econ test 3

How long does it take a firm to go from the short run to the long run? a. six months b. one year c. two years d. It depends on the nature of the firm

d

If the government decides to build a new highway, the first step would be to conduct a study to determine the value of the project. The study is called a a. fiscal analysis. b. monetary analysis. c. welfare analysis. d. cost-benefit analysis.

d

Refer to Table 13-12. What is the average fixed cost of producing 3 cakes at Betty's Bakery? a. $1.67 b. $2.67 c. $5.33 d. $8.33

d

Refer to Table 13-12. What is the average variable cost of producing 6 cakes at Betty's Bakery? a. $16 b. $17 c. $18 d. $19

c

Because of the free-rider problem, a. private markets tend to undersupply public goods. b. the federal government spends too many resources on national defense and not enough resources on medical research. c. fireworks displays have become increasingly dangerous. d. poverty has increased.

a

Economists normally assume that the goal of a firm is to earn (i) profits as large as possible, even if it means reducing output. (ii) profits as large as possible, even if it means incurring a higher total cost. (iii) revenues as large as possible, even if it reduces profits. a. (i) and (ii) only b. (i) and (iii) only c. (ii) and (iii) only d. (i), (ii), and (iii)

a

Excessive fishing occurs because a. each individual fisherman has little incentive to maintain the species for the next year. b. fishermen rely on government managers to worry about fish populations. c. fishermen are unionized, so they are not concerned with externalities. d. fishermen have other marketable skills and do not fear exploitation of fish reserves.

a

Explicit costs a. require an outlay of money by the firm. b. include all of the firm's opportunity costs. c. include the value of the business owner's time. d. Both b and c are correct.

a

If one person's use of a good diminishes another person's enjoyment of it, the good is a. rival in consumption. b. excludable. c. normal. d. exhaustible.

a

Negative externalities lead markets to produce a. greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels. b. smaller than efficient output levels and positive externalities lead markets to produce greater than efficient output levels. c. greater than efficient output levels and positive externalities lead markets to produce efficient output levels. d. efficient output levels and positive externalities lead markets to produce greater than efficient output levels.

a

Refer to Figure 13-2. The graph illustrates a typical production function. Based on its shape, what does the corresponding total cost curve look like? a. an upward-sloping curve that increases at an increasing rate b. an upward-sloping curve that increases at a decreasing rate c. a downward-sloping curve d. a horizontal straight line

a

Suppose the cost to erect a tornado siren in a small town is $20,000. In addition, suppose the value of a human life is $10 million. By what percentage would the siren need to reduce the risk of a fatality for the benefits of the siren to exceed the costs of the siren? a. By at least 0.2 percentage points. b. By at least 0.5 percentage points. c. By at least 2 percentage points. d. By at least 5 percentage points.

a

The cost of producing the typical unit of output is the firm's a. average total cost. b. opportunity cost. c. variable cost. d. marginal cost.

a

Refer to Table 13-12. What is the marginal cost of the 4th cake at Betty's Bakery? a. $13 b. $15 c. $19 d. $64

c

Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. After the two firms buy or sell pollution permits from each other, we would expect that Firm A will emit a. 20 fewer tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air. b. 100 fewer tons of pollution into the air, and Firm B will emit 20 fewer tons of pollution into the air. c. 50 fewer tons of pollution into the air, and Firm B will emit 50 fewer tons of pollution into the air. d. 20 more tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air.

a

A free rider is a person who a. will only purchase a product on sale. b. receives the benefit of a good but avoids paying for it. c. can produce a good at no cost. d. rides public transit regularly.

b

An optimal tax on pollution would result in which of the following? a. Producers will choose not to produce any pollution. b. Producers will internalize the cost of the pollution. c. Producers will maximize production. d. The value to consumers at market equilibrium will exceed the social cost of production.

b

Average total cost is very high when a small amount of output is produced because a. average variable cost is high. b. average fixed cost is high. c. marginal cost is high. d. marginal product is high.

b

Foregone investment opportunities are an example of a. an explicit cost. b. an implicit cost. c. revenues. d. profits.

b

Goods that are rival in consumption but not excludable would be considered a. club goods. b. common resources. c. public goods. d. private goods.

b

If people can be prevented from using a certain good, then that good is called a. rival in consumption. b. excludable. c. a common resource. d. a public good.

b

In the long run Firm A incurs total costs of $1,200 when output is 30 units and $1,650 when output is 40 units. Firm A exhibits a. diseconomies of scale because total cost is rising as output rises. b. diseconomies of scale because average total cost is rising as output rises. c. economies of scale because total cost is rising as output rises. d. economies of scale because average total cost is falling as output rises.

b

In the short run, a firm operating in a competitive industry will shut down if price is a. less than average total cost. b. less than average variable cost. c. greater than average variable cost but less than average total cost. d. greater than marginal cost.

b

Refer to Figure 14-3. If the market price is $10, what is the firm's short-run economic profit? a. $9 b. $15 c. $30 d. $50

b

Refer to Scenario 13-7. What are Wanda's total accounting profits? a. $150 b. $126 c. $96 d. $24

b

Refer to Table 14-12. At what quantity does Bill maximize profits? a. 3 b. 6 c. 7 d. 8

b

Refer to Figure 14-5. Firms will be encouraged to enter this market for all prices that exceed a. P1. b. P2. c. P3. d. None of the above is correct.

c

Refer to Scenario 13-7. What are Wanda's total economic profits? a. $150 b. $126 c. $96 d. $54

c

Refer to Table 13-12. What is the average total cost of producing 6 cakes at Betty's Bakery? a. $16.34 b. $22.00 c. $22.17 d. $22.57

c

Susan quit her job as a teacher, which paid her $36,000 per year, in order to start her own catering business. She spent $12,000 of her savings, which had been earning 10 percent interest per year, on equipment for her business. She also borrowed $12,000 from her bank at 10 percent interest, which she also spent on equipment. For the past several months she has spent $1,000 per month on ingredients and other variable costs. Also for the past several months she has taken in $3,500 in monthly revenue. a. In the short run, Susan should shut down her business, and in the long run she should exit the industry. b. In the short run, Susan should continue to operate her business, but in the long run she should exit the industry. c. In the short run, Susan should continue to operate her business, but in the long run she will probably face competition from newly entering firms. d. In the short run, Susan should continue to operate her business, and she is also in long-run equilibrium.

b

When a profit-maximizing firm in a competitive market has zero economic profit, accounting profit a. is negative. b. is at least zero. c. is also zero. d. could be positive, negative or zero.

b

When new firms have an incentive to enter a competitive market, their entry will a. increase the price of the product. b. drive down profits of existing firms in the market. c. shift the market supply curve to the left. d. increase demand for the product.

b

An externality is an example of a. a corrective tax. b. a tradable pollution permit. c. a market failure. d. Both a and b are correct.

c

Goods that are not excludable include both a. private goods and public goods. b. club goods and common resources. c. common resources and public goods. d. private goods and club goods.

c

If the government were to impose a fine of $1,000 for each unit of air-pollution released by a steel mill, the policy would be considered a. a subsidy. b. a regulation. c. a corrective tax. d. an application of the Coase theorem.

c

In many cases the Coase theorem does not work well because a. there are too few parties at the negotiation table. b. the government does not know about the Coase theorem. c. transaction costs are too high. d. transaction costs are too low.

c

Marginal cost equals a. total cost divided by quantity of output produced. b. total output divided by the change in total cost. c. the slope of the total cost curve. d. the slope of the line drawn from the origin to the total cost curve.

c

Refer to Figure 10-10. The graph represents a market in which a. there is no externality. b. there is a positive externality. c. there is a negative externality. d. The answer cannot be determined from inspection of the graph.

c

Refer to Figure 10-13. In order to reach the social optimum, the government could a. impose a tax of $2 per unit on plastics. b. impose a tax of $6 per unit on plastics. c. impose a tax of $8 per unit on plastics. d. offer a subsidy of $6 per unit on plastics.

c

The Great Lakes are a. private goods. b. club goods. c. common resources. d. public goods.

c

The Tragedy of the Commons a. occurs most often with public goods. b. is only applicable to shared grazing rights among sheep herders. c. is eliminated when property rights are assigned to individuals. d. occurs when social incentives are in line with private incentives.

c

The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $145,000. Because of this information, in the short run, the Brookside Racquet Club should a. shut down. b. exit the industry. c. stay open because shutting down would be more expensive. d. stay open because the firm is making an economic profit.

c

When a firm is operating at an efficient scale, a. average variable cost is minimized. b. average fixed cost is minimized. c. average total cost is minimized. d. marginal cost is minimized.

c

When adding another unit of labor leads to an increase in output that is smaller than the increases in output that resulted from adding previous units of labor, the firm is experiencing a. diminishing labor. b. diminishing output. c. diminishing marginal product. d. negative marginal product.

c

Which of the following represents the firm's long-run condition for exiting a market? a. exit if P < MC b. exit if P < FC c. exit if P < ATC d. exit if MR < MC

c

Who is a price taker in a competitive market? a. buyers only b. sellers only c. both buyers and sellers d. neither buyers nor sellers

c

Suppose that Company A's railroad cars pass through Farmer B's corn fields. The railroad causes an externality to the farmer because the railroad cars emit sparks that cause $1,500 in damage to the farmer's crops. There is a special soy-based grease that the railroad could purchase that would eliminate the damaging sparks. The grease costs $1,200. Suppose that the railroad is not liable for any damage caused to the crops. Assume that there are no transaction costs. Which of the following characterizes the efficient outcome? a. The railroad will continue to operate but will pay the farmer $1,500 in damages. b. The railroad will purchase the grease for $1,200 and pay the farmer nothing because no crop damage will occur. c. The farmer will incur $1,500 in damages to his crops. d. The farmer will pay the railroad $1,200 to purchase the grease so that no crop damage will occur.

d

The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own, is called a. the Pigovian theorem. b. a corrective tax. c. the externality theorem. d. the Coase theorem.

d

Which of the following statements best expresses a firm's profit-maximizing decision rule? a. If marginal revenue is greater than marginal cost, the firm should increase its output. b. If marginal revenue is less than marginal cost, the firm should decrease its output. c. If marginal revenue equals marginal cost, the firm should continue producing its current level of output. d. All of the above are correct.

d

Which of the following statements is correct? a. If marginal cost is rising, then average total cost is rising. b. If marginal cost is rising, then average variable cost is rising. c. If average variable cost is rising, then marginal cost is minimized. d. If average total cost is rising, then marginal cost is greater than average total cost.

d