ECON 2201 FInal

Scenario 13.7: Consider the game below about funding and construction of a dam to protect a 1,000-person town. Contributions to the Dam Fund, once made, cannot be recovered, and all citizens must contribute $1,000 to the dam in order for it to be built. The dam, if built, is worth $70,000 to each citizen. (pic on def side) Refer to the game in Scenario 13.7. If each player chose a maximin strategy, the outcome would be -$1000, $0. $69,000, $69,000. $0, $0. $0, -$1000. a mixed strategy equilibrium.

$0, $0.

The price of a taco was $0.29 in 1970 and $1.09 in 2000. The CPI was 38.8 in 1970 and 172.2 in 2000. The 2000 price of a taco in 1970 dollars is: $0.29. $4.84. $1.09. $0.25.

$0.25.

Your firm owns an old truck that is used to make local deliveries. The truck is fully depreciated and only costs $1.20 per hour to operate, but you could rent it to another firm for $15.00 per hour. What is the opportunity cost of operating this truck in your business? $15.00 per hour Less than $1.20 per hour $16.20 per hour $1.20 per hour

$15.00 per hour

Suppose the local market for legal services has an upward sloping supply curve, PL = 150 + 0.0001QL where PL is the price of legal services and QL is the number of hours of legal services. If the equilibrium price of legal services is $250 per hour and the average number of hours that a lawyer works per year is 2,500, what is the average economic rent earned per lawyer in this market? $20,000 $10,000 $1,000,000 $50,000

$20,000

Scenario 12.3: Suppose a stream is discovered whose water has remarkable healing powers. You decide to bottle the liquid and sell it. The market demand curve is linear and is given as follows: P = 30 - Q The marginal cost to produce this new drink is $3. Refer to Scenario 12.3. What price would this new drink sell for if it sold in a competitive market? 0 $13.50 $3 $16.50 $27

$3

A monopolist has set her level of output to maximize profit. The firm's marginal revenue is $20, and the price elasticity of demand is -2.0. The firm's profit maximizing price is approximately: $20 $0 $40 $10 This problem cannot be answered without knowing the marginal cost.

$40

Scenario 10.2: A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product: Q = 200 - 2P MR = 100 - Q TC = 5Q MC = 5 Refer to Scenario 10.2. What is the profit maximizing price? $10.00 $52.50 $95.00 $5.00

$52.50

Suppose we expect consumer prices to increase by about 30 percent between 2010 and 2020, and the minimum wage was $7.25 per hour in 2010. What should be the minimum wage in 2020 if it is set to maintain the same purchasing power as in 2010? $7.55 $9.42 $7.25 none of the above.

$7.55

Suppose the market price for wheat changes, and we move from point A to point B on the wheat demand curve. If the price elasticity of wheat demand was -0.3 at point A and -0.4 at point B, what is a plausible value for the arc elasticity of demand for wheat between points A and B? -0.25 -0.70 -0.35 -0.45

-0.35

Your local grocery store offers a coupon that reduces the price of milk during the coming week. The regular retail price of milk in the store is $3.00 per gallon, and the coupon price is $2.00 per gallon for the next week. If the store maximizes profits and the price elasticity of demand for milk is -2 for coupon users, what is the price elasticity of demand for non-users? -1.5 -1.0 -0.67 We do not have enough information to answer the question.

-1.5

The price of coffee is always equal to one-half the price of tea. When we plot the budget line for coffee and tea, coffee is plotted on the horizontal axis. What is the slope of this budget line? -1/2 -2 2 1/2

-1/2

If the quantity of good A (QA) is plotted along the horizontal axis, the quantity of good B (QB) is plotted along the vertical axis, the price of good A is PA, the price of good B is PB and the consumer's income is I, then the slope of the consumer's budget constraint is ________. -QB/QA -PB/PA I/PA or I/PB -QA/QB -PA/PB

-PA/PB

One Guy's Pizza advertising expenditures are $1,200 and sales are $30,000. When the advertising expenditure increases to $1,400, pizza sales increase to $32,000. The arc advertising elasticity of demand is approximately ________. 2.5 0.1 0 12.5 0.4

0.4

DVDs can be produced at a constant marginal cost of $10 per disk, and Roaring Lion Studios is releasing the DVDs for its last two major films. The DVD for Rambeau 17 is priced at $20 per disk, and the DVD for Schreck 10 is priced at $30 per disk. What are the Lerner indices for these two movies? 2 and 3, respectively 0.5 and 0.67, respectively 1 and 2, respectively Both equal one.

0.5 and 0.67, respectively

Consider a good whose own price elasticity of demand is -1.5 and price elasticity of supply is 0.5. The fraction of a specific tax that is borne by producers is ________. 0.5 0.75 1 0 0.25

0.75

Consider a good whose own price elasticity of demand is 0 and price elasticity of supply is 1. The fraction of a specific tax that will be passed through to consumers is ________. 0.5 0.75 0 1 0.25

1

Relative to a simultaneous-move situation, the loss to firm C from having to move second in the game in Scenario 13.14, would be

12

relative to a simultaneous-move situations, the loss to firm C from having to move second in the game in scenario 12.14 would be

12

Monica consumes only goods A and B. Suppose that her marginal utility from consuming good A is equal to 1/Qa, and her marginal utility from consuming good B is 1/Qb. If the price of A is $0.50, the price of B is $4.00, and the Monica's income is $120.00, how much of good A will she purchase? 120 12 24 0 48

120

Scenario 10.3: The demand curve and marginal revenue curve for red herrings are given as follows: Q = 250 - 5P MR = 50 - 0.4Q Refer to Scenario 10.3. What level of output maximizes revenue? 45 0 85 125 245

125

Bob views apples and oranges as perfect substitutes in his consumption, and MRS = 1 for all combinations of the two goods in his indifference map. Suppose the price of apples is $2 per pound, the price of oranges is $3 per pound, and Bob's budget is $30 per week. What is Bob's utility maximizing choice between these two goods? 5 pounds of apples and 5 pounds of oranges 15 pounds of apples and no oranges 4 pounds of apples and 6 pounds of oranges 10 pounds of oranges and no apples none of the above

15 pounds of apples and no oranges

Scenario 12.2: You are studying a market for which the kinked demand curve model applies. The kinked demand curve is as follows: Q = 1200 - 5P for 0 Q < 150 Q = 360 - P for 150 Q The marginal cost is given as: MC = Q Refer to Scenario 12.2. Suppose that the marginal cost falls such that: MC = Q - 10 What is the profit maximizing level of output? 120 171.43 150 all of the above none of the above

150

at price of 30 what is consumer surplus fir George winston concert

194,045

Scenario 2.1: The demand for books is: Qd = 120 - P The supply of books is: Qs = 5P Refer to Scenario 2.1. What is the equilibrium price of books? 20 5 10 15 none of the above

20

Scenario 12.2: You are studying a market for which the kinked demand curve model applies. The kinked demand curve is as follows: Q = 1200 - 5P for 0 Q < 150 Q = 360 - P for 150 Q The marginal cost is given as: MC = Q Refer to Scenario 12.2. Suppose that the marginal cost increases such that: MC = Q + 10 What is the profit maximizing price? 210 205.72 240 all of the above none of the above

210

Over the past year price inflation has been 10%, but the price of a used Ford Escort has fallen from $6,000 to $5,000. The real price of a Ford Escort has fallen by: 12%. 24% 32%. 20%. 17%

24%

Scenario 14.1: You are the manager of a firm producing green chalk. The marginal product of labor is: MPL = 24L-1/2 Suppose that the firm is a competitor in the green chalk market. The price of green chalk is $1 per unit. Further suppose that the firm is a competitor in the labor market. The wage rate is $12.00 per hour. Given the information in Scenario 14.1, what is the marginal revenue product of labor? 12L^-1/2 24L^-1/2 0.5L^-1/2 2L^-1/2

24L^-1/2

Scenario 10.5: A firm produces garden hoses in California and in Ohio. The marginal cost of producing garden hoses in the two states and the marginal revenue from producing garden hoses are given in the following table: California Ohio Qc MCc Qo MCo Qc + o MR 1 2 1 3 1 24 2 3 2 4 2 20 3 5 3 6 3 16 4 9 4 8 4 12 5 16 5 12 5 8 6 24 6 17 6 4 Refer to Scenario 10.5. How many garden hoses should be produced in California in order to maximize profits? 3 2 4 1 5

3

Scenario 10.8: Adriana is a monopolist producing green calculators. The average and marginal cost curves and average and marginal revenue curves for her product are given as follows: AC = Q + (10,000/Q) MC = 2Q AR = 30 - (Q/2) MR = 30 - Q Refer to Scenario 10.8. The deadweight loss from monopoly is ________. 5 10 25 0 none of the above

5

Suppose that a tax of $2 per unit of output is imposed on red rubber ball producers. What level of output maximizes profit? 5 4.5 3 -1 B, C, and D are correct.

5

Scenario 4.2: Suppose that the demand for artichokes (Qa) is given as: Qa = 200 - 4P 4 out of 4 points Use the information in Scenario 4.2. At what price, if any, is the demand for artichokes completely elastic? 0 30 50 10 none of the above

50

Johnny's Shop-and-Pay is a regional grocery chain, and their marketing manager is trying to determine the profit-maximizing coupon program for the store's laundry detergent brand. Coupon users at the store have an elasticity of demand for this product that equals -3, and the elasticity of demand for non-users of the coupon for the store brand equals -1.5. If the full retail (undiscounted) price of the detergent is $10 per box, what is the optimal discount to provide for coupon users? 50% off 75% off The optimal strategy is to charge the same price to both groups 25% off

50% off

Scenario 10.7: The marginal revenue of green ink pads is given as follows: MR = 2500 - 5Q The marginal cost of green ink pads is 5Q. Refer to Scenario 10.7. How many ink pads will be produced to maximize revenue? 500 300 250 0 none of the above

500

The total cost (TC) of producing computer software diskettes (Q) is given as: TC=200+5Q . What is the variable cost? 5 + (200/Q) 200 5 5Q none of the above

5Q

Gold buyers are located in New York and Zurich. If the price of gold is $400 an ounce, the worldwide demand for gold is 10,000 ounces. Also, the price elasticity of demand for gold in New York and Zurich are -3 and -2 respectively. If the slope of each demand curve in New York is the same as in Zurich, then the quantity of gold demanded by dealers in Zurich is 6,000. 10,000. 5,000. none of the above 10,000/3.

6,000.

scenario 14.2 average product of 4th worker

65

Mikey is very picky and insists that his mom make his breakfast with equal parts of cereal and apple juice any other combination and it ends up on the floor. Cereal costs 4 cents per tablespoon and apple juice costs 6 cents per tablespoon. If Mikey's mom budgets $8 per month for Mikey's breakfast, how much cereal and juice does she buy? 80 tablespoons each of cereal and juice 40 tablespoons of cereal and 75 tablespoons of juice 40 tablespoons each of cereal and juice 100 tablespoons of cereal and 67 tablespoons of juice

80 tablespoons each of cereal and juice

Scenario 10.2: A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product: Q = 200 - 2P MR = 100 - Q TC = 5Q MC = 5 Refer to Scenario 10.2. What is the profit maximizing level of output? 0 95 100 90 none of the above

95

From Example 1.2 in the textbook, Pindyck and Rubinfeld distinguish between the mass market and dealer market for bicycles. Although there are many dealers in the U.S. and only a few mass merchandisers, we should expect the dealer market to be somewhat less competitive than the mass market. Why? The geographic extent of the market for dealer bicycles is typically small, so the individual sellers do not have many local competitors. Due to their differences in quality and performance, dealer bicycles are not close substitutes. Dealers are small sellers and have little control over bicycle prices. A and B are correct. B and C are correct.

A and B are correct. The geographic extent of the market for dealer bicycles is typically small, so the individual sellers do not have many local competitors. Due to their differences in quality and performance, dealer bicycles are not close substitutes.

Government intervention can increase total welfare when there are costs or benefits that are external to the market. consumers do not have perfect information about product quality. a high price makes the product unaffordable for most consumers. all of the above A and B only

A and B only there are costs or benefits that are external to the market. consumers do not have perfect information about product quality.

Microeconomics is the branch of economics that deals with which of the following topics? The behavior of individual consumers Unemployment and interest rates The behavior of individual firms and investors B and C A and C

A and C The behavior of individual consumers The behavior of individual firms and investors B and C

Following Example 8.8 in the book, the long-run supply of rental housing in most U.S. communities is more inelastic than the long-run supply of owner-occupied housing. Why? Local rental housing regulations Limited demand for rental housing Limitations on the urban land available for rental housing A and C above are correct

A and C above are correct Local rental housing regulations Limitations on the urban land available for rental housing

Which of the following will NOT cause a shift in the supply of gasoline? An improvement in oil refining technology A decrease in the price of gasoline An increase in the wage rate of refinery workers A decrease in the price of crude oil

A decrease in the price of gasoline

Which of the following is a positive statement? Because many adults cannot afford to go to college, tax credits for tuition should be introduced. A fundamental assumption of the economic theory of consumer behavior is that consumers always prefer having more of any good to having less of it. The President of the United States ought to be elected by a direct vote of the American people rather than the Electoral College. all of the above none of the above

A fundamental assumption of the economic theory of consumer behavior is that consumers always prefer having more of any good to having less of it.

Which of the following is true for a competitive buyer? AE = ME AE < ME AE > ME AE greater than or equal to ME

AE = ME

From Example 7.2, most pizza restaurants have large fixed costs and relatively low variable costs. What does this tell us about the average variable cost (AVC) of producing pizza? AVC is relatively low AVC is relatively high AVC is increasing for all quantity levels AVC is high for low quantities but declines quickly

AVC is relatively low

The purpose of chain-weighted price adjustments in the calculation of GDP is to

Adjust for changes in relative prices.

Which of the following is NOT an assumption regarding people's preferences in the theory of consumer behavior? Consumers prefer more of a good to less. Preferences are complete. Preferences are transitive. All of the above are basic assumptions about consumer preferences.

All of the above are basic assumptions about consumer preferences.

Which of the following statement is FALSE? Some markets may have only a few sellers but exhibit the properties of perfect competition. Perfectly competitive markets are composed of many buyers and sellers. A market may be composed of only one buyer and one seller. All of the above statements are correct.

All of the above statements are correct.

Which of the following statements is NOT true? Prices serve an important role in microeconomics. All prices are determined by market interactions between buyers and sellers. The trade-offs facing consumers and producers are based on prices. Only A and B above false. Only B and C above are false.

All prices are determined by market interactions between buyers and sellers.

Consider the Matching Pennies game: (pic on def slide) Suppose Player A always uses a pure strategy that selects heads. What is Player B's optimal response to this pure strategy? Mixed strategy with probability 1/2 on heads and 1/2 on tails Always select tails. Always select heads. There is no optimal pure or mixed strategy for this situation.

Always select tails.

Which of the following statements about markets and industries is TRUE? An industry includes buyers but not sellers. An industry includes sellers but not buyers. A market includes sellers but not buyers. A market includes buyers but not sellers.

An industry includes sellers but not buyers.

A monopolistically competitive firm in short-run equilibrium: will make positive profit. will make negative profit (lose money). will make zero profit (break-even) Any of the above are possible.

Any of the above are possible.

Which of the following assertions, if proven true in a court of law, would help Archer-Daniels-Midland, a maker of corn syrup, in its attempt to acquire another corn syrup producer, the Clinton Corn Processing Company? Archer-Daniels-Midland and the Clinton Corn Processing Company together hold only a small share of the market for sweeteners including corn syrup and sugar. Archer-Daniels-Midland produces many other different agricultural products, in addition to corn syrup. Archer-Daniels-Midland is a dominant producer of corn syrup. There are no good substitutes for corn syrup for any of its major uses.

Archer-Daniels-Midland and the Clinton Corn Processing Company together hold only a small share of the market for sweeteners including corn syrup and sugar.

In the short run, suppose average total cost is a straight line and marginal cost is positive and constant. Then, we know that: marginal cost is less than average total cost. average total cost is positive and constant. average total cost equals marginal cost. A and B are correct. B and C are correct.

B and C are correct. average total cost is positive and constant. average total cost equals marginal cost.

Which oligopoly model(s) have the same results as the competitive model? Stackelberg Cournot Bertrand Both Cournot and Stackelberg

Bertrand

In the ________, two duopolists compete by simultaneously selecting price. Cournot model kinked-demand model Nash model Bertrand model none of the above

Bertrand model

Scenario 13.2: Consider the following game: (pic on def side) Which of the following is true about the game in Scenario 13.2? XYZ's dominant strategy is to offer a rebate. ABC's dominant strategy is not offer a rebate. XYZ's dominant strategy is not offer a rebate. ABC's dominant strategy is to offer a rebate. Both ABC and XYZ offer a rebate as a dominant strategy.

Both ABC and XYZ offer a rebate as a dominant strategy.

Use the following two statements to answer this question: I. "Decreasing returns to scale" and "diminishing returns to a factor of production" are two phrases that mean the same thing. II Diminishing returns to all factors of production implies decreasing returns to scale. Both I and II are false. I is false, and II is true. I is true, and II is false. Both I and II are true.

Both I and II are false.

Use the following two statements to answer this question: I. Consumer theory can determine whether giving an individual a more preferred basket of goods doubles her overall level of satisfaction, less than doubles her satisfaction, or more than doubles her satisfaction. II. There is not much empirical evidence to support the assumption that higher incomes result in higher levels of satisfaction. Both I and II are true. I is false and II is true. I is true and II is false. Both I and II are false.

Both I and II are false.

Use the following two statements to answer this question: I. The average cost curve and the average variable cost curve reach their minima at the same level of output. II. The average cost curve and the marginal cost curve reach their minima at the same level of output. Both I and II are false. I is true, and II is false. Both I and II are true. I is false, and II is true.

Both I and II are false.

I. A technology with increasing returns to scale will generate a long-run average cost curve that has economies of scale. II. Diminishing returns determines the slope of the short-run marginal cost curve, whereas returns to scale determine the slope of the long-run marginal cost curve. Both I and II are true. Both I and II are false. I is false, and II is true. I is true, and II is false.

Both I and II are true.

Consider the following output-choice game for two firms: (picture on def slide) What is the outcome of the game if both firms use maximin strategies? There are two possible maximin outcomes --- Firm 1 chooses medium and Firm 2 chooses low, or Firm 1 chooses low and Firm 2 chooses medium. There is no clear outcome under a maximin strategy for both firms. Both firms choose low output levels. Both firms choose medium output levels.

Both firms choose low output levels.

Albatross Software has two main products: WindSong is a program that can be used to edit audio files and SunBurst is a program that can be used to edit digital photos. The two major types of customers are small businesses and home users. The small business customers have a reservation price of $300 for WindSong and $450 for SunBurst. The home users have a reservation price of $100 for WindSong and $125 for SunBurst. Which of the following statements is true? Bundling the two software products is not likely to be profitable because the consumer demands are homogeneous. Bundling the two software products is not likely to be profitable because the marginal cost of producing software is positive by very small. Bundling the two software products is likely to be profitable because the demands are negatively correlated. Bundling the two software products is not likely to be profitable because the demands are positively correlated.

Bundling the two software products is not likely to be profitable because the demands are positively correlated.

Which scenario below would lead to lower profits as we double the inputs used by the firm? Increasing returns to scale with constant input prices Constant returns to scale with rising input prices (perhaps because the firm is not a price-taker in the input markets) Constant returns to scale with constant input prices all of the above

Constant returns to scale with rising input prices (perhaps because the firm is not a price-taker in the input markets)

Which of the following is NOT a factor that has contributed to declining private-sector differential between union and nonunion wages in the U.S. since 1980? Declines in the unemployment and health insurance premiums paid by union workers Globalization of the production process Improved ability of firms to substitute capital for labor in production Adoption of two-tiered wage and benefit structures by unionized firms

Declines in the unemployment and health insurance premiums paid by union workers

Suppose the supply of non-OPEC oil increases due to new petroleum discoveries in other countries. What happens to the price of oil on the world market? Decreases Remains the same Increases We do not have enough information to answer this question.

Decreases

The authors note that advertising can make the consumer demand for a product more elastic (price responsive) by expanding the potential range of consumers. As this change in demand occurs (ceteris paribus), what happens to the optimal advertising-sales ratio? Decreases Increases Remains the same We do not have enough information to answer this question

Decreases

BioMed Pharmaceutical has held a patent on an important heart medication called Heartex, but the patent will expire in the coming year. After the patent expires, other firms can legally sell the same medication as a generic drug product. What will happens to the demand for Heartex and to the Lerner index for this product as the generic drugs enter the market? Demand becomes more elastic, Lerner index declines Demand becomes more elastic, Lerner index increases Demand becomes less elastic, Lerner index declines Demand becomes less elastic, Lerner index increases

Demand becomes more elastic, Lerner index declines

Why does cooperative behavior break down in games with finite endpoints? Finite games have the same outcomes as one-period games, and cooperation is not possible in one-period games. Each player has an incentive to deviate from a cooperative strategy during the last period. A Nash equilibrium is only possible in mixed strategies in finite repeated games, but all of the probabilities assigned to particular strategies approach zero as the number of finite game periods becomes large. Thus, we cannot evaluate the expected payoffs in these games. A Nash equilibrium in pure strategies is not possible in finite repeated games.

Each player has an incentive to deviate from a cooperative strategy during the last period.

Suppose a labor market has perfectly inelastic supply that is composed of union and non-union workers, and both groups of workers initially earn the perfectly competitive wage. What happens to the equilibrium employment level and wage for non-union workers if the union exercises its bargaining power? Employment increases and wage declines. Both increase. Both decline. Wage increases and employment declines.

Employment increases and wage declines.

Which of the following actions is not an example of the production coordination provided by firms? Establish industry safety regulations Manage production activities of workers Pay wages to workers Set the production schedule for each week

Establish industry safety regulations

Consider the following game in which two firms decide how much of a homogeneous good to produce. The annual profit payoffs for each firm are stated in the cell of the game matrix, and Firm A's payoffs appear first in the payoff pairs: (picture on definition slide) What are the dominant strategies in this game? Firm B's dominant strategy is to produce low levels of output, but Firm A does not have a dominant strategy. Both firms produce high levels of output Firm A's dominant strategy is to produce low levels of output, but Firm B does not have a dominant strategy. Both firms produce low levels of output Neither firm has a dominant strategy

Firm A's dominant strategy is to produce low levels of output, but Firm B does not have a dominant strategy.

Which of the following is NOT an example of ways in which microeconomic analysis can help Toyota Motor Corporation its in corporate decision making? Forecasting demand for new automobiles Forecasting the effect of an oil price increase on demand for hybrid autos Determining how many automobiles to produce in order to maximize profits Predicting how competitors will react to the firm's pricing strategy Forecasting the effect of Toyota's hiring patterns on the U.S. unemployment rate

Forecasting the effect of Toyota's hiring patterns on the U.S. unemployment rate

Use the following statements to answer this question: I. Markets may be highly (but not perfectly) competitive even if there are a few sellers. II. There is no simple indicator that tells us when markets are highly competitive. I and II are false I and II are true I is true and II is false I is false and II is true

I and II are true

Use the following statements to answer this question: I. For downward sloping demand and upward sloping supply curves, the government expenditure used to pay for a subsidy program exceeds the sum of the changes in producer and consumer surplus. II. To model the price-quantity impacts of a subsidy, we can shift the demand curve upward by the amount of the per-unit subsidy payment. II is true and I is false. I and II are false. I is true and II is false. I and II are true.

I and II are true.

Use the following statements to answer this question: I. Under profit maximization, the quantity of labor used in production is optimal if MR = w/MPL. II. The expression MR = w/MPL implies that the revenue earned from the last unit of output produced equals the marginal cost of the last unit of output. II is true and I is false. I and II are true. I is true and II is false. I and II are false.

I and II are true.

Which of the following would cause a rightward shift in the demand curve for gasoline? I. A large increase in the price of public transportation. II. A large decrease in the price of automobiles. III. A large reduction in the costs of producing gasoline. I only II and III only I, II, and III I and II only II only

I and II only I. A large increase in the price of public transportation. II. A large decrease in the price of automobiles.

Consider the following statements when answering this question; I. Whenever the marginal product of labor curve is a downward sloping curve, the average product of labor curve is also a downward sloping curve that lies above the marginal product of labor curve. II. If a firm uses only labor to produce, and the production function is given by a straight line, then the marginal product of labor always equals the average product of labor as labor employment expands. Both I and II are true. Both I and II are false. I is false, and II is true. I is true, and II is false.

I is false, and II is true.

I. To maximize profit, a firm will increase its advertising expenditures until the last dollar of advertising generates an additional dollar of revenue. II. The full marginal cost of advertising is the sum of the dollar spent directly on advertising and the marginal production cost that results form the increased sales that advertising brings about. Both I and II are true. Both I and II are false. I is true, and II is false. I is false, and II is true.

I is false, and II is true.

Use the following two statements about monopolistic competition to answer this question. I. In the long run, the price of the good will equal the minimum of the average cost. II. In the short run, firms may earn a profit. I and II are true. I is false, and II is true. I and II are false. I is true, and II is false.

I is false, and II is true.

Consider the following statements when answering this question I. Waiting lists for kidney transplants have been caused by a 1984 congressional law forbidding humans to sell their kidneys. II. Randomly choosing citizens to serve on juries is an efficient mechanism for selecting jurors. I is false, and II is true. I and II are true. I and II are false. I is true, and II is false.

I is true, and II is false.

Use the following statements to answer this question: I. If mixed strategies are allowed, every game has at least one Nash equilibrium. II. The maximin strategy is optimal in the game of "matching pennies." I is true, and II is false. Both I and II are true. I is false, and II is true. Both I and II are false.

I is true, and II is false.

Use the following two statements to answer this question: I. For a monopolist, at every output level, average revenue is equal to price. II. For a monopolist, at every output level, marginal revenue is equal to price. I is true, and II is false. Both I and II are false. Both I and II are true. I is false, and II is true. Statements I and II could either be true or false depending upon demand.

I is true, and II is false.

Use the following two statements to answer this question: I. Increasing returns to scale cause economies of scale. II. Economies of scale cause increasing returns to scale. I is false, and II is true. I is true, and II is false. Both I and II are false. Both I and II are true.

I is true, and II is false.

Use the following statements to answer the question: I. Consider the problem of negotiating the price of a rug that costs $100 to make. If there are two buyers (one with a maximum willingness-to-pay of $200 and one with a maximum willingness-to-pay of $250), then the situation is no longer a constant sum game. II. The likely outcome from the game described in statement I is that the second buyer will bid a price slightly above $200 (e.g., $201) to win the rug. I and II are true. II is true and I is false. I is true and II is false. I and II are false.

II is true and I is false.

Which of the following statements is NOT true? If an economic theory is proven to be untrue, then it may be modified or discarded. If an economic theory is proven to be untrue, then it must be discarded. Economic theories provide the basis for making predictions. Economic models are specific representations of economic theories.

If an economic theory is proven to be untrue, then it must be discarded.

Scenario 2.2: In 1992, the Occupational Safety and Health Authority passed the Bloodborne Pathogens Standard (BBP), which regulates dental office procedures. This regulation is designed to minimize the transmission of infectious disease from patient to dental worker. The effect of this regulation was both to increase the cost of providing dental care and to ease the fear of going to the dentist as the risk of contracting an infectious disease. Refer to Scenario 2.2. Under what circumstances will the equilibrium level of output of dental care increase? If both demand and supply shift by the same magnitude. If demand shifts more than supply. If supply and demand both decrease. If supply shifts more than demand.

If demand shifts more than supply.

From Equation (7.1) in the book, the short-run marginal cost of production is MC = w/MPL. Based on this equation, which of the following statements is NOT true? If the marginal product of labor is a concave curve, then the MC curve is also concave. If the marginal product of labor is constant, then MC is constant. If the marginal product of labor is a concave curve, then the MC curve is U-shaped. MC increases as the marginal product of labor declines.

If the marginal product of labor is a concave curve, then the MC curve is also concave.

What is the shape of the total revenue curve derived from a linear downward sloping demand curve? U-shaped Vertical Horizontal Inverted u-shaped

Inverted u-shaped

Which of the following is true concerning the substitution effect of a decrease in price? It will lead to an increase in consumption only for an inferior good. It always will lead to an increase in consumption. It will lead to an increase in consumption only for a normal good. It will lead to an increase in consumption only for a Giffen good.

It always will lead to an increase in consumption.

What is a good argument for using the model of the consumer despite the fact that it requires making many simplifying assumptions? It is complex to solve. The assumptions are sometimes realistic. It explains observed patterns of behavior. It is used in many scholarly fields.

It explains observed patterns of behavior.

Which of the following statements concerning utility as a measure for well being are false? Utility is an abstract representation of an individual's degree of happiness. It is possible to determine which of two individuals is made happier by consuming a particular market basket. There is generally a positive relationship between income and utility. Cross country studies suggest that citizens in wealthier countries are happier than citizens in poorer countries.

It is possible to determine which of two individuals is made happier by consuming a particular market basket.

In a recent article, two economists estimated that the 37.5% increase in price that would result from a 75 cent tax increase on cigarettes would lead to a decrease in smoking among college students of 30%. What can you conclude about the demand for cigarettes among college students? It is unit elastic. It is perfectly inelastic. It is price elastic. It is price inelastic.

It is price inelastic.

Scenario 2.2: In 1992, the Occupational Safety and Health Authority passed the Bloodborne Pathogens Standard (BBP), which regulates dental office procedures. This regulation is designed to minimize the transmission of infectious disease from patient to dental worker. The effect of this regulation was both to increase the cost of providing dental care and to ease the fear of going to the dentist as the risk of contracting an infectious disease. Refer to Scenario 2.2. What is the effect of the BBP on the equilibrium price of dental care? It unambiguously decreases. It increases only if demand shifts more than supply. It increases only if supply shifts more than demand. It unambiguously increases.

It unambiguously increases.

When Joe maximizes utility, he finds that his MRS of X for Y is greater than Px/Py. It is most likely that: Joe is not consuming good X. Joe's preferences are irrational. Joe's preferences are incomplete. Joe is not consuming good Y.

Joe is not consuming good Y.

A consumer's original utility maximizing combination of income and leisure is shown in the diagram above as point A. After a wage decrease, the consumer's utility maximizing combination changes to point C. (pic on def side) Refer to Figure 14.2. The substitution effect of the wage decrease on the amount of hours of leisure is: L2 to L0. L0 to L1. L1 to L2. L1 to L0. none of the above

L1 to L2.

La Tortilla is the only producer of tortillas in Santa Teresa. The firm produces 10,000 tortillas each day and has the capacity to increase production to 100,000 tortillas each day. La Tortilla has made a large profit for years, but no other firm has chosen to compete in the Santa Teresa tortilla market. La Tortilla has been able to deter entry because if other firms were to enter the market it would greatly step-up production and reduce price. La Tortilla behaves like a Stackelberg firm. La Tortilla's behavior is inconsistent with economic theory. La Tortilla has been successful because of its credible threat. La Tortilla must have other barriers to entry to protect its monopoly power.

La Tortilla has been successful because of its credible threat.

Which of the following ideas were central to the conclusions drawn by Thomas Malthus in his 1798 "Essay on the Principle of Population"? Law of diminishing returns Short-run time period Shortage of labor Law of diminishing resource availability

Law of diminishing returns

Which of the following is NOT an example of a way in which microeconomic analysis can help in designing environmental policy? Designing laws to provide incentives for firms to implement clean technologies in new vehicles Lobbying consumers and firms to reduce consumption of energy Examining the tradeoffs between ecological benefits of environmental legislation and its impacts on consumers' standard of living Determining the optimal level of vehicle fuel efficiency standards

Lobbying consumers and firms to reduce consumption of energy

When there are economies of scale, long-run marginal cost is declining. MC < AC, so cost-output elasticity is less than 1. MC < AC, so cost-output elasticity is less than AC. MC < AC, so cost-output elasticity is greater than 1. MC > AC, so cost-output elasticity is greater than AC.

MC < AC, so cost-output elasticity is less than 1.

DVDs can be produced at a constant marginal cost, and Roaring Lion Studios is releasing the DVDs for its last two major films. The DVD for Rambeau 17 is priced at $20 per disk, and the DVD for Schreck 10 is priced at $30 per disk. If the Lerner indices for Rambeau 17 divided by the Lerner index for Schreck 10 equals 0.5, what is the constant marginal cost of producing both DVDs? MC = $5 MC = $20 MC = $10 MC = $15

MC = $15

In the competitive output market for good Q, the marginal revenue product for an input X can be expressed as MPX*PQ APX MRQ. MPQ MRX. MPX / TRQ.

MPX*PQ

If Px = Py, then when the consumer maximizes utility, X and Y must be substitutes. MU(X) may equal MU(Y), but it is not necessarily so. X must equal Y. MU(X) must equal MU(Y).

MU(X) must equal MU(Y).

Suppose a government sets theprice for a natural monopoly at the competitive level such that P = MC. To keep the seller from taking a loss under this policy, the government could provide a lump-sum payment to the firm. How could we determine this payment? Multiply the competitive quantity by the regulated price Multiply the difference in the competitive and monopoly quantities by AC Multiply the competitive quantity by the difference between MC and AC Multiply the competitive quantity by the competitive marginal cost

Multiply the competitive quantity by the difference between MC and AC

Suppose the federal government allows labor unions to act as the sole seller in labor markets, but the government collects an annual $10,000,000 "administrative fee" from each union in this situation. Assuming this fee is not so large that it forces the unions to disband, what is the impact of this fee on the equilibrium wage and employment level in the monopolized labor market? Wages increase and employment declines. Employment increases and wages decline. Wages and employment decline. No change in wages or employment levels.

No change in wages or employment levels.

There are two independent dealers for Sporto automobiles in a large city. The dealers decide to run a cooperative advertising campaign in which both dealers are listed in local newspapers ads, and they can purchase larger ads that are more likely to attract attention and generate more auto sales if the dealers commit more funds to the joint advertising budget. Is this an example of a cooperative constant-sum game? Yes, each firm can contribute zero to 100 percent of the advertising budget, so this is a constant-sum game. No, the outcome of the advertising campaign depends on how much money the firms contribute to the campaign, so it is not constant sum. No, the firms are independent, so their interaction cannot be cooperative. Yes, all negotiated outcomes between two firms are cooperative and constant-sum situations.

No, the outcome of the advertising campaign depends on how much money the firms contribute to the campaign, so it is not constant sum.

Does it make sense to consider the returns to scale of a production function in the short run? No, returns to scale is a property of the consumer's utility function. Yes, this is an important short-run characteristic of production functions. No, we cannot change all of the production inputs in the short run. Yes, returns to scale determine the diminishing marginal returns of the inputs.

No, we cannot change all of the production inputs in the short run.

For any given level of output: marginal cost must be greater than average cost. average fixed cost must be greater than average variable cost. fixed cost must be greater than variable cost. average variable cost must be greater than average fixed cost. None of the above is necessarily correct.

None of the above is necessarily correct.

During the presidential campaigns, the candidates from each party typically describe their plans to maintain or change federal taxes on personal and business income. Are these policy statements generally positive or normative? Normative Both positive and normative Neither positive or normative Positive

Normative

Which of the following pairs of goods are NOT complements? Computer CPUs and computer monitors Hockey sticks and hockey pucks On-campus student housing and off-campus rental apartments all of the above none of the above

On-campus student housing and off-campus rental apartments

Ronny's Pizza House operates in the perfectly competitive local pizza market. If the price of pizza cheese increases (ceteris paribus), what is the expected impact on Ronny's profit-maximizing output decision? Output decreases because the price of pizza must also increase Output increases because the marginal cost curve shifts upward Output increases to cover the higher input cost Output decreases because the marginal cost curve shifts upward

Output decreases because the marginal cost curve shifts upward

Some economists conduct empirical research on the theory of the firm by measuring the degree of technical efficiency achieved by actual firms. What type of research contributions are provided by these studies? Positive Administrative Executive Normative

Positive

________ questions have to do with explanation and prediction, ________ questions have to do with what ought to be. Negative; normative. Positive; normative. Econometric; theoretical. Affirmative; positive. Positive; negative.

Positive; normative.

Suppose the market demand curve for a Bertrand duopoly is downward sloping. What happens to the Nash equilibrium price and market quantity if the constant marginal cost declines? Price and quantity decline Price decreases and quantity increases Price and quantity increase Price increases and quantity declines

Price decreases and quantity increases

Scenario 13.14 Consider the game below: (picture on definition slide) When, in the game in Scenario 13.14, the strategy that would not be chosen under any circumstances is removed, what is left is a Prisoners' Dilemma game. constant-sum game. Beach Location game. Matching Pennies game. Battle of the Sexes game.

Prisoners' Dilemma game.

Luxury brands like designer sunglasses are goods that may exhibit snob effects. Suppose this is true, and the price for a particular brand increases. What happens to the component changes in the quantity demanded? Pure price effect is negative, snob effect is positive Pure price effect and snob effect are positive Pure price effect is positive, snob effect is negative Pure price effect and snob effect are negative

Pure price effect is negative, snob effect is positive

Which of the following functions is least likely to represent a real demand curve? Q = 120/(Pa + Pb) Q = 120/P Q = 120 + 3P - 2I Q = 120 - 2P

Q = 120 + 3P - 2I

In a Cournot duopoly, we find that Firm 1's reaction function is Q1 = 50 - 0.5Q2, and Firm 2's reaction function is Q2 = 75 - 0.75Q1. What is the Cournot equilibrium outcome in this market? Q1 = 60 and Q2 = 60 Q1 = 20 and Q2 = 60 Q1 = 20 and Q2 = 20 Q1 = 60 and Q2 = 20

Q1 = 20 and Q2 = 60

The authors cited statistical evidence that the price elasticity of demand for Royal Crown cola is -2.4, and the price elasticity of demand for Coke is roughly -5.5. Which firm likely has stronger brand loyalty among customers that provides greater potential for monopoly power in the cola market? Royal Crown Coke Both firms should have identical monopoly power We do not have enough information to answer this question.

Royal Crown

What is the economies of scope character for a firm that has a straight-line product transformation curve? Economies of scope (SC > 0) Diseconomies of scope (SC < 0) SC = 1 SC = 0

SC = 0

Sue views hot dogs and hot dog buns as perfect complements in her consumption, and the corners of her indifference curves follow the 45-degree line. Initially, the price of hot dogs is $3 per package (8 hot dogs), the price of buns is $3 per package (8 hot dog buns), and Sue's budget is $48 per month. How does her optimal consumption bundle change if the price of hot dog buns increases to $5 per package? She buys the same amount of hot dogs and buys two less packages of hot dog buns. Sue does not change her consumption because these goods are perfect complements. She buys the same amount of hot dog buns and buys more hot dogs. She reduces her consumption by 2 packages of hot dogs and 2 packages of hot dog buns.

She reduces her consumption by 2 packages of hot dogs and 2 packages of hot dog buns.

Suppose the upward sloping labor supply curve shifts leftward in a labor market with a single employer (monopsony). What happens to the marginal expenditure curve? Shifts right Remains the same Shifts left We do not have enough information to answer this question.

Shifts left

A key factor that determines the geographic extent of a housing market is the distance that commuters are willing to travel from home to work. Which of the following events would NOT help to expand the geographic extent of the housing market in a metropolitan area? Price of gasoline declines Public transit fares decrease State gasoline tax increases none of the above

State gasoline tax increases

The effect of the September 11 attacks on the World Trade Center on the market for office space in downtown Manhattan was that both the equilibrium price and the equilibrium quantity fell. What is the most likely explanation for this? Supply shifted left, demand shifted right, and the magnitude of the demand shift was greater. Supply shifted left, demand shifted right, and the magnitude of the supply shift was greater. Supply and demand both shifted left, and the magnitude of the supply shift was greater. Supply and demand both shifted left, and the magnitude of the demand shift was greater.

Supply and demand both shifted left, and the magnitude of the demand shift was greater.

Suppose that the marginal cost of an additional ton of steel produced by a Japanese firm is the same whether the steel is set aside for domestic use or exported abroad. If the price elasticity of demand for steel is greater abroad than it is in Japan, which of the following will be correct? The Japanese firm will sell steel at a higher price abroad than they will charge domestic users. The Japanese firm will sell steel at a lower price abroad than they will charge domestic users. Insufficient information exists to determine whether the price or quantity will be higher or lower abroad. The Japanese firm will sell more steel abroad than they will sell in Japan. The Japanese firm will sell more steel in Japan than they will sell abroad.

The Japanese firm will sell steel at a lower price abroad than they will charge domestic users.

Suppose that the marginal cost of an additional ton of steel produced by a Japanese firm is the same whether the steel is set aside for domestic use or exported abroad. If the price elasticity of demand for steel is greater abroad than it is in Japan, which of the following will be correct? The Japanese firm will sell steel at a lower price abroad than they will charge domestic users. Insufficient information exists to determine whether the price or quantity will be higher or lower abroad. The Japanese firm will sell more steel abroad than they will sell in Japan. The Japanese firm will sell more steel in Japan than they will sell abroad. The Japanese firm will sell steel at a higher price abroad than they will charge domestic users.

The Japanese firm will sell steel at a lower price abroad than they will charge domestic users.

Under the version of the game in which Candidate A moves first, what is the Nash equilibrium?

The Nash equilibrium for the sequential and simultaneous versions of the game are identical.

Which is true of output-choice models of oligopoly behavior? Both the Stackelberg and Cournot models can be constructed as sequential games. The Stackelberg, but not the Cournot, model can be constructed as a sequential game. The Cournot, but not the Stackelberg, model can be constructed as a sequential game. There is no relationship between any output-choice model and sequential games. Neither the Cournot nor the Stackelberg model can be constructed as a sequential game, but other output-choice models can be.

The Stackelberg, but not the Cournot, model can be constructed as a sequential game.

Suppose the aggregate demand for housing in the U.S. includes a substantial speculative component. What happens of the expectations of speculators change, and they believe housing prices will not increase in the future? There is no change in the current demand for housing because speculators' expectations are based on future events. The speculative demand curve shifts leftward, but the aggregate demand curve is unchanged. The aggregate demand curve shifts leftward, and the equilibrium market price declines. The aggregate demand curve shifts leftward, and the equilibrium market price increases.

The aggregate demand curve shifts leftward, and the equilibrium market price declines.

Which of the following is NOT related to the slope of isoquants? The fact that inputs have positive marginal product The fact that input prices are positive The fact that inputs have diminishing marginal product The fact that there are diminishing returns to inputs The fact that more of either input increases output

The fact that input prices are positive

Scenario 7.1: The average total cost to produce 100 cookies is $0.25 per cookie. The marginal cost is constant at $0.10 for all cookies produced. Refer to Scenario 7.1. Which piece of information would NOT be helpful in calculating the marginal cost of the 75th unit of output? The variable cost of 75 units The variable cost of 74 units The firm's fixed cost The total cost of 74 units The total cost of 75 units

The firm's fixed cost

Which of the following is true in the Stackelberg model? The first firm produces more than its rival. Both firms produce the same quantity. Both firms have a reaction curve. The first firm produces less than its rival.

The first firm produces more than its rival.

A firm has two customers with non-identical demands and a constant marginal cost of production. At any positive price, the consumer surplus values for the two customers are related as CS2 ≥ CS1 . What can we say about the optimal two-part tariff for the firm? The firm sets the price equal to MC and the optimal tariff is equal to CS2. The firm sets the price equal to MC and the optimal tariff is equal to CS1. The optimal price is greater than MC and the optimal tariff is equal to CS1. The firm sets the price equal to MC and the optimal tariff is equal to zero.

The optimal price is greater than MC and the optimal tariff is equal to CS1.

What is true about dominant strategies in the game in Scenario 13.10? (pic on def slide) "Make animal-shaped bottles" and "create a diet soda" are dominant strategies. "Use more caffeine" and "create a diet soda" are dominant strategies. "Make animal-shaped bottles" and "have a sweepstakes" are dominant strategies. "Use more caffeine" and "have a sweepstakes" are dominant strategies. There are no dominant strategies.

There are no dominant strategies.

The two largest auto manufacturers, Toyota and GM, have experimented with hydrogen powered cars in the past, and they are currently considering the decision to introduce a hydrogen powered car into the commercial automobile market. The payoffs from the possible actions are measured in millions of dollars per year, and the possible outcomes are summarized in the following game matrix: (pic on def side) If both firms enter the market simultaneously, what is the Nash equilibrium? Toyota produces and GM does not produce. There are two Nash equilibria - GM produces and Toyota does not produce, or Toyota produces and GM does not produce. There is no Nash equilibrium in this game. GM produces and Toyota does not produce.

There are two Nash equilibria - GM produces and Toyota does not produce, or Toyota produces and GM does not produce.

Consider the following payoff matrix for a game in which two firms attempt to collude under the Bertrand (table on answer) Here, the possible options are to retain the collusive price (collude) or to lower the price in attempt to increase the firm's market share (cut). The payoffs are stated in terms of millions of dollars of profits earned per year. What is the Nash equilibrium for this game? Both firms collude. There are no Nash equilibria in this game. There are two Nash equilibria: A cuts and B colludes, and A colludes and B cuts. Both firms cut prices.

There are two Nash equilibria: A cuts and B colludes, and A colludes and B cuts.

Scenario 2.1: The demand for books is: Qd = 120 - P The supply of books is: Qs = 5P Refer to Scenario 2.1. If which of the following is true? There is a shortage equal to 30. There is a surplus equal to 30. There is a shortage, but it is impossible to determine how large. There is a surplus, but it is impossible to determine how large.

There is a shortage equal to 30.

Which of the following is true regarding the relationship between returns to scale and economies of scope? There is no definite relationship between returns to scale and economies of scope. Economies of scale and economies of scope must occur together. A firm experiencing increasing returns to scale must also experience economies of scope. A firm experiencing economies of scope must also experience increasing returns to scale.

There is no definite relationship between returns to scale and economies of scope.

The two largest auto manufacturers, Toyota and GM, have experimented with hydrogen powered cars in the past, and they are currently considering the decision to introduce a hydrogen powered car into the commercial automobile market. The payoffs from the possible actions are measured in millions of dollars per year, and the possible outcomes are summarized in the following game matrix: (pic on def side) Suppose the Japanese government provides a $15 million subsidy to Toyota if the company delivers a hydrogen powered auto (regardless of GM's action). What is the Nash equilibrium based on the subsidized payoffs? Toyota's dominant strategy is to produce, and GM is deterred and does not produce. The outcome of the game is the same as before, and there are two Nash equilibria - GM produces and Toyota does not produce, or Toyota produces and GM does not produce. Toyota's dominant strategy is to produce, and GM also produces the electric auto. There is no Nash equilibrium in this game.

Toyota's dominant strategy is to produce, and GM is deterred and does not produce.

Suppose a labor market has perfectly inelastic supply that is composed of union and non-union workers, and both groups of workers initially earn the perfectly competitive wage. What happens to the equilibrium employment level and wage for union workers if the union exercises its bargaining power? Employment increases and wage declines. Both decline. Both increase. Wage increases and employment declines.

Wage increases and employment declines.

Suppose the upward sloping labor supply curve shifts leftward in a labor market with a single employer (monopsony). What happens to the equilibrium wage and level of employment in the market? Wage increases and level of employment declines. Wage and level of employment increase. Wage decreases and level of employment increases. Wage and level of employment decline.

Wage increases and level of employment declines.

In some remote communities, there was only one employer in the local labor market several years ago, but the number of firms that hired workers in the market increased over time. What is the expected change in the local labor market as the number of employers increased (ceteris paribus)? Wages and employment increase Wages increase but employment remains the same Wages remain the same but employment increases Wages and employment decline

Wages and employment increase

Wal-Mart was one of the most successful firms of the 1970s and 1980s. Much of Wal -Martʹs success can be credited to its expansion strategy: they rushed to open the first discount store in small towns that could only support one discount store. In the language of game theory:

Wal-Mart employed a preemptive strategy.

Suppose the observed annual quantity of steel exchanged in the European market is 30 million metric tons, and the observed market price is 90 euros per ton. If the linear demand function for steel takes the form Q = a - 0.9P, what is an appropriate value for the intercept coefficient a? a = 111 a = -51 a = 51 a = -111

a = 111

In order for a taxicab to be operated in New York City, it must have a medallion on its hood. Medallions are expensive, but can be resold, and are therefore an example of a sunk cost. an implicit cost. an opportunity cost. a variable cost. a fixed cost.

a fixed cost.

o model the input decisions for a production system, we plot labor on the horizontal axis and capital on the vertical axis. In the short run, labor is a variable input and capital is fixed. The short-run expansion path for this production system is: a vertical line. a horizontal line. not defined. equal to the 45-degree line from the origin.

a horizontal line.

Imposition of an output tax on all firms in a competitive industry will result in higher profits for the industry as price rises. a downward shift in each firm's marginal cost curve. the entry of new firms into the industry. a downward shift in each firm's average cost curve. a leftward shift in the market supply curve.

a leftward shift in the market supply curve.

Scenario 4.3: The demand for erasers (Q) is given as follows: Q = 240 - 4Pe + 2I + Pb + A where Pe is the price of erasers, I is the level of income Pb is the price of another good A is the level of advertising Suppose that Q = 240, Pe = 10, Pb = 10, and A = 2. Given the information in Scenario 4.3, erasers are: a normal good. an inferior good. neither normal nor inferior. necessities. complements.

a normal good.

An increase in income, holding prices constant, can be represented as: a change in the slope of the budget line. a parallel inward shift in the budget line. a parallel outward shift in the budget line. an outward shift in the budget line with its slope becoming flatter.

a parallel outward shift in the budget line.

The demand curves for gold in New York and Zurich can both be represented by a line with negative slope, -b. When the price is zero the demand for gold is x ounces higher in New York than in Zurich. At the current price of gold the price elasticity of demand for gold in New York and Zurich is -3 and -4 respectively. The value of x equals a quarter of the current demand for gold in New York a third of the current demand for gold in New York three-quarters of the current demand for gold in New York a half of the current demand for gold in New York none of the above

a quarter of the current demand for gold in New York

Which of the following is true about the value of the price elasticity of demand? a. The value is always negative. b. The value is always positive. c. The value may be positive or negative dependingon the value of the slope of the demand curve. d. The value is positive when the slope is negative and negative when the slope is positive.

a. The value is always negative.

A cubic cost function implies: a U-shaped average cost curve. a U-shaped marginal cost curve . a U-shaped average variable cost curve. all of the above

all of the above

A valid and useful theory of gold prices: helps to predict the movements of gold prices over time. need not exactly predict every change in gold prices. may be founded on simplifying assumptions. all of the above none of the above

all of the above

Import tariffs generally result in less consumer surplus. more producer surplus for domestic producers. higher domestic prices. a deadweight loss. all of the above

all of the above

The authors note that the goal of maximizing the market value of the firm may be more appropriate than maximizing short-run profits because: managers will not focus on increasing short-run profits at the expense of long-run profits. this would more closely align the interests of owners and managers. the market value of the firm is based on long-run profits. all of the above

all of the above

Which of the following cases are examples of industries that have potentially increasing costs due to scarce inputs? Medical care Petroleum production Legal services all of the above

all of the above

Which of the following examples represents a fixed-proportion production system with capital and labor inputs? Horse-drawn carriages and carriage drivers Clerical staff and computers Airplanes and pilots all of the above

all of the above

Which of the following is a positive statement? When the price of a good goes up, firms produce more of it. When the Federal government sells bonds, interest rates rise and private business investment is reduced. When the price of a good goes up, consumers buy less of it. all of the above none of the above

all of the above When the price of a good goes up, firms produce more of it. When the Federal government sells bonds, interest rates rise and private business investment is reduced. When the price of a good goes up, consumers buy less of it.

In the Bertrand model with homogeneous products, the Nash equilibrium is the competitive outcome. both firms set price equal to marginal cost. the firm that sets the lower price will capture all of the market. all of the above the outcome is inconclusive.

all of the above the Nash equilibrium is the competitive outcome. both firms set price equal to marginal cost. the firm that sets the lower price will capture all of the market.

You produce stereo components for sale in two markets, foreign and domestic, and the two groups of consumers cannot trade with one another. If your firm practices third-degree price discrimination to maximize profits, the marginal revenue in the domestic market will equal the marginal revenue in the domestic market. in the foreign market will equal the marginal cost. in the domestic market will equal the marginal cost. all of the above none of the above

all of the above in the domestic market will equal the marginal revenue in the domestic market. in the foreign market will equal the marginal cost. in the domestic market will equal the marginal cost.

the marginal expenditure curve for labor is based on the assumption that

all workers are paid the same wage rate

An increase in technology that enhances labor productivity will likely result in: a decrease in labor employment and a decrease in the wage rate. employers using less labor and more capital while the wage effect is unknown. a decrease in labor employment and an increase in the wage rate. an increase in labor employment and an increase in the wage rate. an increase in labor employment and a decrease in the wage rate.

an increase in labor employment and an increase in the wage rate

In a constant-cost industry, an increase in demand will be followed by an increase in supply that will bring price down below the level it was before the demand shift. no increase in supply. an increase in supply that will bring price down to the level it was before the demand shift. an increase in supply that will not change price from the higher level that occurs after the demand shift. a decrease in demand to keep price constant.

an increase in supply that will bring price down to the level it was before the demand shift.

Coffee and cream: are both more inelastic in demand in the long run than in the short run. are complements. are both luxury goods. have a positive cross price elasticity of demand.

are complements.

Jane is trying to decide which courses to take next semester. She has narrowed down her choice to two courses, Econ 1 and Econ 2. Now she is having trouble and cannot decide which of the two courses to take. It's not that she is indifferent between the two courses, she just cannot decide. An economist would say that this is an example of preferences that: are incomplete. are not transitive. violate the assumption that more is preferred to less. all of the above

are incomplete.

In the dominant firm model, the fringe firms maximize profit by equating average revenue and average cost. are price takers. determine their price and output before the dominant firm determines its price and output. all of the above none of the above

are price takers.

For consideration of such issues as labor's productivity growth nationwide, the relevant measure is the average product of labor. wage. cost of capital. marginal product of labor. total product of labor.

average product of labor.

A learning curve may be stated as L = A + BN-b where L is the labor per unit and N is the cumulative number of units produced. Learning does not occur when b = 0 b> 0 b= 1 b< 0

b = 0

suppose the labor market is perfectly competitive, but the output market is not. when the labor market is in equilibrium, the wage rate will

be less than price times the marginal product of labor

Suppose the labor market is perfectly competitive, but the output market is not. When the labor market is in equilibrium, the wage rate will: be greater than price times the marginal product of labor. equal price times the marginal product of labor. be less than price times the marginal product of labor. None of the above is necessarily correct.

be less than price times the marginal product of labor.

Scenario 13.17 Consider the entry-deterrence game below. The potential entrant would have to spend some amount in sunk costs to enter the market. (pic on def side) If the game in Scenario 13.17 were to be infinitely repeated, waging a price war might be a rational strategy if the monopolist had excess capacity. because the short-term losses might be outweighed by long-term gains from preventing entry. if the potential entrant were irrational. because there would be no short-term losses. if there were no sunk costs to the potential entrant.

because the short-term losses might be outweighed by long-term gains from preventing entry.

Assume that food is measured on the horizontal axis and clothing on the vertical axis. If the price of food falls relative to that of clothing, the budget line will: become flatter. shift outward. become steeper. become steeper or flatter depending on the relationship between prices and income.

become flatter.

Suppose the demand for gourmet coffee can be represented by a linear demand curve. At the prevailing market price the income elasticity of demand for gourmet coffee is 2. When income rises the demand curve for gourmet coffee: becomes less elastic at every price. becomes more elastic at the price that prevailed before the change in income becomes more elastic at every price becomes less elastic at the price that prevailed before the change in income

becomes less elastic at every price.

After the September 11, 2001 attacks on the World Trade Center, the supply of downtown office space in Manhattan was dramatically reduced. Forecasters predicted that the equilibrium price would rise, but in fact the price fell. What are some factors that could explain the fall in the equilibrium price, which the forecasters failed to take into account? The economic slowdown caused demand for office space to fall. Demand for office space fell due to quality-of-life concerns. both A and B none of the above

both A and B The economic slowdown caused demand for office space to fall. Demand for office space fell due to quality-of-life concerns.

Why is market definition important for economic decision making? Government regulators are interested in knowing the effect of mergers and acquisitions on competition and prices in a particular market. A firm will define its market in order to maximize revenue. A firm is interested in knowing its actual and potential competitors. both A and C both A and B

both A and C Government regulators are interested in knowing the effect of mergers and acquisitions on competition and prices in a particular market. A firm is interested in knowing its actual and potential competitors.

Bundling products makes sense for the seller when firms cannot price discriminate. the products are complementary in nature. consumers have heterogeneous demands. both A and C.

both A and C. firms cannot price discriminate. consumers have heterogeneous demands.

A price taker is a firm that accepts different prices from different customers. a consumer who accepts different prices from different firms. a perfectly competitive firm. a firm that cannot influence the market price. both C and D

both C and D a perfectly competitive firm. a firm that cannot influence the market price.

A local restaurant sells strawberry pie for $3.00 per slice. However, if you order the prime rib dinner, you can get a slice of pie for only a dollar. This is an example of second-degree price discrimination. tying. a two-part tariff. bundling. none of the above

bundling.

A firm purchases a factor of production in a competitive market. At the current purchase rate the MRP of the factor is greater than the marginal expenditure for the factor. Thus, the firm can increase profit by expanding the employment of the factor of production. can increase profit by reducing the employment of the factor of production. is now maximizing profit. should not use this factor of production because it has no potential in generating a profit.

can increase profit by expanding the employment of the factor of production.

Third-degree price discrimination involves charging each consumer the same two part tariff. the use of increasing block rate pricing. charging lower prices the greater the quantity purchased. charging different prices to different groups based upon differences in elasticity of demand.

charging different prices to different groups based upon differences in elasticity of demand.

Under what circumstances are the marginal expenditure for an input and the average expenditure always equal? Where there is a competitive seller. competitive buyer. monopoly seller. monopoly buyer.

competitive buyer.

A vertical demand curve is highly (but not infinitely) elastic. completely inelastic. infinitely elastic. highly (but not completely) inelastic.

completely inelastic.

Which of the following statements is false? An economic analysis of carbon taxes can: conclude that such taxes should be imposed to benefit future generations. predict the effect on unemployment in West Virginia coal mining communities. present a trade-off of the costs and benefits of different levels of carbon taxes. calculate the increase in costs faced by coal-using industries. compare the likely reductions in medical expenditures on diseases caused by smog.

conclude that such taxes should be imposed to benefit future generations.

Assume that we have a demand curve of the form: log(Q) = a - b log(P) + c log(I) 4 out of 4 points where Q = quantity, P = price, I = income, and a, b, and c are positive constants. The income and price elasticities for the demand curve represented above are always equal to zero. equal (i.e., income elasticity always equals price elasticity). constant but not necessarily equal to one another. equal to one.

constant but not necessarily equal to one another.

for a two part tariff imposed on two consumers the entry fee is based on the

consumer surplus of the consumer with lower willingness to pay

A firm setting a two-part tariff with only one customer should set the entry fee equal to marginal revenue. marginal cost. price. consumer surplus.

consumer surplus.

A firm employs 100 workers at a wage rate of $10 per hour, and 50 units of capital at a rate of $21 per hour. The marginal product of labor is 3, and the marginal product of capital is 5. The firm could increase its output at no extra cost by employing more capital and less labor. could reduce the cost of producing its current output level by employing more capital and less labor. could reduce the cost of producing its current output level by employing more labor and less capital. is producing its current output level at the minimum cost. Both B and D are true.

could reduce the cost of producing its current output level by employing more labor and less capital.

Which of these measures the responsiveness of the quantity of one good demanded to an increase in the price of another good? price elasticity. cross substitution elasticity. cross-price elasticity. income elasticity.

cross-price elasticity.

For computers and other business equipment, small changes in business earnings tend to generate relatively large short-run changes in the demand for this equipment, and the long-run income response tends to be smaller. Industries that face demand behavior of this type are known as: cartels. natural monopolies. cyclical industries. constant-cost industries.

cyclical industries.

Assume that a firm's production process is subject to increasing returns to scale over a broad range of outputs. Long-run average costs over this output will tend to increase. remain constant. fall to a minimum and then rise. decline.

decline.

In a production process, all inputs are increased by 10%; but output increases less than 10%. This means that the firm experiences constant returns to scale. negative returns to scale. increasing returns to scale. decreasing returns to scale.

decreasing returns to scale.

If the isoquants in an isoquant map are downward sloping but bowed away from the origin (i.e., concave to the origin), then the production technology violates the assumption of: diminishing marginal returns. positive average product. free disposal. technical efficiency.

diminishing marginal returns

When a good has a unitary price elasticity, consumer expenditures for the good change in the opposite direction to a price change, but not necessarily by the same percentage as the price change. change in the opposite direction and by the same percentage as any price change. change in the same direction as a price change. do not change when the price of the good decreases.

do not change when the price of the good decreases.

An improvement in technology would result in increased quality of the good, but little change in MC. upward shifts of MC and reductions in output. downward shifts of MC and increases in output. upward shifts of MC and increases in output. downward shifts of MC and reductions in output.

downward shifts of MC and increases in output.

Although the U. S. airline industry has only a relatively small number of sellers, the market is nevertheless highly competitive. The reason is that: most airline routes are served by relatively many sellers. due to fierce competition, no firm has significant control over prices. due to fierce competition, no firm has significant control over the quantity supplied. the number of buyers is very large.

due to fierce competition, no firm has significant control over prices

Boeing Corporation and Airbus Industries are the only two producers of long-range commercial aircraft. This market is not perfectly competitive because: each company can significantly affect prices. Airbus cannot sell aircraft to the United States government. Airbus receives subsidies from the European Union. each company has annual sales over $10 billion. all of the above

each company can significantly affect prices.

A Nash equilibrium occurs when there is no dominant firm in a market. a player can choose a strategy that is optimal regardless of its rivals' actions. each firm chooses the strategy that maximizes its minimum gain. each firm is doing the best it can given its opponents' actions.

each firm is doing the best it can given its opponents' actions.

In the long run, a firm's producer surplus is equal to the revenue it earns in the long run. difference between total revenue and total fixed costs. positive economic profit it earns in the long run. difference between total revenue and total variable costs. economic rent it enjoys from its scarce inputs.

economic rent it enjoys from its scarce inputs.

For a perfect first-degree price discriminator, incremental revenue is greater than price if the demand curve is downward sloping. the same as the marginal revenue curve if the firm is a non-discriminating monopolist. equal to the price paid for each unit of output. less than the marginal revenue for a non-discriminating monopolist.

equal to the price paid for each unit of output.

Under perfect price discrimination, consumer surplus is greater than zero. is less than zero. equals zero. is maximized.

equals zero.

Monopolistically competitive firms have monopoly power because they face downward sloping demand curves. are great in number. are free to advertise. have freedom of entry.

face downward sloping demand curves.

The price of good A goes up. As a result, the demand for good B shifts to the left. From this we can infer that: good A is used to produce good B. goods A and B are complements. good B is used to produce good A. goods A and B are substitutes. none of the above

goods A and B are complements.

A third-degree price discriminating monopolist can sell its output either in the local market or on an internet auction site (or both). After selling all of its output, the firm discovers that the marginal revenue earned in the local market was $20 while its marginal revenue on the internet auction site was $30. To maximize profits the firm should have sold more output in the local market and less at the internet auction site. sell more in both markets until marginal cost is zero. sell less in both markets until marginal revenue is zero. have sold less output in the local market and more on the internet auction site. do nothing until it acquires more information on costs.

have sold less output in the local market and more on the internet auction site.

If the fringe supply curve shifts leftward in the dominant firm model, then the resulting market equilibrium price is ________ and the dominant firm's quantity ________. higher, decreases higher, increases lower, increases lower, decreases

higher, increases

To model the input decisions for a production system, we plot labor on the horizontal axis and capital on the vertical axis. In the short run, labor is a variable input and capital is fixed. The short-run expansion path for this production system is: a horizontal line. equal to the 45-degree line from the origin. not defined. a vertical line.

horizontal line...

If all producers in a market are cartel members, then the demand curve facing the cartel is horizontal. the market demand curve. identical to the demand curve in the dominant firm model. identical to the monopolist's demand curve.

identical to the monopolist's demand curve.

The key reason that the Laspeyres price index tends to overstate the impact of price changes on consumers is that it: measures prices two periods after the actual price changes occurred. only accounts for price increases and ignore price decreases. ignores the possibility that consumers alter their consumption as prices change. All of the above are correct. none of the above

ignores the possibility that consumers alter their consumption as prices change.

Under an upward sloping supply curve for land, the economic rents to land ________ as the demand for land shifts rightward. increase decrease remain the same We do not have enough information to answer this question.

increase

The substitution effect of a decrease in the wage will: increase leisure only if leisure is a normal good. decrease leisure only if leisure is a normal good. decrease leisure, regardless of whether leisure is a normal or inferior good. increase leisure, regardless of whether leisure is a normal or inferior good.

increase leisure, regardless of whether leisure is a normal or inferior good.

If leisure is a normal good, then the income effect of a decrease in wage will increase the number of hours worked. decrease the number of hours worked. decrease the number of leisure hours. increase the sum of leisure plus hours worked.

increase the number of hours worked.

Consider a particular market-clearing price and quantity under a perfectly competitive equilibrium. As the demand curve at this point becomes more inelastic, the consumer surplus in the market tends to: increase. remain the same. decrease. We do not have enough information to answer this question.

increase.

The introduction of refrigerators into American homes: decreased the magnitude of the short run own price elasticity of demand for smoked meats. decreased the magnitude of the short run own price elasticity of demand for raw meat. did not affect the short run own price elasticity of demand for raw meat. increased the magnitude of the short run own price elasticity of demand for raw meat.

increased the magnitude of the short run own price elasticity of demand for raw meat.

Bridge Coal Company is the only employer in a remote and mountainous region of the country, so the firm is the monopsony buyer of labor in the market. If the price of coal increases, then the firm's quantity of labor demanded ________ and the equilibrium wage ________. decreases, decreases increases, decreases decreases, increases increases, increases

increases, increases

Bill currently uses his entire budget to purchase 5 cans of Pepsi and 3 hamburgers per week. The price of Pepsi is $1 per can, the price of a hamburger is $2, Bill's marginal utility from Pepsi is 4, and his marginal utility from hamburgers is 6. Bill could increase his utility by: maintaining his current consumption choices. increasing Pepsi consumption and reducing hamburger consumption. increasing hamburger consumption and reducing Pepsi consumption. We do not have enough information to answer this question.

increasing Pepsi consumption and reducing hamburger consumption.

If a monopolist's profits were taxed away and redistributed to its consumers, efficiency would be obtained because output would be increased and profits removed. inefficiency would remain, but not because output would be lower than under competitive conditions. efficiency would be obtained because output would be increased to the competitive level. inefficiency would remain because output would be lower than under competitive conditions.

inefficiency would remain because output would be lower than under competitive conditions.

As the price of good X increases from $5 to $8, quantity demanded falls from 100 to 80. Based upon this information we can conclude that the demand for X is insufficient information for judgment. elastic inelastic unit inelastic.

inelastic

The burden of a tax per unit of output will fall heavily on consumers when demand is relatively ________ and supply is relatively ________. elastic; inelastic inelastic; elastic elastic; elastic inelastic; inelastic

inelastic; elastic

A demand curve of the form: where a and b are positive real numbers,: is a downward sloping straight line. is a parabolic curve. is an upward sloping straight line. has a constant price elasticity of demand.

is a downward sloping straight line.

the game in scenario 13.14

is cornet if both players move at the same time; stackleberg if one player moves first

Constantine purchased 100 shares of IBM stock several years ago for $150 per share. The price of these shares has fallen to $55 per share. Constantine's investment strategy is "buy low, sell high." Therefore, he will not sell his IBM stock until the price rises above $150 per share. If he sells at a price lower than $150 per share he will have "bought high and sold low." Constantine's decision: is incorrect because it treats the price of the shares as an explicit cost. is incorrect because the original price paid for the shares is a sunk cost and should have no bearing on whether the shares should be held or sold. is correct and shows a solid command of the nature of opportunity cost. is incorrect because when the price of a stock falls, the law of demand states that he should buy more shares.

is incorrect because the original price paid for the shares is a sunk cost and should have no bearing on whether the shares should be held or sold.

At the profit-maximizing level of output, marginal profit is increasing. is zero. is positive. may be positive, negative or zero. is also maximized.

is zero.

The function which shows combinations of inputs that yield the same output is called a(n) isoquant curve. isocost curve. production function. production possibilities frontier.

isoquant curve.

General Motors estimates that U.S. demand for its newest product will be: Qus=30,000 - 0.5P. xport demand will be Qex=25,000 -0.5P. The total market demand curve for this product will be a kinked line with the kink at Q = 25,000. straight line with a slope of -0.5. straight line with a slope of -1.0. kinked line with the kink at P = 50,000. none of the above

kinked line with the kink at P = 50,000.

Assume that beer is a normal good. If the price of beer rises, then the substitution effect results in the person buying ________ of the good and the income effect results in the person buying ________ of the good. less, less less, more more, less more, more

less, less

other things being equal, the marginal revenue product (MRP) curve for a competitive seller

lies above MRP curve for a monopolist

For a monopsony buyer of an input, the marginal expenditure curve is identical to the average expenditure curve. lies below the input demand curve. lies below the average expenditure curve. lies above the average expenditure curve.

lies above the average expenditure curve.

If the factor supply curve facing a monopolist is the market supply curve, and if the market supply curve is an upward sloping straight line, the marginal expenditure curve lies above the market supply curve. lies below the market supply curve. crosses the market supply curve at the market wage rate. is the market supply curve. either A or B is possible.

lies above the market supply curve.

Incremental cost is the same concept as ________ cost. variable average marginal fixed

marginal

what is the key characteristic of profit maximizing price discrimination that distinguishes inter temporal price recrimination from peak load pricing?

marginal costs for the firm are different across time periods under peak load pricing

The rate at which one input can be reduced per additional unit of the other input, while holding output constant, is measured by the marginal rate of substitution. slope of the isocost curve. marginal rate of technical substitution. average product of the input.

marginal rate of technical substitution.

A maximin strategy: maximizes the gain of one player, but minimizes the gain of the opponent. maximizes the minimum gain that can be earned. minimizes the maximum gain that can be earned. involves a random choice between two strategies, one which maximizes potential gain and one which minimizes potential loss

maximizes the minimum gain that can be earned.

Owners and managers may be different people with the same goals. may be different people with different goals, and in the long run firms that do best are those in which the managers are allowed to pursue their own independent goals. must be the same people. may be different people with different but exactly complementary goals. may be different people with different goals, but in the long run firms that do best are those in which the managers pursue the goals of the owners.

may be different people with different goals, but in the long run firms that do best are those in which the managers pursue the goals of the owners.

Scenario 8.1: Two soft-drink firms, Fizzle & Sizzle, operate on a river. Fizzle is farther upstream, and gets cleaner water, so its cost of purifying water for use in the soft drinks is lower than Sizzle's by $500,000 yearly. According to Scenario 8.1, Fizzle and Sizzle cannot be perfect competitors because they are not identical firms. would be perfectly competitive if it costs Fizzle $500,000 yearly to keep that land. would be perfectly competitive if their purification costs were equal; otherwise, not. may or may not be perfect competitors, but their position on the river has nothing to do with it.

may or may not be perfect competitors, but their position on the river has nothing to do with it.

Due to the bandwagon effect, demand for some products is ________ elastic than it would be without the positive network externality. more less equally more strongly unitary

more

Assume that beer is an inferior good. If the price of beer falls, then the substitution effect results in the person buying ________ of the good and the income effect results in the person buying ________ of the good. less, more more, less less, less more, more

more, less

Suppose the nominal price of gasoline was $0.90 per gallon in 1987. To convert this value to the real price of 1987 gasoline in 2012 dollars, we should: multiply by the 2012 CPI and divide by the 1987 CPI. not do anything because this is the real price in 2012 dollars. multiply by the 1987 CPI and divide by the 2012 CPI. none of the above

multiply by the 2012 CPI and divide by the 1987 CPI.

Suppose the price of rice increases and you view rice as an inferior good. The substitution effect results in a ________ change in rice consumption, and the income effect leads to a ________ change in rice consumption. negative, negative negative, positive positive, positive positive, negative

negative, positive

Deadweight loss refers to net losses in total surplus. situations where market prices fail to capture all of the costs and benefits of a policy. losses in consumer surplus associated with excess government regulations. losses due to the policies of labor unions.

net losses in total surplus.

The Prisoners' Dilemma is a particular type of game in which negotiation and enforcement of binding contracts is not possible, and such games are known as: collusive games. Cournot games. noncooperative games. cooperative games.

noncooperative games.

In the ________, one firm sets its output first, and then a second firm, after observing the first firm's output, makes its output decision. kinked-demand model Bertrand model Cournot model model of monopolistic competition none of the above

none of the above

In the ________, one firm sets its output first, and then a second firm, after observing the first firm's output, makes its output decision. model of monopolistic competition Cournot model kinked-demand model Bertrand model none of the above

none of the above

The change in the price of one good has no effect on the quantity demanded of another good. These goods are: substitutes. both Giffen goods. complements. both inferior. none of the above

none of the above

The kinked demand curve model is based on the assumption that each firm considers its rival's output to be fixed. believes rivals will never match price changes. believes rivals will match all price changes. considers its rival's price to be fixed. none of the above

none of the above

The monopoly supply curve is the result of market power and production costs. portion of marginal costs curve where marginal costs exceed the minimum value of average variable costs. same as the competitive market supply curve. none of the above

none of the above

Suppose a firm produces identical goods for two separate markets and practices third-degree price discrimination. In the first market the firm charges $30 per unit, and it charges $22 per unit in the second market. Which of the following represents the ratio of price elasticities of demand in the two markets? E2 = E1 E2 = (22/30)E1 E2 = (29/21)E1 E2 = (21/29)E1 none of these

none of these

Playing the game in Scenario 13.12 by using a maximin strategy would (pic on def slide) change the equilibrium to (R1,C2). change the equilibrium to (R2,C2). change the equilibrium to (R2,C1) if C moved first. change the equilibrium to (R2,C1) if R moved first. not change the equilibrium from the equilibrium of the original game.

not change the equilibrium from the equilibrium of the original game.

In a two-person bargaining situation it is: often in the best interest of players to cut off some of their own options in order to make their own threats credible. always in the best interests of both players for each player to be as flexible as possible, and to have as many options as possible. often in the best interest of players to pretend a game is noncooperative when it is not, and vice versa. always in the best interest of the player that moves first to be as flexible as possible, and to have as many options as possible. often in the best interest of players to cut off some of their own options in order to make the other player's threats not credible.

often in the best interest of players to cut off some of their own options in order to make their own threats credible.

A firm never operates on the downward-sloping portion of its ATC curve. on the downward-sloping portion of its AVC curve. at the minimum of its AVC curve. at the minimum of its ATC curve. on its long-run marginal cost curve.

on the downward-sloping portion of its AVC curve.

If the Battle of the Sexes game were played sequentially, the two pure strategy equilibria would alternate in being the equilibrium seen in each round of the game. only the mixed strategy equilibrium would exist. only the dominant strategy equilibrium would exist. one of the two pure strategy equilibria would become the only equilibrium. the equilibrium would not change.

one of the two pure strategy equilibria would become the only equilibrium.

A firm has two customers and creates a two-part tariff with a usage fee (P) that exceeds the marginal cost of production and leaves each customer with positive consumer surplus such that CS2 > CS1 > 0. If the firm sets the entry fee equal to CS2, then the number of customers that actually buy the product is equal to: one. two. zero. We don't have enough information to answer this question.

one.

Large manufacturing firms that buy many different parts or components (e.g., auto manufacturers) can choose which parts to buy from other firms and which parts to make in their own factories. These manufacturers may be able to use monopsony power to reduce the price paid to outside suppliers for parts that are: bought and sold in perfectly competitive markets. standard components for many manufacturers so that there are many buyers and sellers. only used in their cars so that there is one buyer and a few sellers. none of the above

only used in their cars so that there is one buyer and a few sellers.

In the kinked demand curve model, if one firm reduces its price other firms will compete on a non-price basis. other firms will raise their price. other firms will also reduce their price. Both A and B are correct. Both B and C are correct.

other firms will also reduce their price.

When a drug company develops a new drug it is granted a ________ making it illegal for other firms to enter the market until the ________ expires. patent; patent franchise; franchise copyright; copyright government license; government license

patent; patent

A local theater charges $5.00 for every matinee (daytime) ticket, but the ticket prices are much higher during the evening. This is an example of a two-part tariff. bundling. peak-load pricing. second-degree price discrimination. none of the above

peak-load pricing.

To evaluate the potential impact of changes to its SUV business, Ford Motor Company would use: negative economic analysis. positive economic analysis. arbitrage analysis. normative economic analysis.

positive economic analysis.

If a monopolist sets her output such that marginal revenue, marginal cost and average total cost are equal, economic profit must be: negative. zero. positive. indeterminate from the given information.

positive.

Revenue is equal to price times quantity minus marginal cost. price times quantity minus total cost. price times quantity minus average cost. price times quantity. expenditure on production of output.

price times quantity.

An individual demand curve can be derived from the __________ curve. Engel price-consumption income-consumption price-income income-substitution

price-consumption

Scenario 10.4: he demand for tickets to the Katy Perry concert (Q) is given as follows: Q = 120,000 - 2,000P The marginal revenue is given as: MR = 60 - .001Q The stadium at which the concert is planned holds 60,000 people. The marginal cost of each additional concert goer is essentially zero up to 60,000 fans, but becomes infinite beyond that point. A multiplant monopolist can produce her output in either of two plants. Having sold all of her output she discovers that the marginal cost in plant 1 is $30 while the marginal cost in plant 2 is $20. To maximize profits the firm will shut down plant 1 and only produce at plant 2 in the future. produce less in both plants until marginal revenue is zero. produce more output in plant 1 and less in the plant 2. do nothing until it acquires more information on revenues. produce less output in plant 1 and more in plant 2.

produce less output in plant 1 and more in plant 2.

An effective price ceiling causes a loss of consumer surplus for certain and possibly producer surplus as well. producer surplus only. consumer surplus only. producer surplus for certain and possibly consumer surplus as well. neither producer nor consumer surplus.

producer surplus for certain and possibly consumer surplus as well.

Suppose the production of long-distance airline flights is described by a fixed proportion production process in which three crew members (i.e., labor) are required for each aircraft (i.e., capital). If the airline operates with four crew members per plane, then we know that: production at this point is technically inefficient. the isoquants for this production process are upward sloping. the airline will have negative profits. the production process violates diminishing margin returns.

production at this point is technically inefficient.

If a market basket is changed by adding more of at least one good, then rational consumers will: rank the market basket more highly after the change. be unable to decide whether the first market basket is preferred to the second or vice versa. more likely prefer a different market basket. rank the market basket as being just as desirable as before.

rank the market basket more highly after the change.

If capital is measured on the vertical axis and labor is measured on the horizontal axis, the slope of an isoquant can be interpreted as the marginal product of labor. rate at which the firm can replace capital with labor without changing the output rate. average rate at which the firm can replace capital with labor without changing the output rate. marginal product of capital

rate at which the firm can replace capital with labor without changing the output rate.

A ________ shows how much a firm will produce as a function of how much it thinks its competitors will produce. demand curve Nash equilibrium curve contract curve reaction curve none of the above

reaction curve

Discrimination based upon the quantity consumed is referred to as ________ price discrimination. second-degree group third-degree first-degree

second-degree

Many cellular phone rate plans are structured as a combination of ________ price discrimination. first-degree and third-degree first-degree and second-degree second-degree and third-degree peak-load pricing and third-degree

second-degree and third-degree

To protect the cod fishery off the northeast coast of the US may limit the amount of fish that each boat can catch in the fishery. The result of this public policy is to:

shift the supply curve to the left

When the government controls the price of a product, causing the market price to be below the free market equilibrium price, all producers gain from the price controls. some consumers gain from the price controls and other consumers lose. all consumers are better-off. both producers and consumers gain.

some consumers gain from the price controls and other consumers lose.

When the government controls the price of a product, causing the market price to be above the free market equilibrium price, both producers and consumers gain. only consumers gain. all producers gain. some, but not all, sellers can find buyers for their goods.

some, but not all, sellers can find buyers for their goods.

A strategy A is "dominant" for a player X if: strategy A is the best response to the best strategy of the other player. irrespective of any of the possible strategies chosen by the other players, strategy A generates a higher payoff than any other strategy available to player X. every outcome under strategy A generates positive payoffs. strategy A is the best response to every strategy of the other player. strategy A contains among its outcomes the highest possible payoff in the game.

strategy A is the best response to every strategy of the other player.

Due to the recent increase in the price of natural gas, the quantity of coal demanded by electric power generation plants has increased. Based on this information, coal and natural gas are: complements. independent goods. substitutes. none of the above

substitutes.

Suppose biochemists discover an enzyme that can double the amount of ethanol that may be derived from a given amount of biomass. Based on this technological development, we expect the: demand curve for ethanol to shift rightward. demand curve for ethanol to shift leftward. supply curve for ethanol to shift rightward. supply curve for ethanol to shift leftward.

supply curve for ethanol to shift rightward.

We manufacturer automobiles given the production function q = 5KL where q is the number of autos assembled per eight-hour shift, K is the number of robots used on the assembly line (capital) and L is the number of workers hired per hour (labor). If we use K=10 robots and L=10 workers in order to produce q = 450 autos per shift, then we know that production is: optimal. maximized. technologically efficient. technologically inefficient.

technologically inefficient.

The link between the productivity of labor and the standard of living is that over the long run, consumers' rate of consumption is not related to labor productivity. tenuous and changing. that the productivity of labor grows much more erratically than the standard of living. that over the long run, consumers as a whole can increase their rate of consumption only by increasing labor productivity. inverse.

that over the long run, consumers as a whole can increase their rate of consumption only by increasing labor productivity.

Consumer surplus measures the benefit that consumers receive from a good or service beyond what they pay. the excess demand that consumers have when a price ceiling holds prices below their equilibrium. the extra amount that a consumer must pay to obtain a marginal unit of a good or service. gain or loss to consumers from price fixing

the benefit that consumers receive from a good or service beyond what they pay.

Plastic and steel are substitutes in the production of body panels for certain automobiles. If the price of plastic increases, with other things remaining the same, we would expect: the demand curve for plastic to shift to the left. the demand curve for steel to shift to the right. the demand curve for steel to shift to the left. the price of steel to fall. nothing to happen to steel because it is only a substitute for plastic.

the demand curve for steel to shift to the right.

A "mixed strategy" equilibrium means that one player has a dominant strategy, and one does not. the equilibrium strategy involves alternating between a dominant strategy and a Nash strategy. one player has a pure strategy, and one does not. the strategies chosen by the players represent different behaviors. the equilibrium strategy is an assignment of probabilities to pure strategies.

the equilibrium strategy is an assignment of probabilities to pure strategies.

The amount of output that a firm decides to sell has no effect on the market price in a competitive industry because the market price is determined (through regulation) by the government the demand curve for the industry's output is downward sloping the short run market price is determined solely by the firm's technology the firm's output is a small fraction of the entire industry's output the firm supplies a different good than its rivals

the firm's output is a small fraction of the entire industry's output

If an individual's labor supply curve is backward bending, then" the substitution effect associated with a higher wage encourages more leisure. the income effect associated with a higher wage is greater than the substitution effect. the substitution effect associated with a higher wage is greater than the income effect. A and C B and C

the income effect associated with a higher wage is greater than the substitution effect.

The more elastic the demand facing a firm, the less monopoly power it has. the higher its profit. the higher the value of the Lerner index. the lower the value of the Lerner index.

the lower the value of the Lerner index.

If the isoquants are straight lines, then the marginal rate of technical substitution of inputs is constant. only one combination of inputs is possible. there are constant returns to scale. inputs have fixed costs at all use rates.

the marginal rate of technical substitution of inputs is constant.

If the market price for a competitive firm's output doubles then at the new profit maximizing output, price has increased more than marginal cost competitive firms will earn an economic profit in the long-run. at the new profit maximizing output, price has risen more than marginal revenue the marginal revenue doubles the profit maximizing output will double

the marginal revenue doubles

when a persons consumes two good (a and b) that persons utility is maximized when the budget is such that

the marginal utility of a times the price of a equals the marginal utility of b times the pice of b

Scenario 13.13 Consider the game below: (pic on def side) If the game in Scenario 13.13 were not played sequentially, the only equilibria would be (R2,C1) and (R1,C2). there would not be any equilibrium. the only equilibria would be (R2,C1), (R1,C2) and a mixed strategy equilibrium. the only equilibrium would be (R2,C1). the only equilibrium would be (R1,C2).

the only equilibria would be (R2,C1), (R1,C2) and a mixed strategy equilibrium.

The difference between the economic and accounting costs of a firm are the corporate taxes on profits . the sunk costs incurred by the firm. the opportunity costs of the factors of production that the firm owns. the explicit costs of the firm. the accountant's fees.

the opportunity costs of the factors of production that the firm owns. the explicit costs of the firm.

in the cornet doubly model, each firm assumes

the output level of its rival is fixed

Elasticity measures sensitivity of price to a change in quantity. the percentage change in one variable in response to a one percent increase in another variable. the slope of a demand curve. the inverse of the slope of a demand curve.

the percentage change in one variable in response to a one percent increase in another variable.

The substitution effect of a price change for product X is the change in consumption of X associated with a change in the price of X, with the prices of other goods changing by the same percentage as that for product X. the price of X, with the level of real income not considered. the price of X, with the level of utility held constant. income, with prices of other goods held constant.

the price of X, with the level of utility held constant.

A supply curve reveals: the quantity of output consumers are willing to purchase at each possible market price. the quantity of output that producers are willing to produce and sell at each possible market price. the maximum level of output an industry can produce, regardless of price. the difference between quantity demanded and quantity supplied at each price.

the quantity of output that producers are willing to produce and sell at each possible market price.

The demand curve facing a perfectly competitive firm is the same as its average revenue curve and its marginal revenue curve. not defined in terms of average or marginal revenue. the same as its marginal revenue curve, but not its average revenue curve. the same as its average revenue curve, but not the same as its marginal revenue curve. not the same as either its marginal revenue curve or its average revenue curve.

the same as its average revenue curve and its marginal revenue curve.

Scenario 13.1: You are negotiating with your florist over the price of flowers for your wedding. You value the floral arrangements at $500. The florist's cost for the arrangement is $200. You finally settled on a price of $250. Refer to Scenario 13.1. If your negotiated price had been $350 instead of $250, the sum of consumer surplus and producer surplus would be: more than what would have accrued at the $250 price. the same as what would have accrued at the $250 price. less than what would have accrued at the $250 price. None of the above is necessarily correct.

the same as what would have accrued at the $250 price.

suppose the prices of good a an db were to suddenly double. if good a is plotted along the horizontal axis

the slope of the budget line will not change

The demand for sirloin steak is probably more elastic than the demand for all meat because cattle raising is not very profitable. steak is very expensive. people are worried about cholesterol. there are more substitutes for sirloin steak than for all meats.

there are more substitutes for sirloin steak than for all meats.

Suppose you are in charge of product pricing and marketing strategy for a pharmaceutical company. You will have greater ability to independently set prices for your product if: there are no close substitutes for your product. there are lots of other firms selling closely related products in your market. your market is perfectly competitive. none of the above

there are no close substitutes for your product.

The law of diminishing returns assumes that all inputs are held constant. all inputs are changed by the same percentage. additional inputs are added in smaller and smaller increments. there is at least one fixed input.

there is at least one fixed input.

If any of the assumptions of perfect competition are violated, graphs with downward-sloping demand curves cannot be used to study the firm. there may still be enough competition in the industry to make the model of perfect competition usable. one must use the monopoly model instead. graphs with flat demand curves cannot be used to study the firm. supply-and-demand analysis cannot be used to study the industry.

there may still be enough competition in the industry to make the model of perfect competition usable.

Some grocery stores are now offering customers coupons which entitle them to a discount on certain items on their next visit when they go through the check-out line. This practice is an example of: bundling. a two-part tariff. intertemporal price discrimination. third-degree price discrimination. none of the above

third-degree price discrimination.

Jane is attempting to maximize utility by selecting a market basket of goods. For each of the goods in the market basket the marginal utility per dollar spent is equal. There are some goods which are affordable but do not appear in the Jane's market basket. If Jane has maximized utility, the marginal utility per dollar spent on each of the goods that does not appear in the market basket is: too low. zero. infinite. too high. none of the above

too low.

Marginal product crosses the horizontal axis (is equal to zero) at the point where total product is maximized. diminishing returns set in. output per worker reaches a maximum. average product is maximized. All of the above are true.

total product is maximized.

A national chain of bookstores has initiated a frequent buyer program. If you buy a frequent buyer card for $10, you are entitled to a 10 percent discount on all purchases for 1 year. This practice is an example of: peak-load pricing. bundling. intertemporal price discrimination. two-part tariff. Both A and B are correct.

two-part tariff.

A pricing strategy that requires consumers pay an up-front fee plus an additional fee for each unit of product purchased is a form of perfect price discrimination two-part tariff. tying contract. none of these.

two-part tariff.

A variable cost function of the form: VC=52 +2Q +3Q^2 implies a marginal cost curve that is upward sloping. U-shaped. constant. quadratic.

upward sloping.

Scenario 14.4: John's firm is a competitor in your product market and a monopsonist in the labor market. The current market price of the product that your firm produces is $2. The total product and marginal product of labor are given as: TP = 100L - 0.125L2 MP = 100 - 0.25L where L is the amount of labor employed. The supply curve for labor and the marginal expenditure curve for labor are given as follows: L = PL -5 MEL = 2L + 5 Refer to Scenario 14.4. Suppose that the price of the product rises to $5, the price of labor will decrease. will not change. will increase. will change in an indeterminate fashion.

will increase.

A monopolistically competitive firm in long-run equilibrium: will make positive profit. will make zero profit. will make negative profit. Any of the above are possible.

will make zero profit.

If only one firm in an industry could take advantage of a reduced wage and all other firms continue paying the old wage, how would one best describe the one firm's reaction to this reduced wage assuming labor is the only variable input? The marginal revenue product of labor curve would remain unchanged, and the firm would hire more labor at the lower wage. shifts to the left, and the firm hires less labor at the lower wage on the new curve. shifts to the left, and the firm hires more labor at the lower wage on the new curve. shifts to the right, and the firm hires less labor at the lower wage on the new curve. shifts to the right, and the firm hires more labor at the lower wage on the new curve.

would remain unchanged, and the firm would hire more labor at the lower wage.