Microeconomics HW Ch1-8
Suppose you have a money income of $10, all of which you spend on Coke and popcorn. In the diagram, the prices of Coke and popcorn, respectively, are
$.50 and $1.00.
The Campus Crustacean Company receives $2 per box for its crawfish and is selling 1,600 boxes to maximize its profits. What is the profit per box of crawfish at this equilibrium level of output if the average variable cost is $1 per box and total fixed costs are $1,200?
$0.25
Answer the question on the basis of the accompanying demand schedule. The marginal revenue obtained from selling the fourth unit of output is
$1.
Suppose a firm can produce 70 units of a product, Zenia, by combining labor, land, capital, and entrepreneurial ability, as in the four alternative techniques shown in the table below. Assume further that the firm can hire labor at $3 per unit, land at $3 per unit, capital at $6 per unit, and entrepreneurship at $9 per unit. Techniques ABCDLabor41065Land5333Capital5244Entrepreneurship1111 Refer to the provided table, and suppose that the firm uses production technique D. If each of the 70 units of Zenia that are produced sells for $1 apiece, then how much will be the total profits of the firm from 70 units of Zenia?
$13
Harvey quit his job at State University, where he earned $45,000 a year. He figures his entrepreneurial talent or forgone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. The economic profits of Harvey's firm in the first year were
$160,000.
If total fixed cost is $200, total variable cost is $600, and total product is 4 units, then average total cost must be
$200.
Refer to the table. The marginal revenue product of the fourth unit of input is approximately
$21
Assume Manfred's Shoe Shine Parlor hires labor, its only variable input, under purely competitive conditions. Shoe shines are also sold competitively. At what price does each shoe shine sell?
$3
Alex, Kara, and Susie are the only three people in a community. Alex is willing to pay $40 for the third unit of a public good; Kara is willing to pay $25. If the marginal cost of producing the third unit is $100, what is the minimum amount that Susie must be willing to pay for it to be efficient for government to produce the third unit?
$35
Assume that the short-run cost and demand data given in the tables below confront a monopolistic competitor selling a given product and engaged in a given amount of product promotion. If the firm sells 3 units of output, marginal revenue will be
$35.
Answer the question based on the following table, which shows a demand schedule. Total revenues will decrease if price rises from
$4 to $5.
The graphs represent the demand for use of a local golf course for which there is no significant competition. (It has a local monopoly.) P denotes the price of a round of golf, and Q is the quantity of rounds "sold" each day. If the left graph represents the demand during weekdays and the right graph the weekend demand, this profit-maximizing golf course will earn how much economic profit over the course of a full seven-day week?
$4,200
Answer the question based on the demand and cost schedules for a monopolistically competitive firm given in the table below. At the profit-maximizing level of output, marginal revenue is
$4.
Suppose that a pure monopolist can sell 20 units of output at $10 per unit and 21 units at $9.75 per unit. The marginal revenue of the 21st unit of output is
$4.75.
Suppose that a firm produces 200,000 units a year and sells them all for $10 each. The explicit costs of production are $1,500,000 and the implicit costs of production are $300,000. The firm earns an accounting profit of
$500,000 and an economic profit of $200,000.
Answer the question on the basis of the following demand and cost data for a specific firm. If columns (1) and (3) of the demand data shown are this firm's demand schedule, economic profit will be
$8.
Refer to the provided table. The average variable cost of producing 3 units of output is
$9.33.
Wayne's Jacket Shop sells Wayne's jackets for $20 each. Wayne finds that when he hires different numbers of workers, the corresponding total revenues are as shown in the table. What is the marginal revenue product of the fifth worker?
-$800
Refer to the diagram and assume that price decreases from $10 to $2. The coefficient of the price elasticity of supply (midpoint formula) relating to this price change is about
.25, and supply is inelastic.
When the price of candy bars decreased from $0.55 to $0.45, the quantity demanded changed from 19,000 per day to 21,000 per day. In this price range, the price-elasticity coefficient (based on the midpoint formula) for candy bars is
.5
A price increase from $43 to $49 results in an increase in quantity supplied from 220 units to 240 units. The price elasticity of supply in this price range is
.67
Refer to the provided graph. The slope of the line tangent to the curve at point A is
0
Refer to the graph for a monopolist in short-run equilibrium. The monopolist will charge a price equal to the distance: rev: 11_17_2017_QC_CS-109718
0B.
If the prices of X and Y are $2 and $4 per unit, respectively, and this consumer has $10 in income to spend, to maximize total utility, this consumer should buy
1 unit of X and 2 units of Y.
When the price of a product is increased 10 percent, the quantity demanded decreases 15 percent. The price-elasticity of demand coefficient for this product is
1.5.
Assume the price of product Y (the quantity of which is on the vertical axis) is $15 and the price of product X (the quantity of which is on the horizontal axis) is $3. Also assume that money income is $60. The absolute value of the slope of the resulting budget line is
1/5.
(Advanced analysis) The demand for commodity X is represented by the equation P = 10 - 0.2Q and supply by the equation P = 2 + 0.2Q. If demand changes from P = 10 - .2Q to P = 7 - .3Q, the new equilibrium quantity is
10.
Answer the question based on the table below showing the marginal utility schedules for product X and product Y for a hypothetical consumer. The price of product X is $4, and the price of product Y is $2. The income of the consumer is $20. When the consumer purchases the utility-maximizing combination of product X and product Y, total utility will be
156
Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. The profit-maximizing output for this firm will be
160.
The table below shows the weekly demand for hamburger in a market where there are just three buyers. PriceBuyer 1 Qd 1Buyer 2 Qd 2Buyer 3 Qd 3$6746597841510123211516 At a price of $6, the weekly market quantity demanded for hamburger is
17
In firm X labor costs are 85 percent of production costs, while in firm Y labor costs are 40 percent of production costs. A 20 percent increase in wages would increase production costs by
17 percent in firm X and 8 percent in firm Y.
Answer the question on the basis of the following marginal utility data for products X and Y. Assume that the prices of X and Y are $4 and $2, respectively, and that the consumer's income is $18. What quantities of X and Y should be purchased to maximize utility?
2 of X and 5 of Y
Industry Y is dominated by five large firms that hold market shares of 20, 20, 25, 25, and 10. The Herfindahl index for this industry is
2150
Answer the question on the basis of the following information for a public good. Pa and Pb are the prices that individuals A and B are willing to pay for the last unit of a public good, rather than do without it. These people are the only two members of society.Suppose government has already produced 4 units of this public good. The amount individual B is willing voluntarily to pay for the fourth unit is
2?
nswer the question on the basis of the given supply and demand data for wheat. Bushels Demanded Per MonthPrice Per BushelBushels Supplied Per Month45$57750473563686126167157 Equilibrium price will be
2dolla
The table gives marginal product data for resources a and b. The output of these independent resources sells in a purely competitive market at $1 per unit. Assume that the prices of a and b are $15 and $20, respectively. To maximize profits, what combination of a and b should the employer hire?
3 of a and 5 of b
Refer to the diagrams, in which figures (a) and (b) show demand curves reflecting the prices Alvin and Elmer are willing to pay for a public good, rather than do without it. If the marginal cost of the optimal quantity of this public good is $10, the optimal quantity must be
3 units.
Refer to the above graph, which shows the market for bicycles. S1 and D1 are the original supply and demand curves. D2 and D3 and S2 and S3 are possible new demand and supply curves. Starting from the initial equilibrium (point 1), which point on the graph is most likely to be the new equilibrium after an increase in wages of bicycle workers, and a significant increase in the price of gasoline?
4
Refer to the budget line shown in the diagram. Which of the following combinations of goods is unattainable for this consumer?
4 units of C and 6 units of D
Answer the question on the basis of the following demand and cost data for a specific firm. If columns 1 and 3 are this firm's demand schedule, the profit-maximizing level of output will be
4 units.
The amount of pizzas that consumers want to buy per week is reflected in the equation P = 15 - .02Qd, where Qd is the amount of pizzas purchased per week and P is the price of pizzas. On the basis of this information, we can say that
50 fewer pizzas will be purchased per week for every $1 increase in price.
Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $3 and $4, respectively, and that the consumer's income is $18.What level of total utility does the rational consumer realize in equilibrium?
51 utils
Under pure competition, the market price of an output is $3. The output schedule of a firm using input X is listed in the table. If the price of input X is $12, how many units of input X will the firm employ to maximize profits?
7
The table shows the marginal-utility schedules for goods A and B for a hypothetical consumer. The price of good A is $1, and the price of good B is $2. The income of the consumer is $8. If the consumer spends the given budget and gets maximum utility out of it, then she is receiving how much satisfaction from each dollar spent on the final unit of good A consumed?
7 utils per dollar
Refer to the data. Suppose that firms A and F merged into a single firm. The four-firm concentration ratio and the Herfindahl index would be
90 percent and 2,200, respectively.
Which point in the accompanying graph is definitely not on the competitive firm's short-run supply curve?
A Correct
Behavioral economics recognizes that people use System 1 to make decisions more often than they use System 2. Which of the following is an implication of that decision-making process?
A majority of decisions are not made according to the neoclassical assumption of rational behavior.
Which of the following statements is not correct?
A reduction in money income will shift the budget line to the right.
Refer to the above graph for a monopolistically competitive firm. A successful advertising campaign by the firm will cause its demand curve to shift from
A to B and become less elastic.
Refer to the diagram for a monopolistically competitive firm. Long-run equilibrium price will be
A.
Refer to the game theory matrix, where the numerical data show the profits resulting from alternative combinations of advertising strategies for Ajax and Acme. Ajax's profits are shown in the upper right part of each cell; Acme's profits are shown in the lower left. Without collusion, the outcome of the game is cell
A.
Suppose a firm can produce 70 units of a product, Zenia, by combining labor, land, capital, and entrepreneurial ability, as in the four alternative techniques shown in the table below. Assume further that the firm can hire labor at $3 per unit, land at $3 per unit, capital at $6 per unit, and entrepreneurship at $9 per unit. Techniques ABCDLabor41065Land5333Capital5244Entrepreneurship1111 Refer to the provided table. If the price of labor declines from $3 to $2 per unit, then what is the least costly way of producing Zenias?
B
Which of the graphs shows the correct relationship between demand and marginal revenue?
B
A firm can sell as much as it wants at a constant price. Demand is thus
B. perfectly elastic
Refer to the diagram. At output level Q, total fixed cost is
BCDE.
Which of the following outcomes is consistent with a purely competitive market in long-run equilibrium?
Combined consumer and producer surplus will be maximized.
Consider the diagram, where E is the consumer's original equilibrium position. We know good Y is not a normal good if, as income increases, the consumer's new equilibrium position is at point
D
Refer to the graph above. Which demand curve is relatively most elastic between P1 and P2?
D1 Correct
The price-elasticity coefficients are 2.6, 0.5, 1.4, and 0.18 for four different demand schedules,D1, D2, D3, and D4, respectively. A 2-percent increase in price will result in an increase in total revenues in which of the following cases?
D2 and D4
Dequam likes product variety, while Natasha is most concerned about paying the lowest price possible for a good. This suggests that
Dequam prefers monopolistically competitive industries, while Natasha prefers purely competitive industries.
Refer to the accompanying graph for a purely competitive firm. When the firm is in equilibrium in the short run, the amount of economic profit per unit is
EH.
Which of the following is an assumption of the theory of consumer behavior described in this chapter?
Each good that a consumer consumes has a price
(Consider This) According to the piece "Wannamaker's Lament," how have firms responded to the evidence that most advertising campaigns have little impact on sales?
Firms have conducted a lot of simple experiments to determine what might increase sales.
(Last Word) In the Internet search market,
Google holds about 64 percent of the market, while Bing and Yahoo together hold about 34 percent.
Which of the following is a key difference between the economic activities of government and those of private firms?
Government has the legal right to force people to do things; private firms do not.
Which of the following statements is correct?
If the profit-maximizing rule is fulfilled, it necessarily follows that the cost-minimization rule is being fulfilled.
In a purely competitive market at its long-run equilibrium, which of the following is not true?
In a purely competitive market at its long-run equilibrium, which of the following is not true?
Which of the following statements is correct?
In the long run, purely competitive firms and monopolistically competitive firms earn zero economic profits, while pure monopolies may or may not earn economic profits.
Which statement concerning the kinked demand curve model of oligopoly is false?
It assumes when one oligopolist raises the price, all others will follow.
Which of the following is characteristic of a pure monopolist's demand curve?
It is the same as the market demand curve.
Which of the following firms was not a "start-up"?
Lucent Technologies
If a firm is hiring variable resources D and F in perfectly competitive input markets, it will minimize the cost of producing any level of output by employing D and F in such amounts that
MPD / PD = MPF / PF.
A cost-minimizing firm using two inputs, x and y, will employ inputs so that
MPx / Px = MPy / Py.
A profit-maximizing firm employs resources to the point where
MRP = MRC.
Assume MUc and MUd represent the marginal utility that a consumer gets from products C and D, the respective prices of which are Pc and Pd. The consumer will increase his total utility from a specific money outlay by spending more on C and less on D if initially
MUc/Pc>MUd/Pd.
The term government failure refers to the
Marginal benefits versus costs of government policy and action
Allocative efficiency occurs when the
Marginal cost equals the marginal benefit to society
Mrs. Arnold is spending all her money income by buying bottles of soda and bags of pretzels in such amounts that the marginal utility of the last bottle is 60 utils and the marginal utility of the last bag is 30 utils. The prices of soda and pretzels are $0.60 per bottle and $0.40 per bag, respectively. It can be concluded that
Mrs. Arnold should spend more on soda and less on pretzels.
Suppose the price of a product rises and the total revenue of sellers increases.
No conclusion can be reached with respect to the elasticity of supply.
If the price of a fixed factor of production increases by 50 percent, what effect would this have on the marginal-cost schedule facing a firm?
None, because fixed costs do not affect marginal cost.
(Consider This) Which of the following statements is true about U.S. firms?
Over half are bankrupt within the first five years after starting up.
Refer to the graph. Using Qs for quantity supplied and P for price, which of the following equations correctly states the supply of this product?
P = 2 + .2Qs
In the long-run equilibrium of a monopolistically competitive industry,
P > minimum ATC.
Which of the following will not hold true for a competitive firm in long-run equilibrium?
P equals AFC.
If the industry depicted in the graph comprises only one seller, the profit-maximizing price and quantity will be
P3 and Q3.
Refer to the accompanying diagram. The firm will realize an economic profit if price is
P4.
Refer to the budget line shown in the diagram. The absolute value of the slope of the budget line is
PC / PD.
Use your basic knowledge and your understanding of market structures to answer this question. Which of the following companies most closely approximates a homogeneous oligopolist in a highly concentrated industry?
Pittsburgh Plate Glass
Which of the following is not characteristic of long-run equilibrium under monopolistic competition?
Price equals minimum average total cost.
Which of the following statements is not true?
Public goods are only provided by government.
Which of the output levels in the accompanying graph is the profit-maximizing output level for this firm?
Q3
The U.S. federal government's largest unfunded liability is
Social Security.
Which of the following would represent a systematic error?
Sparky determines that he has to reduce donut consumption to lose weight but always ends up eating the ones provided in the break room at work.
Assume a firm faces these costs: total cost of capital = $4,000; price paid for labor = $20 per labor unit; and price paid for raw materials = $8 per raw-material unit. If the firm can produce 2,000 units of output by combining its fixed capital with 200 units of labor and 500 units of raw materials, what are the total cost (TC) and average total cost (ATC) of producing the 2,000 units of output?
TC = $12,000; ATC = $6.00
In the short run,
TVC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing rate.
If the demand curve reflects consumers' full willingness to pay, and the supply curve reflects all costs of production, then which of the following is true?
The benefit surpluses shared between consumers and producers will be maximized.
Which of the following supports the contention that monopolistic competitors have a strong incentive to engage in R&D?
The desire to differentiate products from competitors may motivate monopolistic competitors to engage in R&D.
Under what conditions would an increase in demand lead to a lower long-run equilibrium price?
The firms in the market are part of a decreasing-cost industry.
Which of the following is not a necessary characteristic of a purely competitive industry?
The industry or market demand is highly elastic.
Those who believe that "there is no such thing as bad publicity" base this argument on which of the following ideas from behavioral economics?
The recognition heuristic will overcome any negative emotional associations.
(Last Word) Which of the following statements best describes the Internet market structure?
There are a few large firms, such as Google, Facebook, and Amazon, each dominating a particular sector but always trying to gain market share in another sector.
(Consider This) A primary advantage of Uber to government-regulated taxis is that
Uber's dynamic pricing avoids the inefficiencies caused by regulated taxi fares.
Which of the following is not one of the five fundamental questions that an economy must deal with?
Why should the goods and services be produced?
Which of the following is a "spin-off" firm?
Yum! Brands
The price elasticity of demand for a textbook is estimated to be 1 no matter what the price or quantity demanded. In this case,
a 10 percent increase in price will result in a 10 percent decrease in the quantity demanded.
The alternative combinations of two goods that a consumer can purchase with a specific money income is shown by
a budget line.
One consequence of the asymmetric-information problem in the used car market, if left unresolved, is the higher probability of
a declining quality of used cars for sale in the market.
The shift of the budget line from cd to ab in the figure is consistent with
a decrease in money income.
Which of the following factors will decrease the current demand for a product?
a decrease in the current price of a substitute product
If consumer desire for product X increases, all of the following will occur except
a decrease in the quantity of resources employed in industry X.
Process innovation causes an upward shift in a firm's total product curve and
a downward shift in its average total cost curve.
The characteristic most closely associated with oligopoly is
a few large producers.
Mutual interdependence means that
a firm's behavior is affected by other firms' actions.
In a market system,
a firm's employees and suppliers are largely shielded from risk, relative to business owners.
Refer to the above table. In a choice between education and public safety:
a majority of voters would favor public safety.
Refer to the graph. Diminishing marginal returns are reflected in
a move along short-run average total cost curve ATC2 from point e to point f.
In the provided graph, the equilibrium point in the market is where the S and D curves intersect. At equilibrium, consumer surplus would be represented by the area
a.
Assume that Abby, Ben, Clara, Joe, and Matt are the only citizens in a community. A proposed public good has a total cost of $1,000. All five citizens will share an equal portion of this cost in taxes. The benefit of the public good is $220 to Abby, $210 to Ben, $210 to Clara, $180 to Joe, and $120 to Matt. In a majority vote, this proposal will most likely be
accepted, three in favor and two against.
Assume that Matt, Joe, and Teresa are the only citizens in a community. A proposed public good has a total cost of $1,000. All three citizens will share an equal portion of this cost in taxes. The benefit of the public good is $ 380 for Matt, $ 360 for Joe, and $ 200 for Teresa. In a majority vote, this proposal will most likely be
accepted; the public good is produced, even though it is economically inefficient.
In recent years the economy of Japan has grown, despite the fact that the population of Japan has declined. Which of the following would best explain Japan's economic growth despite having a smaller population?
advancements in technology that make labor more productive
(Consider This) In Wendy's 1987 commercial depicting a Soviet fashion show, one objective was to portray McDonald's and Burger King products as
all the same and not very appealing.
Resource pricing is important because:
all these reasons- resource prices are a major determinant of money incomes. resource prices allocate scarce resources among alternative uses. resource prices, along with resource productivity, are important to firms in minimizing their costs.
The slope of a graph that shows a direct relationship is
always positive.
Excess capacity refers to the
amount by which actual production falls short of the minimum ATC output.
The optimal amount of R&D for a firm depends on the following, except
amount of funds the firm currently has for R&D projects.
Refer to the diagram. If actual production and consumption occur at Q3,
an efficiency loss (or deadweight loss) of e + f occurs.
The graph shows two indifference curves, and QR and QS represent different budget lines. A change in the equilibrium position on the diagram from point 1 to point 2 could result, other things being equal, from
an increase in the price of B
Refer to the diagram. Other things equal, an increase of product price would be shown as
an increase in the steepness of curve (3), an upward shift in curve (2), and an upward shift in curve (1).
Economic growth is a result of
an increase in the supply of resources.
An increasing-cost industry is associated with
an upsloping long-run supply curve.
Process innovation can be depicted as
an upward shift in a firm's total product curve.
According to behavioral economics, cognitive biases
are misunderstandings or misperceptions that cause systematic error.
Heuristics
are shortcuts that save time and energy in decision making.
If an inverse relationship exists between two variables, then
as one variable increases, the other decreases.
The invisible hand concept suggests that
assuming competition, private and public interests will coincide.
Loan guarantees provided by the government for specific private-sector investments tend to
attract private investors into the specific project.
Which of the following is the best example of oligopoly?
automobile manufacturing
In the standard model of pure competition, a profit-maximizing firm will shut down in the short run if price is below
average variable cost.
One major consequence of the overconfidence effect is that
bad decisions can be made because people will act without pausing to see whether their intuition is correct or not.
If you operated a small bakery, which of the following would be a variable cost in the short run?
baking supplies (flour, salt, etc.)
Refer to the provided graph of a competitive market. If the output level is Q1, then there are efficiency losses indicated by the area
bce.
Answer the question using the following data, which show all available techniques for producing 20 units of a particular commodity If a new production technique is developed that enables a firm to produce 20 units of output with 3 units of land, 3 of labor, 1 of capital, and 2 of entrepreneurial ability, this technique would
be adopted because it would lower production costs and increase economic profit.
A firm is both hiring labor and selling output in purely competitive markets and is maximizing profits. It is currently operating in the elastic range of its MRP curve. If the wage rate increases, its total spending on wages at the new equilibrium will
be smaller.
Assume the price of product Y (the quantity of which is plotted on the vertical axis) is initially $15 and the price of X (the quantity of which is plotted on the horizontal axis) is initially $3. Assume money income is initially $60. If the prices of Y and X now increase to $30 and $6, respectively, and money income increases to $120, then the budget line will
be unchanged.
Entrepreneurs differ from other innovators because they
bear personal financial risk.
(Last Word) The "after this, therefore because of this" fallacy states that
because event A precedes event B, A is necessarily the cause of B.
The marginal revenue curve for a monopolist
becomes negative when output increases beyond some particular level.
In the financial crisis that precipitated the 2007-2009 recession, people systematically overestimated their prospects for financial gain. Which branch of economics would most likely have expected to predict this?
behavioral economics
The accompanying graph shows the long-run supply and demand curves in a purely competitive market. We know that in this market, the marginal
benefit exceeds marginal cost at the output level of Q2.
Refer to the diagram. Which line(s) show(s) a negative relationship between x and y?
both C and E
If marginal cost is below average variable cost,
both average total cost and average variable cost are decreasing.
In the simple circular flow model,
businesses are sellers of final products.
A price-discriminating monopolist will follow a system where
buyers with inelastic demand are charged higher prices than buyers with elastic demand.
Through specialization and international trade, a nation
can attain some combination of goods lying outside its production possibilities curve.
Answer the question on the basis of the accompanying table that shows average total costs (ATC) for a manufacturing firm whose total fixed costs are $10. The profit-maximizing level of output for this firm
cannot be determined from the information given.
Sometimes, we observe cases where the price of a product rose and the quantity bought by buyers also increased. Such cases occur due to a violation of the
ceteris paribus assumption.
Marginal cost can be defined as the
change in total cost resulting from one more unit of production.
Marginal revenue is the
change in total revenue associated with the sale of one more unit of output.
The fact that the life expectancy of a US business is rather short—just 10.2 years—is a reflection of the consequences of
competition and creative destruction.
In which of the following industries are economies of scale exhausted at relatively low levels of output?
concrete mixing
The human tendency to believe only those data that agree with one's preconceptions and ignore other data that contradict the preconceptions is called
confirmation bias.
When someone tries to "multitask" despite mounting evidence that multitasking is actually inefficient, this illustrates
confirmation bias.
Product differentiation in monopolistic competition involves a trade-off between
consumer choice and productive efficiency.
If the demand for steak (a normal good) shifts to the left, the most likely reason is that
consumer incomes have fallen.
McDonald's introduced the Big Mac in 1968, and it turned out to be a hit. However, the Arch Deluxe, introduced in 1996, was not. The success or failure of a product in the market system is determined by
consumer sovereignty and dollar votes.
(Consider This) In 2013, McDonald's introduced Fish McBites, which failed to catch on with the public and was subsequently dropped from the menu. This failure illustrates the idea of
consumer sovereignty.
The difference between the maximum price a consumer is willing to pay for a product and the actual price the consumer pays is called
consumer surplus.
Refer to the diagram. If the budget line shifts from ab to ac, the
consumer will purchase more of J and less of K.
The theory of consumer behavior assumes that
consumers behave rationally, attempting to maximize their satisfaction.
In contrast to American firms, Japanese firms frequently make lifetime employment commitments to their workers and agree not to lay them off when product demand is weak. Other things being equal, we would expect Japanese firms to
continue to produce in the short run at lower prices than would American firms.
If competitive industry Y is incurring substantial losses, output will
contract as resources move away from industry Y.
Economists have difficulty applying the scientific method because
controlled laboratory experiments in economics are often not feasible.
The legal protection for publishers of books, computer software, movies, videos, and musical compositions from having their works used or copied by others without their permission is a
copyright.
In the music industry, cassette tapes were replaced by compact discs, which in turn were replaced by the iPod and MP3 technology. This process would be an example of
creative destruction.
Which diagram illustrates the effects on the peanut butter market, if severe flooding destroys a large portion of the peanut crop in the economy?
d
One major consequence of the framing effect is that
decision makers may make faulty decisions if they are lulled by the environment in which they are making their decisions.
(Last Word) The percentage of the U.S. federal budget spent on R&D has
declined substantially over the past 50 years.
In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X. An increase in the price of a product that is a complement to X will
decrease D, decrease P, and decrease Q.
In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X. An increase in the prices of resources used to produce X will
decrease S, increase P, and decrease Q.
Assume the market for ball bearings is purely competitive. Currently, each of the firms in this market is earning positive economic profits. In the long run, as adjustments occur in the industry, we can expect the market price of ball bearings to
decrease and individual firms' profits to decrease.
A pure monopoly firm will never charge a price in the inelastic range of its demand curve because lowering price to get into this region will
decrease total revenue, increase total cost, and decrease profit.
If firms are losing money in a purely competitive industry, then the long-run adjustments in this situation will cause the market supply to
decrease, and consequently the representative firm's profits will increase.
The table shows an indifference schedule for several combinations of X and Y. In moving from combination a to b, then to c, d, and e, the marginal rate of substitution of X for Y
decreases.
If competing oligopolists completely ignore oligopolist X's price changes, then X's
demand curve will be more elastic than if the other oligopolists matched X's price changes.
If products A and B are complements and the price of B decreases, the
demand for A will increase and the quantity of B demanded will increase.
In a market system, resources will move away from an industry when
demand for the industry's product is decreasing.
If 100 shirts are sold when the unit price is $10, while 75 shirts are sold when the unit price is $15, one can conclude that in this price range,
demand for the shirts is inelastic.
In which of the following instances is the effect on equilibrium price (whether it rises, falls, or remains unchanged) dependent on the magnitude of the shifts in supply and demand?
demand rises and supply rises
Refer to the diagrams, which pertain to monopolistically competitive firms. A short-run equilibrium entailing economic profits is shown by
diagram b only.
The MB curves in the diagram slope downward because of the law of
diminishing marginal utility.
The marginal benefit to society of reducing pollution declines with increases in pollution abatement because of the law of
diminishing marginal utility.
Refer to the graph, which shows a total revenue curve for a monopolist. The firm's marginal revenue curve must be
downsloping.
Refer to the diagram, where the numerical data show profits in millions of dollars. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If both firms follow a high-price policy,
each will realize a $20 million profit.
We would expect an industry to expand if firms in that industry are
earning economic profits.
The term government failure refers to the
economically inefficient outcomes caused by voting problems or incentive structures in government.
If the price-elasticity coefficient for a good is 1.75, the demand for that good is described as
elastic
Refer to the diagrams. The demand for Firm B's product is
elastic for prices above $4 and inelastic for prices below $4.
Prospect theory explains the status-quo bias as a combination of loss aversion and the
endowment effect.
The tendency of people to believe that something they own is more valuable than an identical item that they do not own is known in prospect theory as the
endowment effect.
"Creative destruction" in a market system is brought about by
entrepreneurship.
In pure competition, each extra unit of output that a firm sells will yield a marginal revenue that is
equal to the price.
A firm's marginal benefit from its R&D expenditures is the
expected profit from the last dollar spent on R&D.
The outcomes from R&D expenditures by firms are
expected, but not guaranteed.
Economic profits are calculated by subtracting
explicit and implicit costs from total revenue.
Cash expenditures a firm incurs to pay for resources are called
explicit costs.
The idea of government failure includes all of the following except
extensive positive externalities from public and quasi-public goods.
"Price makers" refers to firms that
face a downward-sloping demand curve.
A purely monopolistic firm
faces a downward sloping demand curve
If production is occurring where marginal cost exceeds price, the purely competitive firm will
fail to maximize profit and resources will be overallocated to the product.
Which of the following types of firms are least likely to have their MC, AVC, and ATC curves affected by fluctuations in gasoline prices?
firms like iTunes that distribute their products over the Internet
In a market economy, the government's ability to coerce is beneficial in the following cases, except in
fixing resource prices.
(Last Word) Patents are most likely to infringe on innovation
for products that incorporate many different technologies into a single product.
A normal good is one:
for which the consumption varies directly with income.
Refer to the provided graph. Which of the following movements would indicate economic growth?
from point C to point D
Most demand curves are relatively elastic in the upper-left portion because the original price
from which the percentage price change is calculated is large and the original quantity from which the percentage change in quantity is calculated is small.
The study of how people (or firms) behave in strategic situations is called
game theory
The role of entrepreneurs includes all of the following, except
getting hired as the top executive of an established company.
Government in a market system can increase economic efficiency by collecting taxes in order to subsidize the production of
goods with positive externalities.
Public choice theory focuses on the economics of
government decision making, politics, and elections.
Refer to the four graphs above. Select the graph that best shows the changes in demand and supply in the market specified in the following situation: the market for corn, if gasoline producers use more ethanol from corn and good weather during the growing season yields a bumper harvest.
graph a
Which of the graphs shows a decrease in the price of X and an increase in the price of Y, but no change in the buyer's budget?
graph c
The less elastic a monopolistic competitor's long-run demand curve, the
greater its excess capacity.
If a factor of production has many close substitutes, we would expect that its price elasticity of demand would be
greater than one.
Maria's Mexican Cantina is a restaurant that has been around for 30 years. In that time they have remained in the same building and only changed inputs such as staff and the menu. Based on this, we can conclude that Maria's
has operated in the long run, even though it chose to keep the building input fixed.
Entrepreneurs and innovative firms with past successes in developing products
have more access to resources for further innovation.
The less elastic a monopolistic competitor's long-run demand curve, the
higher its price relative to that of a pure competitor having the same cost curves.
Assume a purely competitive decreasing-cost industry is initially in long-run equilibrium but then there is a decrease in market demand for the product. After all economic adjustments to this new situation have taken place, product price will be
higher, but total output will be lower.
Refer to the diagrams. The price will be _______ and the quantity will be _______ with the industry structure represented by diagram (B) compared to the one represented in (A).
higher; lower
(Consider This) The supply of higher education in the United States is
highly price inelastic.
When people convince themselves that they "knew all along" what was going to happen, when in fact their predictions were incorrect, they suffer from
hindsight bias.
What is an example of a technological breakthrough that came out of a government or university laboratory?
hybrid seeds
The following can increase the profits of an innovating firm, except
imitation of its innovation by other firms.
Risk is a problem faced
in both market systems and command systems.
The pure monopolist's demand curve is relatively elastic
in the price range where marginal revenue is positive.
In the circular flow diagram, households get their ability to pay for their consumption expenditures from the
incomes they earn for their resources.
Other things equal, a fall in the market price caused by a change in supply will
increase consumer surplus.
A consumer currently spends a given budget on two goods, X and Y, in such quantities that the marginal utility of X is 10 and the marginal utility of Y is 8. The unit priceof X is $5 and the unit price of Y is $2. The utility-maximizing rule suggests that this consumer should
increase consumption of product Y and decrease consumption of product X.
(1)Qd(2)Qd(3)Price(4)Qs(5)Qs5040$1070806050960708060850609070740501008063040 Refer to the table. In relation to column (3), a change from column (2) to column (1) would indicate a(n)
increase in demand
Suppose that goods A and B are close substitutes. If the price of good A falls, then we would expect an
increase in the quantity of A demanded and a decrease in the demand for B.
a decrease in the quantity of resources employed in industry X.
increase the number of strawberry pickers needed by farmers.
Which statement is correct? The long-run supply curve for a purely competitive
increasing-cost industry will be upward-sloping.
Refer to the data. Suppose quantity demanded increased by 12 units at each price, changing the equilibrium price in a direction and an amount for you to determine. Over that price range, supply is
inelastic
Refer to the information. Over the $7-$5 price range, demand is
inelastic.
The slope of a line parallel to the vertical axis is
infinite.
Sellers will opt out of markets in which
information about buyers is inadequate, and some buyers can impose high costs on the sellers.
If we plotted the given data on a graph with R&D expenditures on the horizontal axis, the
interest-rate cost-of-funds curve would be a horizontal line.
The increased use of plastic bags instead of paper bags in grocery stores and retail shops is an example of
interindustry competition.
Which of the following will enable a nation to obtain a combination of consumer goods and capital goods outside its production possibilities curve?
international specialization and trade
A public good
is available to all and cannot be denied to anyone.
A monopolistically competitive firm's marginal revenue curve
is downsloping and lies below the demand curve.
If the supply and demand curves in the provided graph represent the market supply and demand for a purely competitive industry, then the demand curve that an individual firm in the industry faces
is equal to the marginal-revenue curve, which is a flat line at P0.
Assume that a monopolist faces a linear demand curve. If the firm is operating at an output level where marginal revenue is positive, the firm
is operating on the elastic portion of its demand curve.
Consumer surplus
is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price.
The market economy is regarded as "efficient" in that
it directs resources toward products that the society wants most.
If a pure monopolist is producing at that output where P = ATC, then
its economic profits will be zero
Other things being equal, the elasticity of demand for labor will be greater the
larger the number of close substitute resources available.
The monopolistically competitive seller's demand curve will become more elastic the
larger the number of competitors
If the marginal revenue product (MRP) of labor is less than the wage rate,
less labor should be employed
Deadweight losses occur when the quantity of an output produced is
less than or greater than the competitive equilibrium quantity.???
(Last Word) A caller to a radio talk show states that protesters against globalization are a collection of "anarchist punks, naïve college students, and trade union radicals." This is an example of
loaded terminology.
The supply of cars will be more elastic the
longer the time interval considered
Price discrimination is more common in service industries because
low-price buyers will find it virtually impossible to resell the products of such industries to high-price buyers.
Refer to the diagram. Which one of the following might shift the marginal benefit curve from MB1 to MB2?
major new studies strongly linking cancer to pollution
According to the paradox of voting,
majority voting fails under some circumstances to make consistent choices that reflect the community's underlying preferences.
In assessing the efficiency of government policy, economic analysis would focus on
marginal benefits versus costs of government policy and action.
The table shows the relationship between total cost and output for a firm. The firm has a U-shaped
marginal cost curve.
In the graph, the difference between points d and e indicates that at $50M of R&D spending, the
marginal cost is greater than the marginal benefit. Thus, R&D spending should be reduced.
The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product, respectively. Therefore, we can conclude that
marginal product of the third worker is 9.
The quantitative difference between areas Q1bcQ2 and P1P2ba in the diagram measures
marginal revenue
If a purely competitive firm is producing at the P = MC output and realizing an economic profit, at that output
marginal revenue exceeds ATC.
If money income increases and the prices of products A and B both increase, then the budget line
may shift either to the right or the left, or not at all.
An oligopolistic firm tends to have less control over its own pricing decisions than a firm in
monopoly only.
When the government provides loan guarantees and in effect "socializes losses and privatizes gains" of a project or firm, it can lead to a
moral hazard problem among investors.
If a person drives with less care after purchasing auto insurance, this situation would be an example of a(n)
moral hazard problem.
Assume that the coefficient of elasticity of product demand is 0.5 in industry A and is 3.2 in industry B. Other things equal, labor demand will be
more elastic in industry B than in A.
The demand curve of a monopolistically competitive producer is
more elastic than that of a pure monopolist, but less elastic than that of a pure competitor.
Refer to the diagram. An increase in quantity supplied is depicted by a
move from point y to point x.
The total revenue received by sellers of a good is computed by
multiplying the price times the quantity sold.
People's tendency to prefer something that will yield immediate benefits over something whose benefits come later is called what by behavioral economists?
myopia
Which of the following do behavioral economists blame for why many households in sunny areas resist solar panels because they focus on the upfront installation costs instead of the larger long-run benefits that accrue from the solar panels?
myopia
The price elasticity of demand is generally
negative, but the minus sign is ignored.
In the diagram, at output level Q1,
neither productive nor allocative efficiency is achieved.
The graphs are for a purely competitive market in the short run. The graphs suggest that in the long run, assuming no changes in the given information,
new firms will be attracted into the industry.
Assume there is no way to prevent someone from using an interstate highway, regardless of whether or not he or she helps pay for it. This characteristic is called
nonexcludability.
If a profit-seeking competitive firm is producing its profit-maximizing output and its total fixed costs fall by 25 percent, the firm should
not change its output.
Assume that a decline in consumer demand occurs in a purely competitive industry that is initially in long-run equilibrium. We can
not compare the original and the new prices without knowing what cost conditions exist in the industry.
When Lucian starts his new job, he is given the option to contribute to his retirement fund, which the company will match up to 5 percent of his base salary. Lucian knows he can afford to contribute to his retirement fund; he only needs to file a form to activate the contributions and matching. According to prospect theory, if Lucian is typical in his behavior, we would expect him to
not file the form to start the contribution and match.
The tablet-computer market is best characterized as a(n)
oligopoly
Refer to the graph. Which of the following schedules correctly reflects "supply"?
option c
Some people's tendency to believe that they are better than average at making judgments or opinions is called the
overconfidence effect.
It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. As a result, operators of hydroelectric power-generating plants downstream along the river find that they must clean up the river's water before it flows through their equipment. In the situation described above, we would expect an
overproduction of paper in the mills.
Concentration ratios measure the
percentage of total industry sales accounted for by the largest firms in the industry.
The demand schedule or curve confronted by the individual, purely competitive firm is
perfectly elastic.
The supply curve of a one-of-a-kind original painting is
perfectly inelastic.
Scarcity
persists because economic wants exceed available resources.
When students end up doing "all-nighters" just to finish a term paper, it illustrates the
planning fallacy.
Refer to the provided production possibilities curves. Curve (a) is the initial curve for the economy. If the economy's production possibilities then shift to curve (b), then
point N would indicate some unemployment of resources or idle production capacity.
Refer to the provided graph, which shows the total product (TP) curve. At which point does diminishing marginal returns set in?
point b
Which of the following would be an avenue for resolving the inefficiencies associated with majority voting?
political logrolling
Salary smoothing, automatic payroll deductions, and early withdrawal penalties are all examples of
precommitments.
Consumer acceptance of a new product depends on
price and marginal utility.
The profit-maximizing output of a pure monopoly is not socially optimal, because in equilibrium
price exceeds marginal cost.
Refer to the diagram above, which shows three supply curves for corn. A movement from point a to point b is caused by a change in the
price of corn in the market.
For a monopolistically competitive firm in long-run equilibrium,
price will equal average total cost.
At P2 in the accompanying diagram, this firm will
produce 44 units and earn only a normal profit.
The accompanying table gives cost data for a firm that is selling in a purely competitive market. If product price is $60, the firm will
produce 6 units and realize a $100 economic profit.
If all discrimination in the United States were eliminated, the economy would
produce at some point closer to its production possibilities curve.
Voters are making a choice to spend money on three projects: a dam, a school, or a road. In the choice between the dam and the school, the majority favors the school. In a choice between a dam and a road, the majority favors a dam. In a choice between a road and a school, the majority favors a road. These rankings indicate that majority voting may
produce inconsistent choices.
Differentiated oligopoly exists where a small number of firms are
producing goods that differ in terms of quality and design.
Excess capacity implies
productive inefficiency.
Holding revenues constant, cost minimization by firms is equivalent to
profit maximization.
At equilibrium, the profit-maximizing monopolist facing the situation shown in the graph will face a negative
profit.
In a market system, the "What will be produced?" question is ultimately decided by
profitability of products.
Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting
profits were $0 and its economic losses were $500,000.
The accompanying graphs are for a purely competitive market in the short run. The graphs suggest that as long run adjustments consequently occur, the firms in the industry will find that
profits will decrease.
Compared to pure competition, monopolistic competition
provides greater product differentiation at the cost of lower productive efficiency.
Nonrivalry and nonexcludability are the main characteristics of
public goods
An increase in the demand for online streaming music indicates that more is
purchased even if prices of online streaming music stayed the same.
An industry comprising a very large number of sellers producing a standardized product is known as
pure competition.
According to the information in the provided diagram, this firm is selling its product in a(n)
purely competitive market.
(Consider This) Elasticity can be thought of as degree of relative
quantity stretch.
If the price of a product decreases, we would expect
quantity supplied to decrease.
A government using fiscal policy in an attempt to stimulate the economy would do which of the following?
raise government spending
Factors that help firms who invent and innovate deal with the "imitation problem" include all of the following, except
rapid diffusion
Answer:the question using the following data, which show all available techniques for producing 20 units of a particular commodity Assuming that the firm is motivated by self-interest and that the 20 units that can be produced with each technique can be sold for $2 per unit, the firm will
realize an economic profit of $10.
In a market economy, the government's power to coerce can
reduce private-sector risk and increase economic efficiency.
(Consider This) An otherwise unprofitable motel located on a largely abandoned roadway might be able to stay open for several years by
reducing or eliminating its annual maintenance expenses.
A glass company making windows for houses also makes windows for other things (cars, boats, stores, etc.). We would expect its supply curve for house windows to be
relatively more elastic than those of firms that make only house windows
Those who advocate the marginal productivity theory of income distribution argue that
resource markets will set incomes based on workers' contributions to the output of scarce goods and services.
The simple circular flow model shows that workers and capital owners offer their services to firms through the
resource markets.
If the price of bottled water is $2 and the marginal cost of producing it is $2.50,
resources are being overallocated to bottled water.
The money income of households consists of all the following, except
revenues
In the circular flow diagram, firms get their ability to pay for the costs of production from the
revenues they receive for their products.
If marginal cost is
rising, then average total cost could be either falling or rising.
Refer to the diagram. This firm's demand and marginal revenue curves are based on the assumption that
rivals will ignore a price increase but match a price decrease.
Refer to the above table. The resource demand data indicate that the firm is:units of resource 0 1 2 3 4 5 total product 0 10 18 24 28 30 total revenue 0 30 54 72 84 90
selling its product in a perfectly competitive market.
Refer to the table. The resource demand data indicate that the firm is units of resource 0 1 2 3 4 5 total product 0 6 11 15 18 20 total revenue 0 36 55 60 54 40
selling its product in an imperfectly competitive market.
According to the concept of the "invisible hand," if Susie opens and operates a profitable childcare center, then
she has served society's interests by providing a desired good or service.
Thea committed a traffic violation that resulted in an accident. She learns first that the violation will result in a $500 fine; she then learns that she will have to pay another $500 for damage caused in the accident. According to prospect theory,
she will suffer less disutility from paying for the accident damage than from paying the fine.
Refer to the budget line shown in the diagram. Given the same money income, reductions in the prices of both products C and D will
shift the budget line to the right.
Suppose some firms exit an industry characterized by monopolistic competition. We would expect the demand curve of a firm already in the industry to
shift to the right.
Assume a pencil manufacturer is employing resources C and D in such quantities that the MRPs of the last units hired are $80 and $50, respectively. The price of resource C is $90, and the price of D is $35. This firm
should hire less of C and more of D.
The accompanying table gives cost data for a firm that is selling in a purely competitive market. If product price is $25, the firm will
shut down and incur a $50 loss.
One feature of pure monopoly is that the demand curve
slopes downward
Assume that the market for corn is purely competitive. Currently, firms growing corn are suffering economic losses. In the long run, we can expect
some firms to exit, causing the market price of corn to rise.
One important consequence of the confirmation bias is that
someone could persist in pursuing a failed policy despite overwhelming evidence of the failure.
(Consider This) The prisoner's dilemma reveals that
sometimes when individuals act independently in their own self-interest, everyone is worse off than if they had cooperated.
(Last Word) In 2004, Congress passed a corporate tax relief bill with 276 provisions for tax breaks to groups such as restaurant owners, Hollywood producers, and NASCAR track owners. This is an example of the
special-interest effect.
Behavioral economists suggest that the reason why many consumers tend to stick to one brand in things that they often buy, like food items, is people's tendency to have the
status quo bias.
During a period when output and employment are falling, the government will try to
stimulate borrowing and spending.
In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. For a purely competitive firm, marginal revenue graphs as a
straight line, parallel to the horizontal axis.
In 2007, the price of oil increased, which in turn caused the price of natural gas to rise. This can best be explained by saying that oil and natural gas are
substitute goods, and the higher price for oil increased the demand for natural gas.
Many state and local governments in the U.S. have balanced-budget laws in order to prevent politicians from
succumbing to voters' strong preference for budget deficits.
The short-run supply curve for a purely competitive industry can be found by
summing horizontally the segments of the MC curves lying above the AVC curve for all firms.
If firms enter a purely competitive industry, then in the long run this change will shift the industry
supply curve to the right, and the individual firm's demand curve will shift down.
Refer to the diagram, which shows demand and supply conditions in the competitive market for product X. Given D0, if the supply curve moved from S0 to S1, then
supply has decreased and equilibrium quantity has decreased.
Refer to the provided supply and demand graph of Product X. What would happen if the government taxed the producers of this product because it has negative externalities in production?
supply would decrease
Informal collusion to restrict output and increase prices is sometimes referred to as a
tacit understanding.
Refer to the diagrams for two separate product markets. Assume that society's optimal level of output in each market is Q0 and that government purposely shifts the market supply curve from S to S1 in diagram (a) on the left and from S to S2 in diagram (b) on the right. The shift of the supply curve from S to S1 in diagram (a) might be caused by a per-unit
tax on the producers of this product.
Risk management in command economies
tends to be done poorly because decision makers are insulated from the risk of making a poor decision.
Suppose the Herfindahl indexes for industries A, B, and C are 7,200, 5,000, and 1,500, respectively. These data imply
that market power is greatest in industry A.
Refer to the provided graph. Suppose that it shows the S and D graphs in a market where usage of the product generates a lot of external benefits. In this case, the government should use its coercive power to make
the demand curve shift to the right.
An increase in the demand for HDTV sets leads to an increase in demand for LCD and LED TV screens. This situation arises because
the demand for LCD and LED screens is a derived demand.
The demand for airline pilots results from the demand for air travel. This fact is an example of
the derived demand for labor.
The profit-enhancing impact of product innovation tends to be on all of the following, except
the firm's cost of production.
Which of the following would be the best example of a "start-up"?
the founding of Apple by Jobs and Wozniak
If an industry evolves from monopolistic competition to oligopoly, we would expect
the four-firm concentration ratio to increase.
Economic cost can best be defined as
the income the firm must provide to resource suppliers to attract resources from alternative uses.
Answer the question on the basis of the following information for four highway programs of increasing scope. All figures are in millions of dollars. The data indicate that
the marginal cost and marginal benefit of Program A are $2 and $9, respectively.
In the context of analyzing economic efficiency, we can interpret the market supply curve to be showing
the marginal opportunity cost to produce each unit of the product.
The lowest point on a purely competitive firm's short-run supply curve corresponds to
the minimum point on its AVC curve.
The economizing problem is
the need to make choices because economic wants exceed economic means.
If an increase in the supply of a product in the market results in a decrease in price, but no change in the quantity traded, then
the price elasticity of demand is zero.
A change in the slope of a budget line is solely the result of a change in
the price of one good relative to the other.
In moving along a given budget line,
the prices of both products and money income are assumed to be constant.
The provision of loan guarantees can improve economic efficiency when
the project supported has significant external benefits.
At the point where the demand and supply curves for a product intersect,
the quantity that consumers want to purchase and the amount producers choose to sell are the same.
Which of the following is an illustration of differentiated oligopoly?
the soft drink industry
The price of old baseball cards rises rapidly with increases in demand because
the supply of old baseball cards is price inelastic.
Creative destruction is not automatic because
there are major obstacles to the entry of new innovative firms into concentrated industries.
Firms in an industry will not earn long-run economic profits if
there is free entry and exit of firms in the industry.
Even in democratic governments, we tend to have a problem with accountability due to the following reasons, except
there is the markets' self-correcting mechanism in government.
Answer the question based on the payoff matrix for a duopoly in which the numbers indicate the profit in millions of dollars for each firm. If the two firms collude to maximize joint profits,
there will be no incentive for either Firm A or Firm B to cheat.
According to behavioral economists, the human brain frequently employs heuristics because
they save energy and time in decision making.
In a competitive market economy, firms select the least-cost production technique because
to do so will maximize the firms' profits.
The law of diminishing returns explains why
total cost eventually rises faster and faster.
Answer the question on the basis of the following information. When two workers are employed,
total product is 18.
As a consumer moves from one point to another along an indifference curve, which of the following is assumed to stay constant?
total satisfaction from the two goods
Suppose the total-revenue curve is derived from a particular linear demand curve. That demand curve must be
unit elastic for price increases that reduce quantity demanded from 5 units to 4 units.
The marginal product of labor is expressed in _______, while the marginal revenue product of labor is expressed in __________.
units of output per unit of labor; dollars per unit of labor
A business is employing inputs such that the marginal product of labor is 40 and the marginal product of capital is 90. The price of labor is $20, and the price of capital is $30. If the business wants to minimize costs while keeping output constant, then it should
use less labor and more capital.
According to behavioral economists, the human brain
uses evolutionary-developed heuristics to make many decisions.
(Consider This) A topographical map shows successively higher equal-elevation lines, whereas an indifference map shows successively higher levels of total
utility
Funds lent to start-up firms in return for shares of the profit if the firms succeed are called
venture capital.
Based on our study of market failure and government failure, the main conclusion that one should arrive at is that
we must carefully compare the benefits of government intervention in our markets against the costs of such intervention.
Assume a purely competitive constant-cost industry is initially at long-run equilibrium. Now suppose that a decrease in demand occurs. After all the long-run adjustments have been completed, the new equilibrium price
will be the same as the initial price, and the output will be less.
The accompanying table gives cost data for a firm that is selling in a purely competitive market. If the market price for the firm's product is $12, the competitive firm should produce
zero units at a loss of $100.
The diagram indicates that the marginal revenue of the sixth unit of output is
−$1.
