. A tax of $20 per camera levied on digital cameras will decrease the effective price received by sellers of digital cameras by a. less than $10. b. $10. c. between $10 and $20. d. $20.

Suppose the government wants to encourage Americans to exercise more, so it imposes a binding price ceiling on the market for in-home treadmills. As a result, a. the demand for treadmills will increase. b. the supply of treadmills will decrease. c. a shortage of treadmills will develop. d. All of the above are correct.

The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $145,000. Because of this information, in the short run, the Brookside Racquet Club should a. shut down. b. exit the industry. c. stay open because shutting down would be more expensive. d. stay open because the firm is making an economic profit.

When a supply curve is relatively flat, the a. sellers are not at all responsive to a change in price. b. equilibrium price changes substantially when the demand for the good changes. c. supply is relatively elastic. d. supply is relatively inelastic.

When firms have an incentive to exit a competitive market, their exit will a. lower the market price. b. necessarily raise the costs for the firms that remain in the market. c. raise the profits of the firms that remain in the market. d. shift the demand for the product to the left.

At present, the maximum legal price for a human kidney is $0. The price of $0 maximizes a. consumer surplus but not producer surplus. b. producer surplus but not consumer surplus. c. both consumer and producer surplus. d. neither consumer nor producer surplus.

When her income increased from $10,000 to $20,000, Heather's consumption of macaroni decreased from 10 pounds to 5 pounds and her consumption of soy-burgers increased from 2 pounds to 4 pounds. We can conclude that for Heather, macaroni a. and soy-burgers are both normal goods with income elasticities equal to 1. b. is an inferior good and soy-burgers are normal goods; both have income elasticities of 1. c. is an inferior good with an income elasticity of -1 and soy-burgers are normal goods with an income elasticity of 1. d. and soy-burgers are both inferior goods with income elasticities equal to -1.

When price exceeds average variable cost in the short run, a competitive firm's marginal cost curve is regarded as its supply curve because a. the position of the marginal cost curve determines the price for which the firm should sell its product. b. among the various cost curves, the marginal cost curve is the only one that slopes upward. c. the marginal cost curve determines the quantity of output the firm is willing to supply at any price. d. the firm is aware that marginal revenue must exceed marginal cost in order for profit to be maximized.

When the price of a good is higher than the equilibrium price, a. a shortage will exist. b. buyers desire to purchase more than is produced. c. sellers desire to produce and sell more than buyers wish to purchase. d. quantity demanded exceeds quantity supplied.

Which of the following correctly lists the products in order from most advertised to least advertised? a. soft drinks, breakfast cereals, dog food b. corn, dog food, communication satellites c. dog food, communication satellites, corn d. wheat, corn, crude oil

Which of the following events would cause the price of oranges to fall? a. There is a shortage of oranges. b. The FDA announces that bananas cause strokes, and oranges and bananas are substitutes. c. The price of land throughout Florida decreases, and Florida produces a significant proportion of the nation's oranges. d. All of the above are correct.

Which of the following events would unambiguously cause an increase in the equilibrium price of cotton shirts? a. an increase in the price of wool shirts and a decrease in the price of raw cotton b. a decrease in the price of wool shirts and a decrease in the price of raw cotton c. an increase in the price of wool shirts and an increase in the price of raw cotton d. a decrease in the price of wool shirts and an increase in the price of raw cotton

Which of the following industries is most likely to exhibit the characteristic of free entry? a. nuclear power b. municipal water and sewer c. dairy farming d. airport security

Which of the following is not a characteristic of a competitive market? a. Buyers and sellers are price takers. b. Each firm sells a virtually identical product. c. Entry is limited. d. Each firm chooses an output level that maximizes profits.

Which of the following is not a characteristic of a monopoly? a. barriers to entry b. one seller c. one buyer d. a product without close substitutes

Which of the following is not an example of a barrier to entry? a. John owns the only parcel of lakeside property with a beach that is safe for swimming. He charges admission to neighbors who want to use the beach. b. Jackie owns the copyright to a popular song. She receives royalties every time a radio station plays her song. c. John Jr. owns the best seafood restaurant in a popular resort area. He charges high prices because the quality of the food is so good. d. Caroline owns the patent for a new running shoe. She receives payments from the company who manufactures the shoes.

Which of the following is not an example of a barrier to entry? a. Mighty Mitch's Mining Company owns a unique plot of land in Tanzania, under which lies the only large deposit of Tanzanite in the world. b. A chemist receives a patent for a new skin cream. c. An entrepreneur opens a cupcake bakery. d. A taxi cab driver in New York City obtains a license to legally provide transportation in New York City.

Which of the following statements is correct? a. Environmental degradation is an example of a free rider problem.. b. The division between public goods and common resources is clear-cut. c. Some goods, such as lighthouses, may be either private or public goods. d. The free-rider problem prevents governments from supplying public goods.

Which of the following statements is not valid when the market supply curve is vertical? a. Market quantity supplied does not change when the price changes. b. Supply is perfectly inelastic. c. An increase in market demand will increase the equilibrium quantity. d. An increase in market demand will increase the equilibrium price.

Which of the following will cause an increase in producer surplus? a. the imposition of a binding price ceiling in the market b. buyers expect the price of the good to be lower next month c. the price of a substitute increases d. income increases and buyers consider the good to be inferior

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

A city wants to raise revenues to build a new municipal swimming pool next year. The mayor suggests that the city raise the price of admission to the current municipal pools this year to raise revenues. The city manager suggests that the city lower the price of admission to raise revenues. Who is correct? a. Both the mayor and city manager would be correct if demand were price elastic. b. Both the mayor and city manager would be correct if demand were price inelastic. c. The mayor would be correct if demand were price elastic; the city manager would be correct if demand were price inelastic. d. The mayor would be correct if demand were price inelastic; the city manager would be correct if demand were price elastic.

A competitive firm has been selling its output for $20 per unit and has been maximizing its profit, which is positive. Then, the price rises to $25, and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price. Once the firm has adjusted, its a. quantity of output is higher than it was previously. b. average total cost is higher than it was previously. c. marginal revenue is higher than it was previously. d. All of the above are correct.

A competitive firm's short-run supply curve is part of which of the following curves? a. marginal revenue b. average variable cost c. average total cost d. marginal cost

A cooperative agreement among oligopolists is more likely to be maintained, a. the greater the number of oligopolists. b. the larger the number of buyers of the oligopolists' product. c. the smaller the number of buyers of the oligopolists' product. d. the more likely it is that the game among the oligopolists will be played over and over again.

A demand curve reflects each of the following except the a. willingness to pay of all buyers in the market. b. value each buyer in the market places on the good. c. highest price buyers are willing to pay for each quantity. d. ability of buyers to obtain the quantity they desire.

A dentist shares an office building with a radio station. The electrical current from the dentist's drill causes static in the radio broadcast, causing the radio station to lose $10,000 in profits. The radio station could put up a shield at a cost of $30,000; the dentist could buy a new drill that causes less interference for $6,000. Either would restore the radio station's lost profits. What is the economically efficient outcome? a. The radio station puts up a shield, which it pays for. b. The radio station puts up a shield, which the dentist pays for. c. Neither the radio station nor the dentist purchase additional equipment. d. The dentist gets a new drill; it does not matter who pays for it.

A drought in California destroys many red grapes. As a result of the drought, the consumer surplus in the market for red grapes a. increases, and the consumer surplus in the market for red wine increases. b. increases, and the consumer surplus in the market for red wine decreases. c. decreases, and the consumer surplus in the market for red wine increases. d. decreases, and the consumer surplus in the market for red wine decreases.

A firm that is the sole seller of a product without close substitutes is a. perfectly competitive. b. monopolistically competitive. c. an oligopolist. d. a monopolist.

A likely example of substitute goods for most people would be a. peanut butter and jelly. b. tennis balls and tennis rackets. c. televisions and subscriptions to cable television services. d. pencils and pens.

A price floor is a. a legal minimum on the price at which a good can be sold. b. often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price floor. c. a source of inefficiency in a market. d. All of the above are correct.

A profit-maximizing firm in a competitive market is able to sell its product for $7. At its current level of output, the firm's average total cost is $10. The firm's marginal cost curve crosses its marginal revenue curve at an output level of 9 units. The firm experiences a a. profit of more than $27. b. profit of exactly $27. c. loss of more than $27. d. loss of exactly $27.

A simultaneous increase in both the demand for MP3 players and the supply of MP3 players would imply that a. both the value of MP3 players to consumers and the cost of producing MP3 players has increased. b. both the value of MP3 players to consumers and the cost of producing MP3 players has decreased. c. the value of MP3 players to consumers has decreased, and the cost of producing MP3 players has increased. d. the value of MP3 players to consumers has increased, and the cost of producing MP3 players has decreased.

According to many economists, government restrictions on ticket scalping do all of the following except a. inconvenience the public. b. reduce the audience for cultural and sports events. c. waste police officers' time. d. keep the cost of tickets to all consumers low.

Advertising a. provides information about products, including prices and seller locations. b. has been proven to increase competition and reduce prices compared to markets without advertising. c. signals quality to consumers, because advertising is expensive. d. All of the above are correct.

Free entry means that a. the government pays any entry costs for individual firms. b. government-funded research lowers the costs of patents and other barriers to entry. c. a firm's marginal cost is zero. d. no legal barriers prevent a firm from entering an industry.

If a firm produces nothing, which of the following costs will be zero? a. total cost b. fixed cost c. opportunity cost d. variable cost

If a monopoly market were to be transformed into a competitive market, the result would be that a. market output would increase. b. the market would be efficient, once the market reached the competitive output. c. the deadweight loss from the monopoly would be eliminated. d. All of the above would be true.

If gasoline taxes were significantly increased in the United States, then a. some of the government regulations that require automakers to produce more fuel-efficient cars would become unnecessary. b. other taxes, such as income taxes, could be lowered. c. it is likely that roads would become safer and the environment would become cleaner. d. All of the above are correct.

If the government passes a law requiring sellers of mopeds to send $200 to the government for every moped they sell, then a. the supply curve for mopeds shifts downward by $200. b. sellers of mopeds receive $200 less per moped than they were receiving before the tax. c. buyers of mopeds are unaffected by the tax. d. None of the above is correct.

If the government removes a binding price ceiling from a market, then the price received by sellers will a. decrease, and the quantity sold in the market will decrease. b. decrease, and the quantity sold in the market will increase. c. increase, and the quantity sold in the market will decrease. d. increase, and the quantity sold in the market will increase.

If the price elasticity of supply is 0.4, and a price increase led to a 5% increase in quantity supplied, then the price increase is about a. 0.25%. b. 1.2%. c. 2%. d. 12.5%.

In the prisoners' dilemma game with Bonnie and Clyde as the players, the likely outcome is a. a very good outcome for both players. b. a very good outcome for Bonnie, but a bad outcome for Clyde. c. a very good outcome for Clyde, but a bad outcome for Bonnie. d. a bad outcome for both players.

In which of the following market structures can a firm earn an economic profit in the short run? a. Perfect competition b. Monopolistic competition c. Monopoly d. All of these market structures can earn an economic profit in the short run

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? a. 55 bouquets b. 35 bouquets c. 22.5 bouquets d. 15 bouquets

Kate is a professional opera singer who gives voice lessons. The vocal-music industry is competitive. Kate hires a business consultant to analyze her financial records. The consultant recommends that Kate give fewer voice lessons. The consultant must have concluded that Kate's a. total revenues exceed her total accounting costs. b. marginal revenue exceeds her total cost. c. marginal revenue exceeds her marginal cost. d. marginal cost exceeds her marginal revenue.

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

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

Price discrimination a. is illegal in the United States and Europe. b. can occur in both perfectly competitive and monopoly markets. c. is illogical because it does not maximize profits. d. can maximize profits if the seller can prevent the resale of goods between customers.

Refer to Table 17-21. What is (are) the Nash equilibrium (equilibria) in this Chicken game? a. John: Turn Paul: Turn b. John: Turn Paul: Drive Straight c. John: Drive Straight Paul: Turn d. Both b and c are Nash equilibria

Round-trip airline tickets are usually cheaper if you stay over a Saturday night before you fly back. What is the reason for this price discrepancy? a. Airlines are practicing imperfect price discrimination to raise their profits. b. Airlines charge a different rate based on the different nature of peoples' travel needs. c. Airlines are attempting to charge people based on their willingness to pay. d. All of the above are correct.

Since restored historic buildings convey a positive externality, local governments may choose to a. regulate the demolition of them. b. provide tax breaks to owners who restore them. c. increase property taxes in historic areas. d. Both a and b are correct.

Some firms have an incentive to advertise because they sell a a. homogeneous product and charge a price equal to marginal cost. b. homogeneous product and charge a price above marginal cost. c. differentiated product and charge a price equal to marginal cost. d. differentiated product and charge a price above marginal cost.

Suppose a firm operates in the short run at a price above its average total cost of production. In the long run the firm should expect a. new firms to enter the market. b. the market price to fall. c. its profits to fall. d. All of the above are correct.

Suppose buyers of fountain drinks are required to send $0.50 to the government for every fountain drink they buy. Further, suppose this tax causes the effective price received by sellers of fountain drinks to fall by $0.20 per drink. Which of the following statements is correct? a. This tax causes the demand curve for fountain drinks to shift downward by $0.50 at each quantity. b. The price paid by buyers is $0.30 per drink more than it was before the tax. c. Forty percent of the burden of the tax falls on sellers. d. All of the above are correct.

Suppose buyers of vodka are required to send $5.00 to the government for every bottle of vodka they buy. Further, suppose this tax causes the effective price received by sellers of vodka to fall by $3.00 per bottle. Which of the following statements is correct? a. This tax causes the demand curve for vodka to shift downward by $5.00 at each quantity of vodka. b. The price paid by buyers is $2.00 per bottle more than it was before the tax. c. Sixty percent of the burden of the tax falls on sellers. d. All of the above are correct.

The Surgeon General announces that eating chocolate increases tooth decay. As a result, the equilibrium price of chocolate a. increases, and producer surplus increases. b. increases, and producer surplus decreases. c. decreases, and producer surplus increases. d. decreases, and producer surplus decreases.

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

The higher the concentration ratio, the a. more control an individual firm has to set prices. b. more competitive the industry. c. less competitive the industry. d. Both a and c are correct.

To maximize its profit, a monopolistically competitive firm a. takes the price as given and chooses its quantity, just as a competitive firm does. b. takes the price as given and chooses its quantity, just as a colluding oligopolist does. c. chooses its quantity and price, just as a competitive firm does. d. chooses its quantity and price, just as a monopoly does.

Total surplus a. can be used to measure a market's efficiency. b. is the sum of consumer and producer surplus. c. is the value to buyers minus the cost to sellers. d. All of the above are correct.

Under which of the following scenarios would a park be considered a common resource? a. Visitors to the park must pay an admittance fee, but there are always plenty of empty picnic tables. b. Visitors to the park must pay an admittance fee and frequently all of the picnic tables are in use. c. Visitors can enter the park free of charge and there are always plenty of empty picnic tables. d. Visitors can enter the park free of charge, but frequently all of the picnic tables are in use.

Wally owns a dog whose barking annoys Wally's neighbor, Corrine. Suppose that the benefit of owning the dog is worth $700 to Wally and that Corrine bears a cost of $500 from the barking. Assuming Wally has the legal right to keep the dog, a possible private solution to this problem is that a. Wally pays Corrine $600 for her inconvenience. b. Corrine pays Wally $400 to give the dog to his parents who live on an isolated farm. c. Corrine pays Wally $550 to give the dog to his parents who live on an isolated farm. d. The current situation is efficient.

When a factory is operating in the short run, a. it cannot alter variable costs. b. total cost and variable cost are usually the same. c. average fixed cost rises as output increases. d. it cannot adjust the quantity of fixed inputs.

When a particular negative externality affects a very large number of people, it is likely that a. government will not find it worthwhile to impose a corrective tax. b. private solutions to the problem will dominate any attempt by government to alleviate the problem. c. the solution to externalities suggested by the Coase theorem will work very well. d. the solution to externalities suggested by the Coase theorem will not work.

When regulators use a marginal-cost pricing strategy to regulate a natural monopoly, the regulated monopoly a. will experience a loss. b. will experience a price below average total cost. c. may rely on a government subsidy to remain in business. d. All of the above are correct.

Which of the following conditions distinguishes monopolistic competition from perfect competition? a. the number of sellers in the market b. the freedom of entry and exit by firms in the market c. the size of firms in the market d. product differentiation

Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium? a. P = AR b. MR = MC c. P > MC d. All of the above are correct.

Which of the following is an example of a barrier to entry? a. Matthew offers free samples of his latest flavored coffee drink to entice customers to buy a cup. b. Mark charges a lower price to students than to faculty for his tattoo services. c. Luke charges a higher hourly price to business students than to liberal arts students for his economics tutoring. d. John obtained a copyright for the song he wrote and recorded.

Which of the following is not an example of price discrimination? a. A movie theater charges a lower price for a child's ticket than for an adult's ticket. b. A university rebates part of the cost of tuition in the form of financial aid for needy students. c. A local pizza chain offers a "buy three get one free" deal. d. An ice cream parlor charges a higher price for ice cream than for sherbet.

Which of the following is the most likely explanation for the imposition of a price floor on the market for corn? a. Policymakers have studied the effects of the price floor carefully, and they recognize that the price floor is advantageous for society as a whole. b. Buyers and sellers of corn have agreed that the price floor is good for both of them and have therefore pressured policy makers into imposing the price floor. c. Buyers of corn, recognizing that the price floor is good for them, have pressured policymakers into imposing the price floor. d. Sellers of corn, recognizing that the price floor is good for them, have pressured policymakers into imposing the price floor.

Which of the following is the preferred strategy for the government to follow to remedy the inefficient allocation of resources associated with monopolies? a. preventing mergers through antitrust laws b. regulating the prices that monopolies can charge c. doing nothing d. None of the above strategies is preferred. Each is a viable strategy.

Which of the following statements is correct? a. For all firms, marginal revenue equals the price of the good. b. Only for competitive firms does average revenue equal the price of the good. c. Marginal revenue can be calculated as total revenue divided by the quantity sold. d. Only for competitive firms does average revenue equal marginal revenue.

Which of the following statements is correct? a. If marginal cost is rising, then average total cost is rising. b. If marginal cost is rising, then average variable cost is rising. c. If average variable cost is rising, then marginal cost is minimized. d. If average total cost is rising, then marginal cost is greater than average total cost.

Which of the following statements is not correct? a. Monopolistic competition is different from monopoly because monopolistic competition is characterized by free entry, whereas monopoly is characterized by barriers to entry. b. Both monopolistic competition and oligopoly fall in between the more extreme market structures of competition and monopoly. c. Monopolistic competition is different from oligopoly because each seller in monopolistic competition is small relative to the market, whereas each seller can affect the actions of other sellers in an oligopoly. d. Both monopolistic competition and perfect competition are characterized by product differentiation.

Which of the following would not be considered a private good? a. a pair of scissors b. a pair of shoes c. an SUV d. cable TV service

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

Ziva is an organic lettuce farmer, but she also spends part of her day as a professional organizing consultant. As a consultant, Ziva helps people organize their houses. Due to the popularity of her home- organization services, Farmer Ziva has more clients requesting her services than she has time to help if she maintains her farming business. Farmer Ziva charges $25 an hour for her home-organization services. One spring day, Ziva spends 10 hours in her fields planting $130 worth of seeds on her farm. She expects that the seeds she planted will yield $300 worth of lettuce. 12. Refer to Scenario 13-6. An economist would calculate Ziva's total cost for the day of farming to equal a. $130. b. $250. c. $300. d. $380.

Refer to Figure 6-14. If the horizontal line on the graph represents a price ceiling, then the price ceiling is a. binding and creates a shortage of 20 units of the good. b. binding and creates a shortage of 40 units of the good. c. not binding but creates a shortage of 40 units of the good. d. not binding, and there will be no surplus or shortage of the good.

Refer to Figure 14-9. If there are 300 identical firms in this market, what level of output will be supplied to the market when price is $1.00? a. 300 b. 6,000 c. 30,000 d. 60,000

Refer to Figure 6-12. When the price ceiling applies in this market and the supply curve for gasoline shifts from S1 to S2, a. the market price will increase to P3. b. a surplus will occur at the new market price of P2. c. the market price will stay at P1. d. a shortage will occur at the new market price of P2.

1-c 2-b 3-d

Imagine a small town in which only two residents, Rochelle and Alec, own wells that produce safe drinking water. Each week Rochelle and Alec work together to decide how many gallons of water to pump. They bring the water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Rochelle and Alec can pump as much water as they want without cost so that the marginal cost of water equals zero. The town's weekly demand schedule and total revenue schedule for water is shown in the table below: 1.Refer to Table 17-1. If Rochelle and Alec operate as a profit-maximizing monopoly in the market for water, how many gallons of water will be produced and sold? a. 0 b. 500 c. 600 d. 1,200 2.Refer to Table 17-1. If Rochelle and Alec operate as a profit-maximizing monopoly in the market for water, how much profit will each of them earn, assuming that the two producers split the market equally? a. $8,750 b. $9,000 c. $12,000 d. $18,000 3. Refer to Table 17-1. If the market for water were perfectly competitive instead of monopolistic, how many gallons of water would be produced and sold? a. 0 gallons b. 600 gallons c. 900 gallons d. 1,200 gallons

1-a 2-c 3-c 4-b 5-b 6-d

Imagine that two oil companies, BQ and Exxoff, own adjacent oil fields. Under the fields is a common pool of oil worth $144 million. Drilling a well to recover oil costs $5 million per well. If each company drills one well, each will get half of the oil and earn a $67 million profit ($72 million in revenue - $5 million in costs). Assume that having X percent of the total wells means that a company will collect X percent of the total revenue. 1. Refer to Scenario 17-2. If BQ and Exxoff are able to successfully cooperate to maximize their joint profits, BQ will a. drill one well and Exxoff will drill one well. b. drill one well and Exxoff will drill two wells. c. drill two wells and Exxoff will drill one well. d. drill two wells and Exxoff will drill two wells. 2.Refer to Scenario 17-2. If BQ and Exxoff are able to successfully cooperate to maximize their joint profits, BQ will earn a. $43 million and Exxoff will earn $86 million. b. $62 million and Exxoff will earn $62 million. c. $67 million and Exxoff will earn $67 million. d. $86 million and Exxoff will earn $43 million. 3.Refer to Scenario 17-2. If BQ were to drill a second well, what would its profit be if Exxoff did not drill a second well? a. $43 million b. $67 million c. $86 million d. $129 million 4.Refer to Scenario 17-2. If BQ were to drill a second well and Exxoff also drilled a second well, what would BQ's profit be? a. $31 million b. $62 million c. $67 million d. $86 million 5.Refer to Scenario 17-2. Exxoff's dominant strategy would lead to what sort of well-drilling behavior? a. Exxoff will never drill a second well. b. Exxoff will always drill a second well. c. Exxoff will drill a second well only if BQ drills a well. d. Exxoff will drill a second well only if BQ does not drill a well. 6.Refer to Scenario 17-2. If each firm is permitted to drill two wells at most, the firms are in a Nash equilibrium when a. BQ drills one well and Exxoff drills two wells. b. BQ drills two wells and Exxoff drills one well. c. both firms drill one well. d. both firms drill two wells.

Refer to Figure 14-13. If the price is $6 in the short run, what will happen in the long run? a. Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry. b. Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry. c. Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry. d. Because the price is below the firm's average variable costs, the firms will shut down.

Refer to Figure 14-14. When the market is in long-run equilibrium at point W in panel (b), the firm represented in panel (a) will a. have a zero economic profit. b. have a negative accounting profit. c. exit the market. d. choose to increase production to increase profit.

Refer to Figure 14-6. When market price is P3, a profit-maximizing firm's total revenue a. can be represented by the area P3 × Q3. b. can be represented by the area P3 × Q2. c. can be represented by the area (P3-P2) × Q3. d. is zero.

Refer to Figure 6-7. Suppose a price ceiling of $5 is imposed on this market. As a result, a. the quantity of the good supplied decreases by 20 units. b. the demand curve shifts to the left; quantity sold is now 30 units and the price is $5. c. buyers' total expenditure on the good decreases by $80. d. the price of the good continues to serve as the rationing mechanism.

Refer to Figure 6-8. When a certain price control is imposed on this market, the resulting quantity of the good that is actually bought and sold is such that buyers are willing and able to pay a maximum of P1 dollars per unit for that quantity and sellers are willing and able to accept a minimum of P2 dollars per unit for that quantity. If P1 - P2 = $3, then the price control is a. a price ceiling of $2.00. b. a price ceiling of $5.00. c. a price floor of $5.00. d. either a price ceiling of $2.00 or a price floor of $5.00.

Refer to Figure 7-19. At the equilibrium price, total surplus is a. $125. b. $450. c. $250. d. $500.

Refer to Figure 7-29. Which of the following statements is correct? a. The market is in equilibrium at Q1. b. At Q2, the cost to sellers exceeds the value to buyers. c. At Q4, the value to buyers is less than the cost to sellers. d. At Q3, the market is producing too much output.

Refer to Figure 7-6. At the equilibrium price, consumer surplus is a. $1,600. b. $800. c. $1,400. d. $700.

Refer to Table 15-12. In order to maximize profits, the firm should produce a. 4 units of output. b. 8 units of output. c. 12 units of output. d. 16 units of output.

Refer to Table 15-19. If a monopolist faces a constant marginal cost of $9, how much output should the firm produce? a. 2 units b. 3 units c. 4 units d. 5 units

Refer to Table 15-3. The maximum profit this monopolist can earn is a. $5. b. $15. c. $16. d. $28.

Refer to Table 15-5. The monopolist has total fixed costs of $60 and has a constant marginal cost of $15. What is the profit-maximizing level of production? a. 2 units b. 3 units c. 4 units d. 5 units

Refer to Table 16-2. Which industry is the most competitive? a. Industry J b. Industry K c. Industry L d. Industry M

Refer to Table 16-7. If the firm has a constant marginal cost of $7 per unit, how many units should the firm produce to maximize profit? a. 3 units b. 4 units c. 5 units d. 6 units

Refer to Table 4-1. If the market consists of Michelle, Laura, and Hillary and the price falls by $1, the quantity demanded in the market increases by a. 2 units. b. 3 units. c. 4 units. d. 5 units.

Refer to Table 4-6. If these are the only four sellers in the market, then the market quantity supplied at a price of $4 is a. 4 units. b. 7.5 units. c. 10 units. d. 30 units.

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 a. 5.3. b. 2.8. c. 0.8. d. 0.36.

Refer to Table 5-6. As price rises from $10 to $15, the price elasticity of demand using the midpoint method is approximately a. 0.40. b. 0.56. c. 1.80. d. 2.50.

Refer to Table 5-9. Which of the three supply curves represents the least elastic supply? a. supply curve A b. supply curve B c. supply curve C d. There is no difference in the elasticity of the three supply curves.

Refer to Table 7-11. If Evan, Selena, and Angie sell the good, and the resulting producer surplus is $300, then the price must have been a. $200. b. $300. c. $450. d. $600.

The firm has total fixed costs of $9 and a constant marginal cost of $3 per unit. The firm will maximize profit with a. 9 units of output. b. 15 units of output. c. 21 units of output. d. 30 units of output.

1-b 2-b

The information in the table below shows the total demand for internet radio subscriptions in a small urban market. Assume that each company that provides these subscriptions incurs an annual fixed cost of $20,000 (per year) and that the marginal cost of providing an additional subscription is always $16. 1. Refer to Table 17-7. Suppose there is only one internet radio provider in this market and it seeks to maximize its profit. The company will a. sell 2,000 subscriptions and charge a price of $48 for each subscription. b. sell 3,000 subscriptions and charge a price of $40 for each subscription. c. sell 4,000 subscriptions and charge a price of $32 for each subscription. d. sell 5,000 subscriptions and charge a price of $24 for each subscription. 2.Refer to Table 17-7. Assume there are two internet radio providers that operate in this market. If they are able to collude on the quantity of subscriptions that will be sold and on the price that will be charged for subscriptions, then their agreement will stipulate that a. each firm will charge a price of $40 and each firm will sell 3,000 subscriptions. b. each firm will charge a price of $40 and each firm will sell 1,500 subscriptions. c. each firm will charge a price of $32 and each firm will sell 2,000 subscriptions. d. each firm will charge a price of $20 and each firm will sell 3,000 subscriptions.

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