Micro Econ Final
You are offered a free ticket to see the Chicago Cubs play the Chicago White Sox at Wrigley Field. Assume the ticket has no resale value. Willie Nelson is performing on the same night, and his concert is your next-best alternative activity. Tickets to see Willie Nelson cost $40. On any given day, you would be willing to pay up to $50 to see and hear Willie Nelson perform. Assume there are no other costs of seeing either event, Based on this information, at a minimum, how much would you have to value seeing the clubs play the White Sox to accept the ticket and go to the game?
$10
Both the demand curve and the supply curve are straight lines. If the price is $4 but only 6 units are bought and sold, producer surplus will be
$18
Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example. of
a transaction cost
Suppose most people regard emeralds, rubies, and sapphires as close substitutes for diamonds. Then DeBeers, a large diamond company, has
less market power than it would otherwise have
If a profit-maximizing monopolist faces a downward-sloping market demand curve, its
marginal revenue is less than the price of the product
As a result of a decrease in price,
new buyers enter the market, increasing consumer surplus
According to the Coase theorem, private parties can solve the problem of externalities if
property rights are clearly defined
When regulators use a marginal cost pricing strategy to regulate a natural monopoly, the regulated monopoly
will experience a loss
The average variable cost of producing 240 units is
$0.19
the average total cost of producing 240 units is
$0.32
The size of the tariff on roses is
$1
Total surplus without the tax is
$10, and total surplus with the tax is $7.50
What is the average revenue when 6 units are sold?
$120
Based upon the information shown, what price will Bearclaws charge to maximize profits?
$14
What is Vincent's total revenue on a typical day?
$2,170
What is the maximum profit that the monopolist can earn?
$20
Given that Bearclaws chooses the profit-maximizing price and quantity, what profit level will it obtain?
$280
The firm should shut down if the market price is
$3
Consumer surplus without the tax is
$6, and consumer surplus with the tac is $1.50
if the government imposes a price floor of $110 in this market, then consumer surplus will decrease by
$600
Taking into account private and external benefits, the total surplus to society at the socially efficient quantity is
$62.5
What is the marginal cost of producing the fifth unit of output?
$70
At which number of workers does diminishing marginal product begin?
2
If the firm's fixed cost of production is $3, and the market price is $10, how many units should the firm produce to maximize profit?
3 units
At equilibrium, consumer surplus is represented by the area
A+B+C
Total surplus in this market before trade is
A+B+C
Total surplus in this market after trade is
A+B+C+D
Which of the curves is most likely to characterize the short-run average total cost curve of the smallest factory?
ATCa
If the price of the product is $110, then who would be willing to purchase the product?
Calvin, Sam, and Andrew
The deadweight loss created by the tariff is represented by the area
D+F
What is the socially efficient price and quantity for this natural monopolist?
F and V
The socially optimal output would be
Q2
The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, a government policy that internalized the externality would move the quantity of antibiotics used from point
Q3 to point Q2
Which of the following is correct?
Rent control is an example of a price ceiling and the minimum wage is an example of a price floor.
For the firm whose production function and costs are specified in the table, its average-total-cost curve is
U-shaped
Suppose the firm is currently producing and selling 100 units of output. Should the firm increase its output to 101 units?
Yes, because the marginal revenue exceeds the marginal cost
Which of the following is an example of a positive externality?
Your neighbor plants a nice garden in front of his house
Zaria and Hannah are roommates. Zaria assigns a $30 value to smoking cigarettes. Hannah values smoke-free air at $15. Which of the following scenarios is a successful example of the Coase theorem?
Zaria pays Hannah $16 so that Zaria can smoke
The firm will earn a positive economic profit in the short run if the market price is
above $6.50
The average fixed cost curve
always declines with increased levels of output
When the price falls from P2 to P1, producer surplus
decrease by an amount equal to A+B
If a firm in a competitive market doubles its number of units sold, total revenue for the firm will
double
Monopoly firms face
downward-sloping demand curves, so they can sell only the specific price-quantity combinations that lie on the demand curve
Which of the following is not a characteristic of a competitive market?
entry is limited
If marginal cost is rising,
marginal product must be falling
A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it
maximizes the combined welfare of buyers and sellers
Suppose televisions are a normal good and buyers of televisions experience a decrease in income. As a result, consumer surplus in the television market
may increase, decrease, or remain unchanged
This market is characterized by
negative externality
For a monopoly, the socially efficient level of output occurs where
price equals marginal cost
If a nonbinding price floor is imposed on a market, then the
quantity sold in the market will stay the same
With trade and without a tariff,
the domestic price is equal to the world price
As a result of the tax,
the market experiences a deadweight loss of $80
Which of the following firms is the closest to being a perfectly competitive market is
the portion of its marginal cost curve that lies above its average variable cost
When a country allows trade and becomes an exporter of silk, which of the following is NOT a consequence?
the price paid by domestic consumers of silk decreases
A simultaneous increase in both demand for tablet and the supply of tablets would imply that
the value of tablets to consumers has increased, and the cost of producing tables has decreased
A natural monopoly occurs when
there are economies of scale over the relevant range of output
If a price ceiling is not binding, then
there will be no effect on the market price or quantity sold.
If a price floor is not binding, then
there will be no effect on the market price or quantity sold.
The firm should not produce an output level beyond
5 units
In order to maximize profits, the firm will produce
5 units of output because marginal revenue equals marginal cost
Based upon the information shown, how many units will Bearclaws produce to maximize profits?
70
Which of the following is NOT an example of a barrier to entry?
An entrepreneur open a popular new hair salon
Which of the following statements is correct?
Only for competitive firms does average revenue equal marginal revenue.
Raiman's Shoe Repair produces custom-made shoes. When Mr. Raiman produces 12 pairs per week, the marginal cost of the 12th pair is $84, and the marginal revenue of the 12th pair is $70. What would you advise Mr. Raiman to do?
Produce fewer custom-made shoes
If all external costs were internalized, then the market's output would be
Q2
The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, the socially optimal quantity of antibiotics is represented by the point
Q2
If T represents the size of the tax on a good and Q represents the quantity of the good that is sold, total tax revenue received by government can be expressed as
T x Q
Which of the following is NOT an advantage of corrective taxes?
They subsidize the production of goods with positive externalities
Which of the following is NOT an advantage of a multilateral approach to free trade over a unilateral approach?
a multilateral approach requires the agreement of two or more nations
Which of the following is NOT an example of price discrimination by a firm?
a natural gas company charging all customers a higher rate in the winter than in summer
Monopolies are socially inefficient because the price they charge is
above marginal cost
When a tax is placed on the sellers of cell phones, the size of the cell phone market
and the effective price received by sellers both decrease
Bobby pays all his workers the same wage, and labor is his only variable cost. From this information we can conclude that Bobby's average variable cost decreases
as output rises from 0 to 26, but rises after that.
A firm that wants to achieve economies of scale could do so by
assigning limits tasks to its employees, so they can master those tasks
Curve C represents which type of cost curve?
average fixed cost
For an individual firm operation in a competitive market, marginal revenue equals
average revenue and the price for all levels of output
marginal cost is equal to average total cost when
average total cost is at its minimum
In order for antitrust laws to raise social welfare, the government must
be able to determine which mergers are desirable and which are not
Price discrimination
can maximize profits if the seller can prevent the resale of goods between customers
A movie theater can increase its profits through price discrimination by charging a higher price to adults and a lower price to children if it
can prevent children from buying the lower-priced tickets and selling them to adults
If a monopolist is able to perfectly discriminate,
consumer surplus and deadweight losses are transformed into monopoly profits
If long-run average total cost decreases as the quantity of the output increases, the firm is experiencing
economies of scale
In the long run a company that produces and sells popcorn incurs total costs of $1,150 when output is 70 canisters and $1,000 when output is 100 canisters. The popcorn company exhibits
economies of scale because average total cost is falling as output rises
Suppose the government imposes a tax on cheese. The deadweight loss from this tax will likely be greater in the
eighth year after it is imposed than in the first year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year
The tariff
increases producer surplus by the area C, decreases consumer surplus by the area C+D+E+F, and decreases total surplus by the area D+F
The deadweight loss from a tax per unit of good will be the smallest in a market with
inelastic supply and inelastic demand
The firm will produce a quantity greater than three because at 3 units of output, marginal cost
is less than marginal revenue
For a firm to price discriminate,
it must have some market power
The Social Security tax is a tax on
labor
Firms may experience diseconomies of scale when
large management structures are bureaucratic and inefficient
When the tariff is imposed, domestic consumers
lose surplus of $450
When profit-maximizing firms in competitive markets are earning profits,
new firms will enter the market
An externality is the uncompensated impact of
one person's actions on the well-being of a bystander
When buyers in a competitive market take the selling price as given, they are said to be
price takers
Suppose that in a particular market, the supply curve is highly inelastic and the demand curve is highly elastic. If a tax is imposed in this market, then the
sellers will bear it a greater burden of the tax than the buyers
When positive externalities are present in a market
social benefits will be greater than private benefits
Which of the following industries is most likely to exhibit the characteristics of free entry?
tennis shoes
In which of the following cases is the Coase theorem most likely to solve the externality?
Ed is allergic to his roommate's cat
If the government removes a tax on a good, then the price paid by buyers will
decrease, and the price received by sellers will increase
Which area represents producer surplus when the price is P2?
ACH
Evan purchases a wall calendar for $9, and his consumer surplus is $1. How much is Evan willing to pay for the wall calendar?
$10
Which of the following is NOT a way of internalizing technology spillovers?
taxes
Which of the following is NOT correct?
taxes levies on sellers and taxes levied on buyers are not equivalent
In the 1970s, long lines at gas stations in the United States were primarily a result of the fact that
the U.S. government maintained a price ceiling on gasoline
Suppose Korie purchases the factory using $200,000 of her own money and $200,00 borrowed from a bank at an interest rate of 6 percent. What is Korie's annual opportunity cost of purchasing the factory?
$18,000
the amount of deadweight loss as a result of the tax is
$2.50
The per-unit burden of the tax on buyers is
$3
What is the amount of the tax per unit?
$4
What is the average fixed cost of producing 5 units of output?
$4
Without trade, the equilibrium price of roses is
$4 and the equilibrium quantity is 300 roses
Producer surplus without the tax is
$4, and producer surplus with the tax is $1
The equilibrium market price for 10 piano lessons is $400. What is the total producer surplus in the market?
$400
Both the demand curve and the supply curve are straight lines. At equilibrium, consumer surplus is
$48
The amount of the tax on each unit of the good is
$5
Billie Jo values a stainless steel dishwasher for her new house at $500, but she succeeds in buying one for $425. Billie Jo's willingness to pay for the dishwasher is
$500
Suppose each of the five sellers can supply at most one unit of the good. The market quantity supplied is exactly 2 if the price is
$950
Suppose the world price of cardboard is $139 and international trade is allowed. Then Boxland's consumers demand
102 tons of cardboard and Boxland's producers supply 357 tons of cardboard
The market equilibrium quantity of output is
3 units
The socially optimal quantity of output is
5 units
Eldin is a house painter. He can paint three houses per week. He is considering hiring his friend Murphy. Murphy can paint five houses per week. What is the maximum total output possible if Eldin hires Murphy?
8 houses
The marginal product of the second worker is
80 units
Which graph represents a market with a negative externality?
Graph B only
Assume, for India, that the domestic price of copper without the international trade is lower than the world price of copper. This suggest that, in the production of copper,
India has a comparative advantage over other countries and India will export copper
When a tariff is imposed in the market, domestic producers
gain $150 of producer surplus
Which of the following statements is NOT correct?
government policies cannot improve upon private market outcomes
Suppose the world price of cardboard is $139. Then relative to the no-trade situation, international trade in cardboard
harms Boxlandian consumers by $7,803.00 and benefits Boxlandian producers by $14,305.50
Suppose the world price of a television is $300. Before Paraguay allowed trade in televisions, the price of a television there was $350. Once Paraguay began allowing trade in televisions with other countries, Paraguay began
importing televisions and the price of a television in Paraguay decreased to $300
If the government levies a $700 tax per motorcycle on sellers of motorcycles, hen the price paid by buyers of motorcycles would
increase by less than $700
The minimum points of the average variable cost and average total cost curves occur where the
marginal cost curve intersects those curves
As the number of workers increase
marginal product decreases
The size of a tax and the deadweight loss that results from the tax are
positively related
The graph illustrates a typical
production function
When a tax is levied on a good, the buyers and sellers of the good share the burden,
regardless of how the tax is levied
Cost is a measure of the
seller's willingness to sell
Rent control
serves as an example of a price ceiling
From the given information, it is apparent that
the production of gasoline involves a negative externality, so the market will produce a larger quantity of gasoline than is socially desirable
How is the burden of the tax shared between buyers and sellers? Buyers bear
three-fourths of the burden, and sellers bear one-fourth of the burden.
In the market for apartments, rent control causes the quantity supplied
to fall and quantity demanded to rise
Graph (a) and graph (b) each illustrate a $4 tax placed on a market. In comparison to graph (a), graph (b) illustrates which of the following statements?
when demand is relatively inelastic, the deadweight loss of a tax is smaller than when demand is relatively elastic
The maximum price that a buyer will pay for a good is called
willingness to pay
Under rent control, landlords can cease to be responsive to tenants' concerns about the quality of the housing because
with shortages and waiting lists, they have no incentive to maintain and improve their property
Government revenue raised by the tariff is represented by the area
E
A government imposed price of $12 in this market is an example of a
binding price floor that creates a surplus
In this market, a minimum wage of $6 is
binding and creates unemployment
A shortage results when a
binding price is imposed on a market
Suppose buyers, rather than sellers, were required to pay this tax (in the same amount per unit as shown in the graph). Relative to the tax on sellers, the tax on buyers would result in
buyers bearing a larger share of the tax burden
price ceilings and price floors that are binding
cause surpluses and shortages to persist because price cannot adjust to the market equilibrium price