econ final tri 1
An effective minimum wage policy in a competitive market will increase unemployment and increase the total earnings of labor only if the demand for labor is
relatively inelastic
The firm shown in the diagram above qualifies as a natural monopoly because
the average total cost is decreasing in the relevant range of market demand
The Lorenz curve represents the relationship between
the cumulative percentage of households and the cumulative percentage of income
The marginal benefit of consuming a good is
the maximum amount a consumer is willing to pay for one more unit of the good
Which of the following describes the type of externality generated by the unregulated private market and the resulting deadweight loss?
type of externality: negative deadweight loss: egh
Jamal quits a job that was paying him $30,000 per year and decides to start his own business. He runs his business out of his house in a room he had been renting to his colleague for $12,000 a year. Jamal withdraws the $20,000 in his savings account that had been earning him a 10 percent annual interest to purchase computers and related accessories and equipment for the business. During the first year of operation, Jamal's business incurred $30,000 in explicit costs and generated $60,000 in total sales. Jamal's economic profit is
−$14,000
A firm uses capital and labor in its production process. The marginal product for the last unit of labor is 5, the marginal product for the last unit of capital is 10, and the wage is $10. At what cost of hiring each unit of capital would the firm be minimizing the cost of the current output?
$20
The average fixed cost of producing four units of output is equal to
$30
Bruce is a talented writer and graphic artist who enjoys both types of work equally. Instead of earning $45,000 as a writer, Bruce now earns $25,000 in accounting profits as a graphic artist using the same computer equipment he would have used as a writer. What is Bruce's economic profit from choosing to work as a graphic artist?
-$20,000
The table above shows the total benefit Tony gets from eating different quantities of apples. If apples cost $3 each, how many should he buy to maximize his consumer surplus?
4
If there is only one variable input, diminishing marginal returns first occur with the production of which unit of output?
5th
Which of the following must be true if at the tenth unit of output, marginal cost (MC) is $130 and average total cost (ATC) is $150 ?
ATC of producing the ninth unit is higher than $150
If a normal good is produced in a competitive market, which of the following combination of events could cause the price of the good to increase and the quantity to decrease?
An increase in the average income of consumers and an increase in the price of a variable input
Assume the market for disposable coffee cups is in equilibrium and disposable coffee cups are inputs for serving brewed coffee. Which of the following will result in a higher short-run equilibrium price of disposable coffee cups?
An increase in the demand for brewed coffee
Which of the following statements about the market supply curve is true?
At each price, a horizontal summation of the quantity supplied by each firm will yield the market supply curve.
Which of the following describes a factor of production that is not fully scarce and that can be used simultaneously in the production of more than one good?
Basic knowledge that enhances the organization of all manufacturing assembly lines
Max employs both labor and capital to produce toy trains. Currently the last unit of labor employed has a marginal product of 15 units. The last unit of capital employed has a marginal product of 40 units. The price of labor is $3 per unit, and the price of capital is $10 per unit. Which of the following employment decisions should Max follow to use the least-cost combination of labor and capital to produce the current quantity of toy trains?
Employment of labour: increase Employment of capital: decrease
Suppose that the market for low-wage labor is perfectly competitive and initially in equilibrium. If the government establishes an effective minimum wage, which of the following will occur?
Employment of low-wage workers will decrease and unemployment will increase.
When two firms interact in an oligopolistic market, which of the following statements is true?
If both firms have dominant strategies, then there is a Nash equilibrium.
Which of the following is true for a firm that uses labor as a variable input and capital as a fixed input in the short run?
If the marginal product of labor is negative, the average product of labor must also be negative.
The table above shows the maximum possible output combinations of good X and good Y that Microland can produce by using all of its available resources and technology. As the production of good X increases, what happens to the opportunity cost of producing good X?
It increases, because the production of good Y decreases by greater amounts.
A profit-maximizing, perfectly competitive firm is currently in long-run equilibrium. It is earning $15,000 of total revenue from a sale of 1,000 units. Its total fixed cost of production is $2,500. Which of the following can correctly be inferred from the information provided?
Its marginal cost is $15.00, and its average variable cost is $12.50.
Which of the following is true of a monopsony in a labor market?
Its marginal factor (resource) cost curve lies above the labor supply curve because hiring an extra worker means paying more to existing workers.
Jane spends all her weekly allowance to buy only two goods: soda and apples. According to the table above, if her preferences are characterized by the law of diminishing marginal utility, then which of the following statements is correct?
Jane can buy more apples and less soda to maximize her utility.
Assume that the current market equilibrium price for milk is $2.80 per gallon and that 5 million gallons are sold per day. If the government sets a price ceiling of $2.00 per gallon, which of the following is true?
Less than 5 million gallons of milk will be sold.
Assume that a monopolistically competitive firm is currently maximizing profit with an output of 100 units and a price of $50. Which of the following is true?
Marginal cost is greater than marginal revenue when the firm produces 150 units of output.
Assume that a firm is maximizing short-run profits and that price is greater than average variable cost. Which of the following must be true at the firm's level of output?
Marginal revenue is equal to marginal cost.
After graduating from high school, Maria chose to go to college, while Omar chose to work full- time. Which of the following best describes the opportunity costs for these decisions?
Maria's opportunity cost includes the salary she could have earned if she had gone to work.
Assume that barber shops operate in perfectly competitive product and factor markets. Which of the following will happen to working barbers if the price of haircuts decreases?
The marginal revenue product curve will shift to the left.
Antitrust policies are put in place to limit which of the following?
Monopoly power
A typical firm in a perfectly competitive constant-cost industry is operating with an economic loss in the short run. When the industry returns to long-run equilibrium, what will happen to the number of firms in the industry, the market price, and the typical firm's quantity?
Number of firms: decrease Market price: increase Firm's quantity: increase
An art student spends all of her income on pencils and drawing pads. The student currently buys 30 pencils at $1 each and 10 pads at $5 each. If the marginal utility of the 30th pencil is 100 utils and the marginal utility of the 10th pad is 400 utils, to maximize utility the student should change her purchases of pencils and pads in which of the following ways?
Pencils: buy more Pads: buy less
Which of the following relationships among the price elasticity of demand, change in price, and change in total revenue is consistent?
Price elasticity of demand: inelastic Change in price: decrease Change in total revenue: decrease
Assume a consumer is spending all her income on two goods: X and Y. At the current consumption combination of the two goods, if the marginal utility per dollar spent on the last unit of good X exceeds that of the marginal utility per dollar spent on the last unit of good Y, what should the consumer do to maximize utility?
Purchase more units of X and less units of Y.
The table above shows the maximum number of palm leaves or coconuts that Robert and Frank can pick respectively in a single day. Which of the following is true?
Robert and Frank can both benefit from trade with each other if 1 coconut is traded for 3 palm leaves.
The graph above shows the cost curves for May's Fruit Farm, where MC is marginal cost, ATC is average total cost, and AVC is average variable cost. May's short-run supply curve includes which of the following points?
STV
Assume a 10 percent increase in price increased the market quantity supplied by 20 percent. Which of the following is true?
The value of the price elasticity of supply is 2
Assume a perfectly competitive firm is currently producing 100 units of output. Its marginal cost is $6 and rising at that output quantity. Its average variable cost is $7 and its average fixed cost is $3. If the product's price is $6, which of the following will the firm do in the short run to maximize its profit?
Shut down
Assume that in a competitive equilibrium, 1,000 units are sold at $20 per unit. Following the imposition of a $4.00 per unit tax, the new consumer price is $23, and the new equilibrium quantity is 950 units. What are the values of the tax revenue collected and the deadweight loss?
Tax revenue $3,800; Deadweight loss $100
Assume that firms providing health-care services to older people operate in a perfectly competitive market. What must happen in the market for health-care workers if there is an increase in the number of older people in a country?
The demand for health-care workers will increase.
There are four firms in an oligopolistic industry. The four firms agree to collude and act like a monopoly. If one of the firms violates the agreement and charges a lower price or sells a larger quantity than what was agreed to, what will happen in the short run?
The firm that cheats will earn higher profits, and industry profits will be lower.
Which of the following is most likely to occur if the firm increases production beyond 10 units?
The firm would have to lower its price to sell more than 10 units.
At the current quantity that a firm is selling, the firm has marginal revenue of $750 and marginal cost of $800. Which of the following is true?
The firm's profits would increase if the firm decreased the quantity sold.
Which of the following is a necessary condition for price discrimination?
The seller can separate consumers according to their elasticities of demand.
Assume accountants and teachers have identical marginal revenue product schedules. Which of the following provides an explanation for why accountants receive higher starting salaries than school teachers?
The supply of accountants is low relative to the supply of teachers.
If the demand for product X is perfectly elastic and the supply of product X decreases, which of the following will occur in the market for X ?
Total revenue will decrease.
As the population of a country ages, the demand for health care is projected to increase. As a result, the health care industry is likely to experience all of the following EXCEPT
a decrease in the prices of medicine
Economies of scale can be illustrated by
a decreasing long-run average total cost curve as a firm produces more output
The monopsonist's marginal factor (resource) cost curve for labor is
above the labor supply curve because to hire more workers the firm must raise the wage for all workers
Oscar spent his entire income on only two goods: good X and good Y. At his current consumption of the two goods, the marginal utility of X is 8 and the marginal utility of Y is 2. If the price of X is $4.00 and the price of Y is $0.50, then to maximize his total utility, Oscar should have
bought less X and more Y
The table below shows the long-run total cost function of a firm. The firm's cost function exhibits
constant returns to scale
A profit-maximizing firm hires labor in a perfectly competitive market. Labor is the only variable input, and the marginal product of the last worker hired is 10 units per hour. If the hourly wage is $20, the firm's marginal revenue
is $2
Compared with a perfectly competitive market, a single-price monopoly with the same market demand and cost curves will
decrease output and increase price
When the demand for new homes decreases, the demand for construction workers who build homes decreases. This relationship illustrates the concept of
derived demand
One major difference between public goods and private goods is that
it is difficult to charge customers directly for the provision of public goods
If a firm engages in perfect price discrimination, it charges
each customer the highest price the customer is willing to pay
The condition for allocative efficiency is violated when
firms are price makers (price searchers)
If a store raises its prices by 20 percent and its total revenue increases by 10 percent, the demand it faces in this price range must be
inelastic
The government must provide public goods such as national defense because
it is generally impossible to exclude individuals who value public goods but do not pay for them
Antitrust laws are designed to maintain a competitive market environment by
limiting practices that increase a firm's market power
In monopolistic competition, a goal of advertising is to
make a firm's demand curve less elastic
A chemical plant pollutes a river that serves as the water supply for a nearby town. From an economist's point of view, pollution from the plant should be reduced until the
marginal benefit from the cleaner water is equal to the marginal cost of making the water cleaner
The socially optimal quantity of a public good is provided when
marginal social cost equals marginal social benefit
In the short run, a decrease in production costs of a product will shift
only the supply curve to the right
The government can attempt to correct the externality by setting a
per-unit tax equal to (P4 − P2)
