Practice test

Julia prepares tax returns and does bookkeeping. Last year her revenues from the tax and bookkeeping business were $150,000, and her expenses for the business were $15,000. When she started her tax and bookkeeping business, Julia gave up her supplemental job doing in-home pet sitting. She used to earn $10,000 per year from pet sitting. Assume that she incurred no costs for her pet sitting business.

$15,000

Jessica makes photo frames. She spends $5 on the materials for each photo frame. She can create one photo frame in an hour. She earns $10 per hour at a part-time job at the local coffee shop. She can sell a photo frame for $30 each. Refer to Scenario 13-10.An accountant would calculate the total profit for one photo frame to be

$25

Marcus sells 300 candy bars at $0.50 each. His total costs are $125. His profits are

$25

A circular-flow diagram is a model that

Both (a) and (b) are correct

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?

Students would purchase more than 750 cups per day.

Which of the following is not a reason perfect competition is a useful simplification, despite the diversity of market types we find in the world?

There are many buyers and many sellers in all types of markets

In competitive markets,

all of the above are correct

Which of the following statements is correct?

all of the above are correct

Marginal cost tells us the

amount by which total cost rises when output is increased by one unit

Which of the following is a characteristic of a natural monopoly?

average total cost declines over large regions of output

Whenever marginal cost is greater than average total cost,

average total cost is falling

If consumers view cappuccinos and lattés as substitutes, what would happen to the equilibrium price and quantity of lattés if the price of cappuccinos falls

both equilibrium price and quantity would decrease

Economists speaking like scientists make

claims about how the world is

Economists speaking like policy advisers make

claims about how the world should be

Cold Duck Airlines flies between Tacoma and Portland. The company leases planes on a year-long contract at a cost that averages $600 per flight. Other costs (fuel, flight attendants, etc.) amount to $550 per flight. Currently, Cold Duck's revenues are $1,000 per flight. All prices and costs are expected to continue at their present levels. If it wants to maximize profit, Cold Duck Airlines should

continue flying until the lease expires and then drop the run

Economists view positive statements as Group of answer choices

descriptive, making a claim about how the world is

In building economic models, economists often omit Group of answer choices

details

Authors are allowed to be monopolists in the sale of their books in order to

encourage authors to write more and better books

A firm operating in a perfectly competitive industry will continue to operate in the short run but earn losses if the market price is less than that firm's average variable cost. Group of answer choices

false

A firm that would experience higher average total cost by increasing production is operating with excess capacity. Group of answer choices

false

A manufacturer of light bulbs sells its products to retail stores and requires the stores to sell the bulbs to customers for $2 per bulb. This practice is known as tying

false

A monopolist does not have a supply curve because the firm's decision about how much to supply is impossible to separate from the demand curve it faces.

false

An increase in the price of a product and an increase in the number of sellers in the market affect the supply curve in the same general way

false

An increase in the price of a product and an increase in the number of sellers in the market affect the supply curve in the same general way.

false

Baseballs and baseball bats are substitute goods

false

Economic profit is greater than or equal to accounting profit. Group of answer choices

false

Government intervention is always preferable to doing nothing when reducing the social inefficiencies of monopoly. Group of answer choices

false

Price cannot fall so low that some sellers choose to supply a quantity of zero. Group of answer choices

false

The best option to control the behavior of a natural monopoly is to use public ownership of the monopoly. Group of answer choices

false

The marginal-cost curve intersects the average-total-cost curve at the output level where average fixed costs are zero. Group of answer choices

false

The market demand curve shows how the total quantity demanded of a good varies as the income of buyers varies, while all the other factors that affect how much consumers want to buy are held constant.

false

Individual supply curves are summed vertically to obtain the market supply curve

false (they're summed horizontally)

Devin works as an attorney for a corporation and is paid a salary in exchange for the legal services he performs. Juan owns office buildings and rents his buildings to companies in exchange for rent payments. If Devin's income is represented by a flow of dollars from Box D to Box B of this circular-flow diagram, then Juan's income is represented by a flow of dollars Group of answer choices

from box D to Box B

​Tony's Taco Truck has an average variable cost of $1.50 and a marginal cost of $2 when it produces 50 units of output (tacos). We can conclude that the average variable cost of producing 51 tacos is

higher than $1.50

In general, game theory is the study of

how people behave in strategic situations

Just like models constructed in other areas of science, economic models

incorporate assumptions that contradict reality

If a good is normal, then an increase in income will result in a(n) Group of answer choices

increase in the demand for the good

Suppose a certain competitive firm is producing Q=500 units of output. The marginal cost of the 500th unit is $17, and the average total cost of producing 500 units is $12. The firm sells its output for $20. Refer to Scenario 14-3.If the marginal cost of producing the 501st unit would be $19, producing and selling the 501st unit would

increase the firm's profit by $1

Joan grows pumpkins. If Joan plants no seeds on her farm, she gets no harvest. If she plants 1 bag of seeds, she gets 500 pumpkins. If she plants 2 bags, she gets 800 pumpkins. If she plants 3 bags, she gets 900 pumpkins. A bag of seeds costs $100, and seeds are her only cost. Joan's total-cost curve is

increasing at an increasing rate

Senator Hubris wants to pass a law that would require all monopolistically competitive firms to operate at their efficient scale. If this law were to pass and be enforced, we would expect that monopolistically competitive firms would Group of answer choices

lose money

The efficient scale of the firm is the quantity of output that Group of answer choices

minimizes average total cost

Oligopolies would like to act like a

monopoly, but self-interest often drives them closer to the perfectly competitive outcome.

The belief that tobacco is a "gateway drug" is consistent with

most of the available evidence

Positive statements are not

prescriptive

For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $11 and a marginal cost of $10. It follows that the Group of answer choices

production of the 100th unit of output increases the firm's profit by $1

Each of the following is a determinant of demand except Group of answer choices

production technology

In the short run for a particular market, there are 300 firms. Each firm has a marginal cost of $30 when it produces 200 units of output. $30 is above every firm's average variable cost. One point on the market supply curve is

quantity= 60,000; price= $30

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 Group of answer choices

supply of bicycles will shift to the left

Wheat is the main input in the production of flour. If the price of wheat decreases, then we would expect the

supply of flour to increase

Predatory pricing involves a firm

temporarily cutting the price of its product to drive a competitor out of the market

Which of the following statements about the circular-flow diagram is correct? Group of answer choices

the diagram leaves out details that are not essential for understanding the economic transactions that occur between households and firms

If consumers view cappuccinos and lattés as substitutes, what would happen to the equilibrium price and quantity of lattés if the price of cappuccinos rises?

the equilibrium price would increase, and the equilibrium quantity would decrease

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?

the farmer 5,600 when 4 workers

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?

the price change will be ambiguous

If there is a shortage of farm laborers, we would expect Group of answer choices

the wage of farm laborers to increase

A decrease in supply will cause an increase in price, which will cause a decrease in quantity demanded.

true

As a firm moves along its long-run average cost curve, it is adjusting the size of its factory to the quantity of production.

true

Copyrights and patents are examples of barriers to entry that give firms monopoly pricing powers. Group of answer choicesTrue

true

Even with market power, monopolists cannot achieve any level of profit they desire because they will sell lower quantities at higher prices. Group of answer choices

true

In a competitive market, strategic interactions among the firms are not important. Group of answer choices

true

Local cable television companies frequently are monopolists.

true

Monopolistically competitive firms, like monopoly firms, maximize their profits by charging a price that exceeds marginal cost. Group of answer choices

true

Supply and demand together determine the price and quantity of a good sold in a market

true

The marginal firm in a competitive market will earn zero economic profit in the long run. Group of answer choices

true

When an increase in the price of one good lowers the demand for another good, the two goods are called complements. Group of answer choices

true

When average total cost rises if a producer either increases or decreases production, then the firm is said to be operating at efficient scale

true