Principles of Microeconomics Chapter 5,6,7,8.

Refer to the above data. At the profit-maximizing output, the firm's total revenue is: A. $48. B. $38. C. $80. D. $64.

A. $48.

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output is $5.00 and the market price is $5.00. What should the firm do? A. Shut down if the minimum possible average variable cost is $5.25. B. Shut down if the minimum possible average variable cost is $4.75. C. Increase output if the minimum possible average variable cost is $5.25. D. Decrease output if the minimum possible average variable cost is $4.75.

A. Shut down if the minimum possible average variable cost is $5.25.

In pure competition, the marginal revenue of a firm always equals: A. product price. B. total revenue. C. average total cost. D. marginal cost.

A. product price.

When the competitive market system does not allocate resources to economically desirable goods, economists say what has occurred? A.Market failure B.Government failure C.Externalities D.Productive inefficiency

A.Market failure

If you know that when a firm produces 10 units of output, total costs are $1,030 and average fixed costs are $10, then total fixed costs are: A. $5. B. $100. C. $1,020. D. $1,040.

B. $100.

Jennifer buys a piece of costume jewelry for $33, for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences. A. a consumer surplus of $12, and Nathan experiences a producer surplus of $3. B. a producer surplus of $9, and Nathan experiences a consumer surplus of $3. C. a consumer surplus of $9, and Nathan experiences a producer surplus of $3. D. a producer surplus of $9, and Nathan experiences a producer surplus of $12.

B. A producer surplus of $9, and Nathan experiences a consumer surplus of $3.

Which of the following is most likely to be a private good? A. Road B. Bicycle C. Park D. City fireworks display

B. Bicycle

The legal concept of limited liability is important in which of the following types of business organizations? A. Monopolies B. Corporations C. Partnerships D. Sole proprietorships

B. Corporations

Which of the following is most likely to be a fixed cost? A. Shipping charges. B. Property insurance premiums. C. Wages for unskilled labor. D. Expenditures for raw materials.

B. Property insurance premiums

The principal-agent problem in corporations arises from: A. the fact that the principal objective of most corporations is to make profits and not to contribute to charity. B. a conflict of interest between corporate executives who manage the firm and stockholders who own the firm. C. the view that workers are agents who are not considered to be the principal asset of the corporations for which they work. D. a perspective that corporations are agents that represent the principal source of power for government and the national economy.

B. a conflict of interest between corporate executives who manage the firm and stockholders who own the firm.

A factory, mine, store, or warehouse that performs one or more functions in making and distributing goods and services is: A. a firm. B. a plant. C. an industry. D. a corporation.

B. a plant.

Purely competitive firms are assumed to: A. advertise. B. be price takers. C. sell where marginal cost is minimized. D. confront demand curves that are perfectly inelastic.

B. be price takers.

In the above diagram curves 1, 2, and 3 represent the: A. average, marginal, and total product curves respectively. B. marginal, average, and total product curves respectively. C. total, average, and marginal product curves respectively. D. total, marginal, and average product curves respectively.

B. marginal, average, and total product curves respectively.

If the market price for the firm's product is $120, the competitive firm will: A. produce four units. B. produce five units. C. produce six units. D. shut down.

B. produce five units.

Refer to the above data. When two workers are employed: A. total product is 20. B. total product is 18. C. average product is 10. D. total product cannot be determined from the information given.

B. total product is 18.

In a free-market economy, a product that entails a spillover benefit (i.e., positive externality) will be: A. overproduced. B. underproduced. C. produced at the optimal level. D. associated only with goods and services provided by the government.

B. underproduced.

Based on the graph above, the firm is earning: A. Positive economic profits. B. zero economic profits. C. zero accounting profits. D. Negative economic profits

B. zero economic profits.

If a good that generates negative externalities were priced to account for spillover costs, then its: A.price would decrease and its output would increase. B.output would increase, but its price would remain constant. C.price would increase and its output would decrease. D.price would increase, but its output would remain constant.

C. price would increase and its output would decrease.

Qc Pa Pb Qs 1 $4 $5 5 2 3 4 4 3 2 4 3 4. 2 3 2 5. 1 2. 1 Pa and Pb represent the prices that citizens (a) and (b), the only two people in this nation, are willing to pay for additional units of a quantity (Qc) of the public good. Qs represents the quantity of the public good supplied by government at each of the collective prices. Refer to the above information. The collective willingness of this nation to pay for the fourth unit of the public good is: A. $7. B. $6. C. $5. D. $3.

C. $6.

Refer to the above graph. The level of output at which this firm will produce is: A. 0A. B. 0B. C. 0C D. 0K

C. 0C.

Quantity of Pollution Abatement. Marginal Cost. Marginal Benefit 900 tons. $400,000 $100,000 800 tons 300,000. 150,000. 700 tons 200,000 200,000 600 tons 100,000. 250,000. 500 tons 50,000 300,000 The data in the table show the marginal costs and marginal benefits to a city for five different levels of pollution control. If the city seeks an optimal reduction of the externality, then it will select how many tons of pollution abatement? A. 500 B. 600 C. 700 D. 800

C. 700

Which of the following is the best example of market failure? A. Lucian wants more video games but doesn't buy them because his willingness to pay is less than the equilibrium price in the market. B. Kara's Kitten Shop won't sell more purebred cats because the equilibrium price in the market is less than it would cost her to provide more. C. Alex and others in a community want a new outdoor soccer field and are willing to pay to use it, but no private business is willing to build it. D. Government fixes the price of gasoline, resulting in a shortage.

C. Alex and others in a community want a new outdoor soccer field and are willing to pay to use it, but no private business is willing to build it.

Which is an example of a negative externality? A. An increase in the value of land you own when a nearby development is completed. B. The costs paid by a company to build an automated factory. C. Decreased property values in a neighborhood where several houses are burglarized. D. The higher price you pay when you buy a heavily advertised product.

C. Decreased property values in a neighborhood where several houses are burglarized.

When diseconomies of scale occur: A. The long-run average total cost curve falls. B. Marginal cost intersects average total cost. C. The long-run average total cost curve rises. D. Average fixed costs will rise.

C. The long-run average total cost curve rises.

If a company owns plants at various stages of the production process, this is called: A. an industry. B. a conglomerate. C. a vertically integrated firm. D. a multiplant firm.

C. a vertically integrated firm.

The individual firm's short-run supply curve is the part of its: A. average total cost curve that is upsloping. B. average variable cost curve that is upsloping. C. marginal cost curve lying above its average variable cost curve. D. marginal cost curve lying above its average total cost curve.

C. marginal cost curve lying above its average variable cost curve.

Number of Units of Workers Output 0 0 1 40 2 90 3 126 4 150 5 165 6 180 Refer to the above data. Diminishing marginal returns become evident with the addition of the: A. sixth worker. B. fourth worker. C. third worker. D. second worker.

C. third worker.

An emission fee levied (i.e., a tax on pollution) against polluters will tend to: A.internalize the internal cost of pollution. B.externalize the internal cost of pollution. C.internalize the external cost of pollution. D.externalize the external cost of pollution.

C.internalize the external cost of pollution.

Which is a feature of a purely competitive market? A. There are price differences between firms producing the same product. B. There are significant barriers to entry into the industry. C. The industry's demand curve is perfectly elastic. D. Products are standardized or homogeneous.

D. Products are standardized or homogeneous.

Accounting profits are typically: A. greater than economic profits because the former do not take explicit costs into account. B. equal to economic profits because accounting costs include all opportunity costs. C. smaller than economic profits because the former do not take implicit costs into account. D. greater than economic profits because the former do not take implicit costs into account.

D. greater than economic profits because the former do not take implicit costs into account

With allocative efficiency: A. the state of technology—or methods used to produce output—does not change. B. the available supplies of factors of production are fixed in both quantity and quality. C. production of any particular mix of goods and services occurs in the least costly way. D. production of any particular mix of goods and services is that mix most wanted by society.

D. production of any particular mix of goods and services is that mix most wanted by society.

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: A. profits were $100,000 and its economic profits were zero. B. losses were $500,000 and its economic losses were zero. C. profits were $500,000 and its economic profits were $1 million. D. profits were zero and its economic losses were $500,000.

D. profits were zero and its economic losses were $500,000.

If the market price for the firm's product is $50, the competitive firm will: A. produce one unit. B. produce two units. C. produce three units. D. shut down.

D. shut down.

The long run is characterized by: A. the relevance of the law of diminishing returns. B. at least one fixed input. C. insufficient time for firms to enter or leave the industry. D. the ability of the firm to change its plant size.

D. the ability of the firm to change its plant size.

"Rivalry" in consumption means that: A. there are multiple sellers of the good. B. there are many buyers of the good. C. a buyer may purchase goods from multiple sellers. D. when one person buys a good, it is not available for another person to buy.

D. when one person buys a good, it is not available for another person to buy.

If the price falls, consumer surplus falls.

False

Chapter 6

Questions

Chapters 7

Questions

For markets to work well, the demand curve must reveal how consumers value the good and the supply curve must reflect the true cost of producing the good.

True

If markets work well, goods are consumed by those who value the good the most.

True

If the price falls, consumer surplus rises.

True.