Micro Test 2

If a one percent increase in the price of oranges leads to a five percent increase in the quantity supplied, the price elasticity of supply for oranges is ______. a. 1/5 b. 1/2 c. 5 d. 2

C

For perfectly competitive firms, marginal revenue ______ price; for monopolists marginal revenue ______ price. a. equals; equals b. equals; is greater than c. is less than; equals d. equals; is less than

D

In general, when the price of a variable factor of production increases: a. total cost falls. b. the profit maximizing level of output rises. c. the profit-maximizing price falls. d. the profit-maximizing level of output falls.

D

Price discrimination means charging: a. higher prices to women and minorities. b. different prices for different products because production costs are different. c. the same price to all buyers even if production costs are different. d. different prices to different buyers for essentially the same good or service.

D

In many cities in the United States, a single firm provides electricity. Those firms are: a. monopolists. b. oligopolists. c. monopolistic competitors. d. perfect competitors.

A

A monopolistically competitive firm is one: a. that behaves like a monopolist. b. of many firms that sell products that are close but not perfect substitutes. c. of many firms that all sell the exact same product. d. of a small number of firms that sell products that are close but not perfect substitutes.

B

The primary objective of most private firms is to: a. maximize revenue b. maximize profit c. maximize output d. maximize cost

B

For all firms, the additional revenue collected from the sale of one additional unit of output is termed: a. price. b. average revenue. c. marginal profit. d. marginal revenue.

D

The allocative function of price cannot operate unless there is: a. a significant barrier to entry. b. both free entry and free exit. c. either free entry or free exit. d. neither free entry no free exit.

B

If a firm functions in an oligopoly, it is: a. one of a small number of firms that produce goods that are either close or perfect substitutes. b. the only firm that produces a good with no close substitutes. c. one of a large number of firms that produce goods that are either close or perfect substitutes. d. one of a large number of firms that produce a good with no close substitute.

A

If the demand curve facing a monopolist shifts, then the monopolist's: a. marginal revenue curve and profit-maximizing level of output will change. b. marginal revenue curve will not change, but its profit-maximizing level of output will. c. total cost curve will change, but its variable cost curve will not. d. marginal revenue curve will change, but its profit-maximizing level of output will not.

A

The role that prices play in directing resources away from overcrowded markets and towards markets that are underserved is known as the ______ function of price. a. allocative b. market c. rationing d. transitive

A

The Cost-Benefit Principle tells us that a firm should continue to expand production as long as: a. the firm's profit is positive. b. price of the good is greater than its marginal cost. c. it can sell another unit of the good. d. the supply curve is upward sloping.

B

Curly told Larry about his new business venture: Curly pays Acme International $1,000 per month for supplies, works out of his apartment on his own computer and earns a monthly revenue of $1,500. Should Larry quit his job and do what Curly is doing? a. Yes, as long as Larry has at least $1,000 in savings to get started. b. Not if Larry is earning more than $500 per month at his current job. c. Not unless Larry can borrow the $1,000 monthly payment at no interest. d. Yes, as long as Larry can work out if his apartment and owns a computer.

B

If a firm's production process exhibits increasing returns to scale, then doubling all the firm's inputs will lead output to _____. a. double. b. more than double. c. less than double. d. fall by one-half.

B

If it is possible to make a change that will help some people without harming others, then the situation is: a. efficient. b. inefficient. c. fair. d. unfair.

B

If the market supply curve does not capture all of the costs to society of producing an additional unit of good, then: a. the market equilibrium will be socially optimal. b. the market equilibrium will not be efficient. c. the allocation of resources will be efficient. d. the market will not be in equilibrium.

B

If there is excess demand in a market, then this suggests that: a. there is no way to help some people without harming others. b. there is an opportunity for mutually beneficial trades. c. the market price is above the equilibrium price. d. the market is in equilibrium.

B

Pat used to work as an aerobics instructor at the local gym earning $35,000 a year. Pat quit that job and started working as a personal trainer. Pat makes $50,000 in total annual revenue. Pat's only out-of-pocket costs are $12,000 per year for rent and utilities, $1,000 per year for advertising and $3,000 per year for equipment. Pat's accounting profit is _______, and Pat's economic profit is _______. a. $50,000; $15,000 b. $34,000; -$1,000 c. $34,000; $15,000 d. $15,000; -$1,000

B

Relative to a single price monopolist, a price discriminating monopolist generates: a. less total surplus. b. more total surplus. c. the same amount of total surplus, but lower profits. d. the same amount of total surplus, but higher profits.

B

The most important challenge facing a firm in a perfectly competitive market is deciding: a.whether to maximize its profits. b.how much to produce. c.what price to charge. d.whether to advertise.

B

Total revenue minus both explicit and implicit costs defines a firm's: a.gross earnings. b.profit. c.marginal earnings. d.net worth.

B

Unlike economic profit, economic rent: a. can be less than zero. b. may not be driven to zero by competition. c. doesn't involve opportunity costs. d. only applies to land.

B

Which of the following is NOT necessarily true in a market equilibrium? a. Price represents the value of an extra unit of consumption. b. Both rich and poor have adequate access to the good. c. Price represents the cost of an extra unit of production. d. All mutually beneficial trades have been made.

B

Which of the following statements about implicit costs is true? a. They are always fixed. b. They measure the forgone opportunities of the firm's owners. c. They exceed explicit costs. d. They do not enter into the calculation of economic profit.

B

A market equilibrium is only efficient if: a. the consumer surplus and the producer surplus associated with a given transaction are equal. b. consumer surplus and producer surplus are both zero. c. all relevant costs and benefits are reflected in the market supply and demand curves. d. output is distributed equitably among consumers.

C

According to the law of diminishing returns, when some factors of production are fixed, in order to increase production by a given amount, a firm will eventually need to add successively: a. smaller and smaller quantities of the variable factors of production. b. constant quantities of the variable factors of production. c. larger and larger quantities of the variable factors of production. d. larger and larger quantities of the fixed factor of production.

C

Duke is a highly skilled negotiator who could work for many law firms. The law firm that hires Duke is able to collect twice as much revenue per hour of Duke's time than it can for any other negotiator in town. The increased revenue will: a. be evenly split between Duke and the law firm to maximize surplus. b. all go to the law firm because the firm bears the risk of running the business. c. all go to Duke because, if it didn't, another firm could hire Duke away. d. be split between Duke and the law firm, but how it will be split cannot be determined without more information.

C

Economic rent is: a. the amount people pay for an apartment in a perfectly competitive market. b. the payment made to the owner of a factor of production, which is usually equal to the owner's reservation price. c. the difference between the payment made to the owner of a factor of production and the owner's reservation price. d. sometimes higher and sometimes lower than the owner's reservation price.

C

Economies of scale exist when: a. firms become larger. b. input prices are falling. c. the average cost of production falls as output rises. d. doubling all the inputs leads to less than double the output.

C

Efficiency is an important goal because when markets are efficient: a. there is less income inequality. b. the poor benefit more than the wealthy. c. there are more resources available to achieve other goals. d. there is no need for government intervention in the economy.

C

If a monopolist's marginal revenue exceeds its marginal cost at its current level of output, then to maximize its profit the monopolist should: a. do nothing. b. decrease output in order to increase the gap between marginal revenue and marginal cost. c. increase output until marginal revenue equals marginal cost. d. increase output until price equals marginal cost.

C

In perfectly competitive markets, an implication of entry and exit in response to economic profit and loss is that: a. firms must earn positive economic profit in the long run. b. all firms will exit the market in the long run. c. firms will earn zero economic profit in the long run. d. market demand is completely elastic.

C

John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the table below: What is John's opportunity cost of cleaning windows for an hour? a. $14 b. $8 c. $7 d.$2

C

Suppose the production of cotton causes substantial environmental damage because the pesticides used by cotton farmers often make their way into nearby rivers and streams, and are very harmful to fish and other wildlife. If cotton farmers do not have to pay for the environmental damage caused by the pesticides used to grow cotton, then the market equilibrium price will be ______ and the market equilibrium quantity will be ______. a. inefficiently high; inefficiently low b. inefficiently high; inefficiently high c. inefficiently low; inefficiently high d. inefficiently low; inefficiently low

C

Suppose you own a small business. Last month, your total revenue was $6,000. In addition, you paid: $1,000 in monthly rent for office space. $200 in monthly rent for equipment. $3,000 to your workers in wages for the month. $1,000 for the supplies you used that month. If you correctly determine that your economic profit last month was negative $200, then it must be true that: a. you do not have any implicit costs. b. your implicit costs are $200 per month. c. your implicit costs are $1,000 per month. d. the rent you pay on your equipment is an implicit cost.

C

The percentage change in quantity supplied that results from a 1 percent change in price is known as the: a. cross-price elasticity of supply. b. slope of the supply curve. c. price elasticity of supply d. cross-price elasticity of demand

C

Which of the following is a defining characteristic of all perfectly competitive markets? a.Each firm in the market faces a perfectly inelastic demand curve. b.The market demand curve is perfectly elastic. c.All firms sell the same standardized product. d.Consumers display strong brand loyalty.

C

A price-taker faces a demand curve that is: a.vertical at the market price. b.upward sloping. c.downward sloping. d.horizontal at the market price.

D

A situation is efficient if it is: a. possible to find a transaction that will make at least one person better off, even if others are made worse off. b. possible to find a transaction that will make everyone better off. c. possible to find a transaction that will make at least one person better off without harming others. d. not possible to find a transaction that will make at least one person better off without harming others.

D

Adam Smith's theory of the invisible hand posits that the most efficient allocation of resources is often achieved by: a. reducing economic inequality. b. government intervention in the market. c. collective action. d. the actions of independent, self-interested buyers and sellers.

D

The reason economists consider monopoly to be socially undesirable is that monopolists: a. earn too much economic profit. b. can charge any price they want. c. exploit the inelastic nature of demand. d. produce less than the socially optimal level of output.

D

The short run is best defined as: a. one year or less. b. a period of time sufficiently short that all factors of production are variable. c. the period of time between quarterly accounting reports. d. a period of time sufficiently short that at least one factor of production is fixed.

D