Final Exam Review for Microecon

Pollution resulting from the production of a good creates a market failure called a negative externality. a. True b. False

a. True

Positive externalities are market failures arising from some beneficial consequences of the production or consumption ofa product that spill over to third parties. Ultimately, too little of the production that create positive externalities takes place. a. True b. False

a. True

The "short run" may vary in length from industry to industry. a. True b. False

a. True

The combination of two goods at which total utility is maximized must lie somewhere on the consumer's budget line. a. True b. False

a. True

The law of diminishing marginal productivity suggests that as more of a variable input is combined with a fixed input, total output will increase; however, the increases in the firm's output will become ever smaller. a. True b. False

a. True

If the substitution effect of a lowered price is partly or fully offset by the income effect, we know that the good in question is a(n) a. complementary good b. inferior good c. luxury good d. normal good e. substitute good

b. inferior good

When a firm faces a downward-sloping demand curve, marginal revenue a. is constant regardless of how much output the firms produces b. is below the demand curve c. increases as the firm produces more output d. decreases if the firm produces less output e. is equal to the price per unit of output

b. is below the demand curve

The large amount of money that manufacturers spend each year on lobbying efforts to restrict competition is an example of a. economies of scale b. rent seeking c. advertising d. government regulations e. public relations

b. rent seeking

An economic model is a(n) a. philosophical inquiry b. set of numbers that describe a firm (e.g., profits and assets) c. abstract representation of reality d. concrete representation of reality e. ideal to which economic entities are compared

c. abstract representation of reality

Which of the following is assumed constant along the demand curve for gasoline? a. the price of gasoline and the prices of related goods b. the price of gasoline, buyers' incomes, and tastes c. all variables affecting demand other than the price of gasoline d. all variables affecting demand other than the supply of gasoline e. buyers' incomes and tastes, but not the prices of related goods

c. all variables affecting demand other than the price of gasoline

T2. 23 For the perfectly competitive firm shown in Figure I-6, a. profit rises when the firm raises its price and lowers its output b. the profit-maximizing output level is 180 units c. an economic loss occurs at the profit-maximizing output level d. the profit-maximizing output level is 100 units e. the firm will earn short-run profits

c. an economic loss occurs at the profit-maximizing output level

5.9 Figure G-1 shows the production function of a mining company. How many workers could the mine hire before the marginal product of labor begins to decline? a. 1 worker b. 2 workers c. 3 workers d. 4 workers e. 5 workers

d. 4 workers

7:12. In short-run equilibrium, the perfectly competitive firm of Figure I-3 will produce a. zero units of output b. 200 units of output c. 275 units of output d. 475 units of output e. 575 units of output

d. 475 units of output

6.14 Figure H-4 indicates data for the total cost curve and the demand curve facing Jonathan's Riding Mower Shop. The quantities indicated are potential daily sales. Jonathan's profit-maximizing sales level is a. 8 or 9 units b. 5 units c. 10 units d. 6 units e. 7 units

d. 6 units

Consider the monopolist in Figure J-20. With which of the three AVC curves would the monopolist choose to shut down in the short run, assuming there is no government intervention? a. AVC(2) only b. AVC(1) and AVC(2) c. AVC(2) and AVC(3) d. AVC(1) only e. AVC(3) only

d. AVC(1) only

Myron worked at a factory where he earned $20,000 per year. One day, he quit his job and opened a bumper sticker business. After one year, his business earned $60,000 in sales revenue and he incurred $30,000 in direct business expenses. If he received no salary from the new business, what is his economic profit? a. $10,000 b. $30,000 c. $60,000 d. $20,000 e. $50,000

a. $10,000

T3. 5 The single-price monopoly in Figure J-14 will have an economic profit of a. $612.50 b. $506.25 c. $250.00 d. $875.00 e. none of these

a. $612.50

If a 20 percent decrease in the price of chicken results in a 10 percent increase in the quantity demanded, the price elasticity of demand has a value of a. -0.5 b. -2 c. -1 d. -0.1 e. none of these

a. -0.5

T1. 22 Figure D-6 shows the prices of two services offered by Earl's Barber shot and the resulting quantities demanded by customers. In this example the price elasticity of demand for manicures is a. -1 b. -2 c. -3 d. -0.5 e.-0.4

a. -1

If the price elasticity of demand for Cheer detergent is -3.0, then a a. 12 percent drop in price leads to a 36 percent rise in the quantity demanded b. 12 percent drop in price leads to a 4 percent rise in the quantity demanded c. $1,000 drop in price leads to a 3,000-unit rise in the quantity demanded d. $1,000 drop in price leads to a 333-unit rise in the quantity demanded e. 12 percent rise in price leads to a 36 percent rise in the quantity demanded

a. 12 percent drop in price leads to a 36 percent rise in the quantity demanded

9:18. Brian and Matt own the only two bicycle repair shops in town. Each must choose between a low price for repair work and a high price. The yearly economic profits from each strategy are indicated in Figure K-12. The upper right side of each rectangle shows Brian's profits; the lower left side shows Matt's profits. Which of the following statements is correct? a. Matt's dominant strategy is to charge a low price b. Brian's dominant strategy is to charge a high price c. the dominant strategy for both Brian and Matt is to charge a low price d. Matt's dominant strategy is to charge a high price e. neither Brian nor Matt has a dominant strategy

a. Matt's dominant strategy is to charge a low price

Which of the following is true for a single-price monopolist? a. P > MR because some revenue is lost from having to lower the price on all units sold b. P < MR because the monopolist must lower price to sell more output c. P = MR only at the profit-maximizing level of output d. P = MR because there are no close substitutes for the good e. P = MR because the firm faces a perfectly elastic demand curve

a. P > MR because some revenue is lost from having to lower the price on all units sold

Which of the following statements about demand is correct? a. a change in the price of bicycles will not lead to a shift in the demand curve for bicycles b. a change in the price of automobiles will lead to a shift in the demand curve for motorcycles c. a change in demand is equivalent to a movement along a given demand curve d. when price falls, so does the quantity demanded e. when the demand curve shifts to the right, so will the supply curve

a. a change in the price of bicycles will not lead to a shift in the demand curve for bicycles

Which of the following conditions does not need to be satisfied in order to practice price discrimination? a. a perfectly elastic demand curve b. a negatively-sloped demand curve for the firm's output c. the ability to identify customers who are willing to pay more for the good d. the ability to identify customers who are not willing to pay more e. the ability to prevent resale of the good

a. a perfectly elastic demand curve

9.19. Figure K-13 shows the payoff matrix for two large auto dealerships, Jim's Autos and Tim's Autos. These intense rivals are the largest automobile dealers in the market by far. The matrix shows the profits that each firm would earn from choosing either a low price or a high price. Jim's dominant strategy would be to a. always charge a low price b. always charge a high price c. charge a high price if Tim charges a low price d. charge a low price only when Tim charges a low price e. follow the price leadership of Tim's Autos

a. always charge a low price

Which of the following would cause a leftward shift in the supply curve for computers? a. an increase in the price of printed circuit boards used to build computers b. a decrease in the price of electricity c. an increase in incomes of consumers d. a decrease in the price of computers e. a decrease in the size of the population

a. an increase in the price of printed circuit boards used to build computers

Combinations of goods outside the production possibilities curve a. are unattainable given society's technology and resources b. are combinations that have already been consumed c. go beyond basic necessities d. result from involuntary unemployment e. are the result of economic recessions

a. are unattainable given society's technology and resources

A monopoly exists because of a. barriers to entry b. the large number of buyers and sellers c. the absence of barriers to entry d. collusion among the dominant firms e. the absence of exclusive government franchises

a. barriers to entry

T1.8 Assume that U.S. agricultural land is used either to raise cattle for beef or to grow wheat. Figure B-3 represents the production possibility frontier for beef and wheat. What is assumed constant as the economy moves from point F to point G? a. both d and e b. the money supply c. consumer tastes and preferences d. the level of currently available technology e. the amount of available resources

a. both d and e

T1. 19 Consider the market represented by Figure D-4 in which the government has imposed a price floor of $5.00 per unit. To maintain the price floor, the government should a. buy up 200 units of the good b. sell 200 units of the good c. buy up 700 units of the good d. sell 700 units of the good e. buy up 500 units of the good

a. buy up 200 units of the good

Double taxation of profits is a problem for a. corporations only b. corporations and partnerships c. sole proprietorships and partnerships d. corporations and sole proprietorships e. partnerships only

a. corporations only

The players in a two-person game are choosing between Strategy X and Strategy Y. If the second player chooses Strategy X, the first player's best outcome is also to select X. If the second player chooses Strategy Y, the first player's best outcome is to select X. For the first player, Strategy X is called a a. dominant strategy b. collusive strategy c. tit-for-tat strategy d. repeated-trail strategy e. tacit strategy

a. dominant strategy

T3. 19 Sarah and Marisa are the only two baby-sitters available in a small town. Figure K-14 indicates different combinations of hourly rates charged by the two teenagers, along with their weekly net earnings. If Sarah and Marisa do no collude, then a. in equilibrium, both will charge $4 per hour b. in equilibrium, both will charge $5 per hour c. in equilibrium, Sarah will charge $5 per hour, Marisa will charge $4 per hour d. in equilibrium, Sarah will charge $4 per hour, Marisa will charge $5 per hour. e. there is no predictable equilibrium

a. in equilibrium, both will charge $4 per hour

When the numerical value of the price elasticity of demand is -3, then a one-percent change in price will cause a(n) a. larger percentage change in quantity demanded, so demand is elastic b. larger percentage change in quantity demanded, so demand is inelastic c. smaller percentage change in quantity demanded, so demand is elastic d. smaller percentage change in quantity demanded, so demand is inelastic e. equal percentage change in quantity demand, so demand is unitary elastic

a. larger percentage change in quantity demanded, so demand is elastic

The demand for a necessity tends to be a. less elastic than the demand for a luxury b. more elastic than the demand for a luxury c. unitary over the entire demand curve d. less elastic, the larger is the number of sellers e. unpredictable

a. less elastic than the demand for a luxury

By keeping new firms from entering the market, oligopolistics ensure they will have a. long-run economic profits b. lower prices c. greater efficiency d. decreasing marginal costs e. economies of scale

a. long-run economic profits

For a perfectly competitive firm, a. marginal revenue is the same as the market price b. marginal revenue equals total revenue c. to earn an economic profit, it must be larger than its competitors d. price always exceeds average total cost e. marginal cost equals average cost

a. marginal revenue is the same as the market price

Tommy's Tires operates in a perfectly competitive market. If tires sell for $50 each and ATC = $40 per tire at the profitmaximizing output level, then in the long run a. more firms will enter the market b. some firms will exit from the market c. the equilibrium price per tire will rise d. average total costs must fall e. marginal revenue will rise

a. more firms will enter the market

The amount of a good or service that buyers would be willing and able to purchase at a specific price is known as a. quantity demanded b. demand c. supply d. quantity supplied e. opportunity cost

a. quantity demanded

The term utility in economics refers to the a. satisfaction received by individuals from consuming goods and services b. real income available to consumers for purchasing goods and services c. relationship between the demand for a product and the supply of a product d. usefulness of a good or service e. slope of the budget line

a. satisfaction received by individuals from consuming goods and services

The marginal utility per dollar spent on a good represents the a. satisfaction received for each dollar spent on the last unit consumed b. total satisfaction received from consuming a certain number of units c. dollar value of average utility d. change in price due to a one-unit increase in total utility e. price paid for the last unit of utility

a. satisfaction received for each dollar spent on the last unit consumed

9.8 Consider the typical monopolistically competitive firm whose demand curve and cost structure is illustrated in Figure K- 5. Which of the following statements is correct in the long run? a. some firms will exit the market, and the demand curves facing any remaining firms will shift rightward b. some firms will exit the market, and the demand curves facing any remaining firms will shift leftward c. firms will enter the market, and the demand curves facing each remaining firm will shift rightward d. firms will enter the market, and the demand curves facing each remaining firm will shift leftward e. firms will enter the market, but the demand curves facing each remaining firm will not change

a. some firms will exit the market, and the demand curves facing any remaining firms will shift rightward

When the marginal product of labor increases as the amount of labor employed increases, a. the additional worker has made other workers more productive b. the firm also must have increased the amount of capital c. the firm is experiencing economies of scale d. there has been an improvement in the available technology e. the law of diminishing returns has been violated

a. the additional worker has made other workers more productive

Assume the most typical shapes for the demand and supply in a competitive market. Suppose that demand falls and supply increases. Which of the following statements is correct? a. the equilibrium price will fall; the equilibrium quantity may rise or fall b. the equilibrium price will rise; the equilibrium quantity may rise or fall c. the equilibrium quantity will fall; the equilibrium price may rise or fall d. the equilibrium quantity will rise; the equilibrium price may rise or fall e. the equilibrium price will fall; the equilibrium quantity will not change

a. the equilibrium price will fall; the equilibrium quantity may rise or fall

Steak is a normal good. If the price of steak increases, a. the income effect on the demand for steak will reinforce the substitution effect b. the income effect on the supply of steak will, to some extent, offset the substitution effect c. the budget line will rotate outward d. consumers' purchasing power will increase e. the budget line will shift outward

a. the income effect on the demand for steak will reinforce the substitution effect

Marginal cost is a. the increase in total cost from producing one more unit of output b. total variable cost per unit of output c. fixed cost per marginal unit d. average total cost divided by the quantity of inputs used e. total cost per unit of output

a. the increase in total cost from producing one more unit of output

A $1.00 increase in the price of a restaurant meal results in a drop in quantity demanded of 5 meals. Which of the following statements is correct? a. the slope of the demand curve is -1/5; there is insufficient information to determine the price elasticity of demand b. the price elasticity of demand is -1/5; there is insufficient information to determine the slope of the demand curve c. both the slope of the demand curve and the price elasticity of demand are equal to -1/5 d. there is insufficient information to determine either the slope of the demand curve or the price elasticity of demand e. the slope of the demand curve is -1/5; the price elasticity of demand is 5

a. the slope of the demand curve is -1/5; there is insufficient information to determine the price elasticity of demand

A $1.00 increase in the price of a restaurant meal results in a drop in quantity demanded of 5 meals. Which of the following statements is correct? a. the slope of the demand curve is -1/5; there is insufficient information to determine the price elasticity of demand b. the price elasticity of demand is -1/5; there is insufficient information to determine the slope of the demand curve. c. both the slope of the demand curve and the price elasticity of demand are equal to -1/5 d. there is insufficient information to determine either the slope of the demand curve of the price elasticity of demand e. the slope of the demand curve is -1/5; the price elasticity of demand is 5

a. the slope of the demand curve is -1/5; there is insufficient information to determine the price elasticity of demand

Whenever the marginal product of labor curve has a negative slope, the the corresponding segment of the total product curve also has a negative slope a. true b. false

b. false

If a firm chooses to produce output at the point where MR equals MC, a. then TR - TC will be maximized if there is a profit b. economic profits will be zero c. there will be positive accounting profits d. there will be positive economic profits e. average cost must equal average revenue

a. then TR - TC will be maximized if there is a profit

A good is said to be excludable if a. those who do not pay for it can be prevented from consuming it b. those who do not produce the good can be prevented from consuming it c. it is not traded in the public market d. there is no rivalry in consumption e. its use can be continued indefinitely

a. those who do not pay for it can be prevented from consuming it

Consider a firm that needs one day to hire more labor and three months to change the amount of its capital. This firm's long run is a. three months b. one year c. one day d. three months plus one week plus one day e. three months plus one year

a. three months

Ignoring all other goods, if Yong's marginal utility per pound of bread is 10 utils and per pound of cheese is 30 utils, his... a. total utility would be maximized if the price per pound of cheese is triple the price per pound of bread b. total utility could be increased by buying more bread and less cheese c. total utility could be increased by buying more cheese and less bread d. total utility would be maximized if the price per pound of cheese is one-third the price per pound of bread e. marginal utility would be maximized if the price per pound of cheese is one-third the price per pound of bread

a. total utility would be maximized if the price per pound of cheese is triple the price per pound of bre

If a firm increases its output level in the short run, then a. variable costs rise, but fixed costs remain unchanged b. both variable costs and fixed costs rise c. variable costs rise, but fixed costs fall d. both variable costs and fixed costs fall e. variable costs remain unchanged, but fixed costs rise

a. variable costs rise, but fixed costs remain unchanged

Bread and butter are complements. A decrease in the price of bread results in a(n) a. decrease in the supply of break b. increase in the demand for butter c. increase in the demand for bread d. increase in resource prices e. violation of the law of demand

b. increase in the demand for butter

1.12 Figure B-2 illustrates the trade-off for a particular student between time spent studying per week and income per week from working part-time. What is the opportunity cost for this person of moving from point a to point b? a. $5 of income per week b. $10 of income per week c. two hours of studying per week d. $10 per hour of studying per week e. $20 of income per week

b. $10 of income per week

2.17 In Figure C-11, suppose that initially the market is in equilibrium as defined by the demand and supply curves D1 and S1. Which price/quantity combination could result from an increase in consumers' incomes coupled with an improvement in technology? a. $100 and 75,000 b. $100 and 100,000 c. $100 and 50,000 d. $120 and 75,000 e. $120 and 100,000

b. $100 and 100,000

Brittany provides manicures at the only salon in town. Her marginal cost is constant at $5 per client, her fixed cost is $25 per day, and she is able to do 8 manicures per day. On a given day, half of her clients are willing to pay $15 for a manicure; half are willing to pay only $10. If she charges all of her clients $10, then her maximum daily profit equals a. $80 b. $15 c. $40 d. $55 e. $50

b. $15

7:17. In short-run equilibrium, the perfectly competitive firm of Figure I-8 will earn a total economic profit of a. zero b. $950 c. $825 d. $1,425 e. $575

b. $950

3.10 Figure D-6 shows the prices of two services offered by Earl's Barber Shop and the resulting quantities demanded by customers. In this example, the price elasticity of demand for haircuts (using the midpoint formula) is a. -1 b. -1.8 c. -3.5 d. -2.25 e. -0.5

b. -1.8

If MUx/Px is less than MUy/Py, then the consumer should consume more of X and less of Y. a. True b. False

b. False

The principle of diminishing marginal utility refers to the fact that total utility falls as consumption rises. a. True b. False

b. False

Total product begins to decline when diminishing marginal returns are first experienced. a. True b. False

b. False

Joe's Garage operates in a perfectly competitive market. At the point where marginal cost equals marginal revenue, ATC = $20, AVC = $15, and the price per unit is $10. In this situation, a. Joe's Garage will break even b. Joe's Garage will shut down immediately c. the market price will fall in the long run d. Joe's supply curve will shift to the left e. Joe's Garage will lose money in the short run, but stay in business

b. Joe's Garage will shut down immediately

The output level for a perfect price discriminator is found where a. MR = ATC b. MC = P c. MR = P d. TR = TC e. AR = ATC

b. MC = P

8.8 Figure J-4 depicts a single price monopoly. What are the equilibrium price and output? a. there is no equilibrium under monopoly b. P' and Q' c. P and Q d. P' and Q e. P and Q'

b. P' and Q'

if the last T-shirt produced by Sheara's Shirts increased revenues by $6 and costs by $7, then a. Sheara's Shirts should increase output b. Sheara's Shirts should decrease output c. Sheara's Shirts should hold output constant d. profits are being maximized e. price is below marginal cost

b. Sheara's Shirts should decrease output

When the consumption of a good involves positive externalities, a. some individuals are harmed when other individuals consume the good b. a free market produces too little of the good c. the individuals consuming the good do not benefit from it d. taxes are needed to bring about efficiency e. economic efficiency has been achieved

b. a free market produces too little of the good

A perfectly competitive firm produces in a market where the prevailing price is $25. At its current output level of 10,000 units, its average total cost equals $15. The firm is earning a. a total money profit of $100,000 b. a total economic profit of $100,000 c. a total money profit of $250,000 d. a total economic profit of $250,000 e. both a total money profit and a total economic profit of $100,000

b. a total economic profit of $100,000

If Papagna's Pizza Parlor knows that the marginal cost of the 500th pizza is $3.00 and that the average total cost of making 499 pizzas is $3.30, then a. average total costs are rising at Q= 500 b. average total costs are falling at Q= 500 c. total costs are falling at Q= 500 d. average variable costs MUST BE falling e. average variable cost MUST BE rising

b. average total costs are falling at Q= 500

5.12 For the total product curve shown in Figure G-3, diminishing marginal returns to labor a. do not occur over this range b. begin with the third unit of labor c. exist for every unit of labor d. begin with the fourth unit of labor e. begin with the first unit of labor

b. begin with the third unit of labor

T2.10 In figure G-5, the law of diminishing marginal productivity is evident a. between 0 and 35 workers b. between 35 and 80 workers c. between 0 and 80 workers d. immediately e. over the entire Total Product curve

b. between 35-80 workers

Marginal revenue is defined as the a. total revenue minus total cost b. change in total revenue divided by the change in the quantity of output c. price minus average total cost d. total revenue over the quantity of output e. quantity times price

b. change in total revenue divided by the change in the quantity of output

When oligopolists secretly cooperate for their mutual benefit they are engaging in a. inclusion b. collusion c. seclusion d. exclusion e. discrimination

b. collusion

A price floor on corn would have the effect of a. creating excess supply regardless of the level at which the price floor is set b. creating excess supply when the floor is above the equilibrium price c. creating excess demand when the price floor is set below the equilibrium price d. creating excess demand regardless of where the price floor is set e. ensuring a more equitable distribution of the good among consumers

b. creating excess supply when the floor is above the equilibrium price

If the demand curve is a vertical line, then a. demand is perfectly elastic b. demand is perfectly inelastic c. demand is unit elastic d. demand is determined by supply e. supply is a horizontal line

b. demand is perfectly inelastic

When the sellers in a market are aware of their strategic interdependence, then a. each firm bases its pricing and output decisions on the monopoly model b. each firm, when making pricing or output decisions, must consider the reactions of its competitors c. the firms have little incentive to collude in their pricing and output decisions d. the firms undertake little, if any, advertising since they cannot recoup the cost through higher prices e. no firm is able to earn above-normal profit in the long run

b. each firm, when making pricing or output decisions, must consider the reactions of its competitors

All of the following, except one, are characteristics of monopolistic competition. Which is the exception? a. there is a large number of sellers b. each seller faces a horizontal demand curve for its product c. there are no significant barriers to entry or exit d. sellers produce differentiated products e. there is a large number of buyers

b. each seller faces a horizontal demand curve for its product

A firm in a monopolistically competitive market is similar to a monopolist in the sense that it a. must overcome significant barriers to entry b. faces a downward-sloping demand curve c. produces a relatively large share of the market output d. is dependent on the actions of other firms e. produces the same product as its competitors do

b. faces a downward-sloping demand curve

When the marginal product of labor rises, the marginal cost of output a. rises b. falls c. remains constant d. rises and then falls e. dampens

b. falls

Carla's Candy Store is maximizing profits by producing 1,000 pounds of candy per day. If Carla's fixed costs unexpectedly increase and the market price remains constant, then the profit-maximizing level of output a. is less than 1,000 pounds b. is still 1,000 pounds c. is more than 1,000 pounds d. will increase e. cannot be determined without more information

b. is still 1,000 pounds

A monopoly a. is the only firm that produces all of the products its competitors produce b. is the single seller of a unique product c. is bigger than all its competitors combined d. has only one customer e. is always profitable in the short run

b. is the single seller of a unique product

If the physical plant for a corporation is considered to be a fixed input, then a. it is held constant in the long run b. it can be changed in the long run c. labor must be a variable input d. technology must be changing e. the firm will lose money in the short run except under perfect competition

b. it can be changed in the long run

If a firm wishes to engage in price discrimination, which of the following conditions must be met? a. the demand curve must be horizontal b. it must be possible to prevent resale of the good from low-paying to high-paying customers c. the supply curve must be horizontal d. many identical firms in the market must each have a small share of total industry output e. price must be less than marginal cost

b. it must be possible to prevent resale of the good from low-paying to high-paying customers

The price elasticity of demand is important to firms because a. it explains the relationship between income and demand for the goods they sell b. it shows how price changes affect total expenditures on the goods they sell c. the law of demand suggests that elasticity falls with total expenditures d. it helps identify the equilibrium price and quantity in the market e. it relates price to supply

b. it shows how price changes affect total expenditures on the goods they sell

In late 1996, various microbreweries experienced falling stock prices as they announced that fourth quarter earnings would be lower than expectations. Industry analysts estimated that during 1996 the number of microbreweries in the United States rose by 33 percent. This most closely resembles a. long-run adjustment in perfect competition b. long-run adjustment in monopolistic competition c. equilibrium in the oligopoly model d. equilibrium in the monopoly model e. short-run equilibrium in perfect competition

b. long-run adjustment in monopolistic competition

If consumption of a good creates positive externalities, then a. private demand is greater than marginal social benefit b. marginal private benefit is less than marginal social benefit c. private cost is less than marginal social cost d. marginal social cost is greater than marginal social benefit e. marginal private cost is zero

b. marginal private benefit is less than marginal social benefit

Monopolies differ from perfectly competitive firms in the long run because a. perfectly competitive firms can earn economic profit b. monopolies can earn economic profit c. monopolies produce a smaller share of the industry output d. patents and copyright laws protect monopolists for as long as they desire e. monopolists have long-run average cost curves

b. monopolies can earn economic profit

T1. 20 In Figure D-5, if the government imposed a price floor of $2, the result will be a. that the price floor becomes the equilibrium b. no different than before the minimum price is imposed c. excess demand d. demand will shift leftward. e. excess supply

b. no different than before the minimum price is imposed

Free-rider problems typically arise from a. all public and private goods b. nonexcludable goods c. excludable goods d. rival goods e. nonrival goods

b. nonexcludable goods

4.4 Which panel in Figure E-2 shows the effect of a decrease in the price of apples, other things constant? a. panel a b. panel b c. panel c d. panel d e. panel e

b. panel b

As a result of heavy spring rains in the Midwestern states, the corn crop declined sharply. If corn growers experienced an increase in sales revenue, the demand for corn must be a. price-elastic b. price-inelastic c. unitary elastic d. perfectly inelastic e. perfectly elastic

b. price-inelastic

9.6 Figure K-2 illustrates a monopolistically competitive firm. In order to maximize profits, or minimize losses, the firm will a. close down b. produce approximately 10 units of output and charge approximately $500 c. produce approximately 7.5 units of output and charge nearly $600 d. produce approximately 12.5 units of output and charge approximately $425 e. produce 5 units of output and charge $650

b. produce approximately 10 units of output and charge approximately $500

If automobiles are a normal good and the price of automobiles rises, then holding all else constant, the a. demand for automobiles will rise b. quantity demanded of automobiles will fall c. demand for automobiles will fall d. quantity demanded of automobiles will rise e. supply of automobiles will fall

b. quantity demanded of automobiles will fall

T1. 12 Figure C-1 shows the market demand schedule for compact disks. If the price per disk rises from $10 to $12, the a. demand will decrease by 2.2 million disks b. quantity demanded will decrease by 2.2 million disks c. supply will rise by 2.8 million disks d. quantity demanded will decrease by 3.5 million disks e. demand curve will shift to the left

b. quantity demanded will decrease by 2.2 million disks

7:15. The perfectly competitive firm shown in Figure I-6 is currently producing 180 units of output. To maximize profit, it should a. increase output until ATC is maximized b. reduce output to 140 units c. reduce output to 100 units d. raise its price and lower its output e. raise its price and raise its output

b. reduce output to 140 units

Excise taxes can create inefficiency by a. increasing output b. reducing output c. lowering prices d. forcing each consumer to pay more than he was willing to pay before the tax e. decreasing tax revenues

b. reducing output

The demand curve facing a firm acts as a constraint by a. shifting to the left and right as suppliers ary their quantities b. showing the maximum prices that could be charged to sell a specific output level c. showing the minimum quantity of output that a firm needs to produce at a specific price d. limiting sales to those who are first in line when the product is distributed e. relating the action and decisions of buyers and sellers in the market

b. showing the maximum prices that could be charged to sell a specific output level

Microeconomics is the branch of economics that concerns a. the overall view of the economy b. the behavior of individual households and firms c. the overall level of trade between nations d. local governments only e. the general level of output

b. the behavior of individual households and firms

The minimum points of the average variable cost and average total cost curves occur where a. the marginal cost curve lies below the average variable cost and average total cost curves b. the marginal cost curve intersects those curves c. wages are the lowest d. the slope of total cost is the smallest e. the elasticity of demand is unitary

b. the marginal cost curve intersects those curves

Economics is a. the study of the markets for stocks and bonds b. the study of how to allocate limited resources to unlimited uses for those resources c. exclusively the study of business firms d. fundamentally the same as sociology e. applicable only when scarcity is not a problem

b. the study of how to allocate limited resources to unlimited uses for those resources

Camille's Chicken operates in a monopolistically competitive market. If Camille implements a new free delivery service for customers, a. this is an example of advertising b. this is a form of nonprice competition c. total revenue will increase d. total cost will decrease e. her firm will be acting as if it were in a perfectly competitive market

b. this is a form of nonprice competition

one of the concepts that is illustrated by a concave production possibilities frontier is that a. technology must change in order to produce more of a particular good b. to produce more of one good, increasing amounts of the alternative goods must be given up c. opportunity cost generally declines as more of a good is produced d. specialization leads to gains in overall utility for society e. opportunity cost generally does not vary as more of a good is produced

b. to produce more of one good, increasing amounts of the alternative goods must be given up

If a firm is experiencing diminishing marginal returns to labor, then a. total output must be decreasing b. total output rises more slowly as additional workers are added c. the firm must decrease the amount of labor it hires d. total output per worker must be rising e. the firm is in the short run

b. total output rises more slowly as additional workers are added

If a firm shuts down in the short run, then a. total revenue and total cost drop to zero b. total revenue drops to zero, but the firm must still pay its fixed costs c. total revenue drops to zero, but the firm must still pay some variable costs d. total cost drops to zero, but the firm still earns some residual revenues e. neither total revenue nor total cost drops to zero

b. total revenue drops to zero, but the firm must still pay its fixed costs

At a firm's current output level of 200 units per week, it has 10 employees at a weekly wage of $500 each. Raw materials, which are ordered and delivered daily, cost $1,000 per week. The weekly cost of the firm's capital is $1,250. Which of the following statements is correct? a. total variable cost is $5,000; total fixed cost is $2,250; total cost is $7,250 b. total variable cost is $6,000; total fixed cost is $1,250; total cost is $7,250 c. total variable cost is $1,250; total fixed cost is $6,000; total cost is $7,250 d. total variable cost is $2,250; total fixed cost is $500; total cost is $2,750 e. total variable cost is $1,500; total fixed cost is $1,250; total cost is $2,750

b. total variable cost is $6,000; total fixed cost is $1,250; total cost is $7,250

If the marginal product of labor is positive, then the total product curve must be a. downward sloping b. upward sloping c. constant d. greater than minimum average product of labor e. less than minimum average product of labor

b. upward sloping

If the marginal product of labor is positive and increasing, then the total product of labor is a. constant b. upward sloping and becoming steeper c. downward sloping and becoming flatter d. greater than total cost e. less than total cost

b. upward sloping and becoming steeper

A sunk cost is one that a. changes as the level of output changes in the short run b. was paid in the past and will not change regardless of the present decision c. should determine the rational course of action in the future d. has the most impact on profit maximizing decisions e. influences all rational decision makers

b. was paid in the past and will not change regardless of the present decision

If the price of good X (measured on the horizontal axis of a budget line diagram) increases at the same time that the price of good Y (measured on the vertical axis) decreases, the budget line a. will become flatter b. will become steeper c. could become either steeper or flatter, depending on the sizes of the price changes d. will rotate about its original point of intersection with the horizontal axis e. will shift outward, but not in a parallel fashion

b. will become steeper

5:20 Figure G-7 shows the total cost for six different levels of output at a particular firm. What is the marginal cost (MC) of the last unit of output listed in the table (i.e., the fifth unit of output)? a. $2,700 b. $540 c. $100 d. $90 e. $500

c. $100

If a firm has an accounting profit of $2,350,000 and implicit costs totaling $150,000, then its economic profit equals a. $2,350,000 b. $2,500,000 c. $2,200,000 d. $150,000 e. $2,000,000

c. $2,200,000

8:9. The profit-maximizing, or loss-minimizing, price and output in Figure J-7 are a. $300 and 175 b. $50 and 125 c. $250 and 125 d. $180 and 160 e. none of these since the firm should immediately shut down in the short run

c. $250 and 125

The sulfur dioxide emitted by power plants (that subsequently kills potato crops via acid rain) is an example of a. marginal social benefit exceeding marginal private benefit b. marginal private cost exceeding marginal social cost c. a negative externality that could be removed by a tax d. a negative externality that could be removed by a subsidy e. a public good that is, by its very nature, nonexcludable

c. a negative externality that could be removed by a tax

Which of the following is a public good? a. cable TV service b. software c. a fireworks display d. corn flakes e. higher education

c. a fireworks display

Which of the following would not cause the demand curve for college football tickets to shift? a. an increase in the price of professional football tickets b. a decrease in the price of college basketball tickets c. an increase in the price of college football tickets d. a drop in student incomes e. an increase in student preferences for college football tickets

c. an increase in the price of college football tickets

2.15 Which of the following statements about the market represented by Figure C-9 is correct? a. at a price of $50.00, there is an excess supply of 11 million units b. at a price of $50.00, there is an excess demand of 11 million units c. at a price of $50.00, there is an excess supply of 15 million units d. at a price of $50.00, there is an excess demand of 15 million units e. at a price of $50.00, there is an excess demand of 25 million units

c. at a price of $50.00, there is an excess supply of 15 million units

Which of the following is an assumption economists usually make regarding utility? a. all consumers have the same tastes and preferences for a specific good b. total utility eventually decreases as more of a good is consumed c. consumers prefer more of a good to less of a good d. utility is the same as money e. marginal utility tends to rise as consumption rises

c. consumers prefer more of a good to less of a good

6:6 Figure G-11 shows three different cost curves, labeled A, B, and C, for a firm. Which of these curves is most likely to represent average fixed cost? a. curve A b. curve B c. curve C d. neither A, B, nor C e. cannot be determined without more information

c. curve C

A strategy that is best for a player regardless of the strategy of the other player is called a(n) a. subsistence strategy b. determinant strategy c. dominant strategy d. independent strategy e. autonomous strategy

c. dominant strategy

An oligopoly is a market a. dominated by a single seller b. dominated by a single buyer c. dominated by a small number of strategically interdependent firms d. with many buyers and sellers, no barriers to entry and differentiated products e. with many buyers and sellers, no barriers to entry and a standardized product

c. dominated by a small number of strategically interdependent firms

If the firms in a monopolistically competitive market are earning short-run economic profits, then a. each existing firm will increase output in the long run as its marginal revenue curve shifts rightward b. each firm will experience an increase in the demand for its output in the long run c. each firm;s profit will drop to normal in the long run as its demand curve shifts leftward due to entry of new firms d. barriers to entry will enable then to earn economic profits in the long run e. decreased demand for a key input in the long run will reduce that input's price and lower each firm's average total cost curve

c. each firm;s profit will drop to normal in the long run as its demand curve shifts leftward due to entry of new firms

Along a firm's long-run total cost curve, the firm is producing a. at the output level for each plant size that has the lowest cost b. at the minimum points of its various total cost curves c. each level of output using the input mix that has the lowest cost d. each level of output using the fewest possible inputs e. at the output level for each plant size that uses the fewest possible inputs

c. each level of output using the input mix that has the lowest cost

In the long run, entry ensures that the typical firm in monopolistic competition will a. produce at minimum efficient scale b. earn an economic profit c. earn a normal economic profit d. price its output at marginal cost e. standardize its product

c. earn a normal economic profit

When long-run average total cost decreases as output increases, the firm experiences a. both d and e b. decreasing total cost c. economies of scale d. diseconomies of scale e. constant returns to scale

c. economies of scale

Among all the combinations of goods attainable by a consumer facing a budget constraint, the one that maximizes total utility is the one that a. maximizes marginal utility per dollar spent on each good b. maximizes marginal utility per pound, or other physical quantity, of each good c. equates the marginal utilities per dollar spent on each good d. equates the marginal utilities per pound, or other physical quantity, of each good e. drives the marginal utility of each good to zero

c. equates the marginal utilities per dollar spent on each good

Under the total revenue and total cost approach to profit maximization, a. firms equate total variable cost to total revenue in order to maximize profit b. profit is maximized when fixed cost falls to zero c. firms choose the level of output at which total revenue is the greatest distance above total cost when the firm earns an economic profit d. firms choose the level of output at which the changes in revenue and cost both equal zero e. total revenue is maximized when profit is zero

c. firms choose the level of output at which total revenue is the greatest distance above total cost when

In differentiating their products, firms a. always create real differences among their products b. usually raise profits through advertising c. frequently create artificial differences among their products d. make their demand curves more elastic e. decrease their costs of production

c. frequently create artificial differences among their products

Property law a. helps to ensure that only voluntary exchanges occur in the economy b. tends to decrease the level of economic efficiency c. helps define ownership rights to resources d. establishes property taxes e. helps to distribute government property in the economy

c. helps define ownership rights to resources

after John's income rose by 8%, the amount f chicken he consumed fell by 2 percent. This means that a. his income elasticity for chicken is positive b. chicken is a normal good for John c. his demand curve for chicken shifted to the left d. his demand curve for chicken shifted to the right e. John is spending more of his income on chicken than before

c. his demand curve for chicken shifted to the left

When demand is price elastic, a decrease in total expenditure on a good would result from a(n) a. decrease in price b. increase in quantity demanded c. increase in price d. decrease in income for an inferior good e. increase in total revenue to the seller

c. increase in price

If two goods are substitutes, then a(n) a. increase in the demand for one of them will cause its price to fall b. increase the supply of one of them will cause its price to rise c. increase in the price of one of them will cause the demand for the other to increase d. increase in the price of one of them will cause the supply of the other to increase e. decrease in the price of one of them will cause the demand for the other to increase

c. increase in the price of one of them will cause the demand for the other to increase

The demand curve facing a firm a. indicates the amount of raw materials and other inputs the firm will purchase, at various prices b. indicates the amount of the good demanded from that firm by a particular consumer, at various prices c. indicates the amount of output that customers will purchase from the firm, at various prices d. shows the minimum price at which the firm can sell any given quantity of output e. is horizontal in the long run, but upward sloping in the short run

c. indicates the amount of output that customers will purchase from the firm, at various prices

A firm's total revenue a. can be read off the demand curve it faces, but only if we know total cost of production b. can be read off the demand curve it faces, but only if we know variable costs of production c. is found by multiplying price per unit by the number of units produced and sold d. is equal to profit when inputs are fixed in the short run e. will be positive at any level of output

c. is found by multiplying price per unit by the number of units produced and sold

The long-run price elasticity of demand for a good tends to be a. positive, while the short-run elasticity is negative b. smaller (in absolute value) than the short-run price elasticity c. larger (in absolute value) than the short-run price elasticity d. negative, while the long-run elasticity is positive e. the same as the short-run elasticity

c. larger (in absolute value) than the short-run price elasticity

If a firm shuts down in the short run, a. it exits the industry b. losses would equal its variable costs c. losses would equal its fixed costs d. profits would be zero e. losses would equal to zero

c. losses would equal its fixed costs

7.9 Figure I-1 shows the marginal cost and average total cost curves for a perfectly competitive firm. If the market price is $10, then a. the firm earns $10 profit on each unit sold b. the firm earns $8 profit on each unit sold c. marginal revenue equals $10 d. the firm is losing money in the short run e. marginal cost always equals marginal revenue

c. marginal revenue equals $10

The firm maximizes its profit by producing that quantity of output for which a. average revenue equals average total cost b. the price is the highest c. marginal revenue equals marginal cost d. average total cost is minimized e. average variable cost is minimized

c. marginal revenue equals marginal cost

For the firm in monopolistic competition, a. competition is blocked by barriers to entry b. limit pricing can forestall competition indefinitely c. marginal revenue is less than the product's price d. price discrimination is a key tool e. marginal revenue is equal to the product's price

c. marginal revenue is less than the product's price

A group of buyers and sellers with the potential to trade is known as a(n) a. trading bloc b. cartel c. market d. industry e. sector

c. market

The intercept of a budget line measures the a. amount of a good that a consumer will purchase b. maximum amount of a good that a consumer could purchase, given his consumption of some other good c. maximum amount of a good that could be consumed at given prices and income d. minimum amount of a good that could be consumed at given prices and income e. minimum consumption of a good consistent with utility maximization

c. maximum amount of a good that could be consumed at given prices and income

The output level at which a firm's long-run average total cost is minimized is known as its a. profit-maximizing output level b. long-run marginal cost c. minimum efficient scale d. revenue maximization level e. equilibrium cost structure

c. minimum efficient scale

One explanation for why oligopolies exist is that a. it is easier to regulate a smaller number of firms b. minimum efficient scale is small relative to the market, allowing a large number of firms to achieve minimum long-run average total cost c. minimum efficient scale is large relative to the market, allowing only a few firms to achieve minimum long-run average total cost d. minimum efficient scale may be greater than the market quantity demanded at the price equal to minimum long-run average total cost e. competitive pricing drive firms from the market

c. minimum efficient scale is large relative to the market, allowing only a few firms to achieve minimum long-run average total cost

in general, the more of an individual's total budget that is spend on a given product, the a. greater the supply-side response b. less elastic is the demand for that good c. more elastic is the demand for that good d. more the demand curve will shift when the price changes e. less the demand curve will shift when the price changes

c. more elastic is the demand for that good

"The Consumer Price Index increased by 4.2 percent in the first quarter of this year." What type of statement is this? a. normative b. negative c. positive d. subjective e. biased

c. positive

In the short run, the monopolist should continue to produce whenever a. price is greater than zero b. price is less than average total cost c. price is greater than average variable cost d. price divided by average total cost exceeds the ratio of marginal cost to average cost at the optimal output e. price is less than average variable cost at the optimal output

c. price is greater than average variable cost

If income and the prices of both goods all double, the budget line will a. become flatter b. become steeper c. remain unchanged d. experience a parallel outward shift e. experience a parallel inward shift

c. remain unchanged

The time and money spent by a monopoly firm on lobbying for favorable government policies is called a. the capitalized value of the firm b. limit pricing c. rent-seeking activity d. administered pricing e. implicit cost

c. rent-seeking activity

The vertical distance between a firm's total cost curve and its total variable cost curve a. is zero b. is negative when the firm incurs fixed costs in the short run c. represents total fixed costs d. represents marginal costs e. represents average fixed costs

c. represents total fixed costs

The price elasticity of demand measures the a. responsiveness of a good's price to a change in quantity demanded b. adaptability of suppliers when a change in demand alters the price of a good c. responsiveness of quantity demanded to a change in a good's price d. adaptability of buyers when there is a change in demand e. responsiveness of quantity supplied to a change in quantity demanded

c. responsiveness of quantity demanded to a change in a good's price

A private good is a. nonrival and nonexcludable b. rival but nonexcludable c. rival and excludable d. nonrival but excludable e. one whose production imposes a cost on third parties

c. rival and excludable

When a widow is harmed by mail fraud, a. she may be compensated under property law b. her legal action will be in the category of antitrust law c. she may be compensated under tort law d. this is a potential Pareto improvement e. an economic efficiency has risen

c. she may be compensated under tort law

In a market system, prices are determined by a. corporate executives b. government bureaucrats c. supply and demand d. total market demand e. production costs

c. supply and demand

in the market system, prices are determined by a. corporate executives b. government bureaucrats c. supply and demand d. total market demand e. production costs

c. supply and demand

When production creates negative externalities, social welfare can be increased through a. antitrust law b. subsidization c. taxation d. free market policies e. allocative efficiency

c. taxation

A production process, such as the making of honey, creates a positive externality. (Nearby orchards are pollinated by the bees, increasing output per tree.) Given perfect competition, which of the following holds? a. all of the following statements are correct b. at the current output level, the marginal social cost exceeds the marginal private cost c. the actual output level falls short of the ideal or efficient output level d. the implied inefficiency could be remedied by an appropriately-sized excise tax e. the marginal benefit to the honey consumer, in the absence of any corrective action, exceeds the marginal benefit to the apple consumer

c. the actual output level falls short of the ideal or efficient output level

When the consumption of a good by one person imposes costs on a party other than the producer, a. the consumption creates a positive externality b. the good is a public good c. the consumption creates a negative externality d. too little of the good is produced from society's point of view e. the market will correct the problem if left alone

c. the consumption creates a negative externality

which of the following must be true in an oligopoly? a. the firms produce a differentiated product b. there is one dominant firm in the market c. the firms are strategically interdependent d. the market is international in scope e. there are no significant barriers to entry

c. the firms are strategically interdependent

If a good is nonexcludable and nonrival, a. the market will provide too much of the good b. the market will provide the good c. the market will not provide the good d. neither the market nor government will provide the good

c. the market will not provide the good

Since resources are scarce, if society produces more of one commodity, it has to sacrifice some amount of another commodity. The amount sacrifices is a. a normative problem b. the out-of-pocket cost c. the opportunity cost d. the lost profit e. the total factor productivity

c. the opportunity cost

If an excise tax is imposed on automobiles, a. the demand curve will shift upward and the market price will increase b. the supply curve will shift downward and the market price will increase c. the supply curve will shift upward and the market price will increase d. the equilibrium quantity supplied will increase e. the equilibrium quantity demanded will increase

c. the supply curve will shift upward and the market price will increase

when there is a positive cross-price elasticity of demand between two goods. a. there are independent goods b. they are complementary goods c. they are substitute goods d. they are luxury goods e. the income elasticity of demand is positive

c. they are substitute goods

Accounting profit is defined as a. total revenue minus opportunity cost b. total revenue minus all costs of production c. total revenue minus explicit costs d. the sum of marginal revenues received from all units produced e. the difference between marginal revenue and marginal cost

c. total revenue minus explicit costs

7:18. The perfectly competitive firm represented in Figure I-10 has a short-run supply curve that follows the a. marginal cost curve b. vertical axis for prices less than $4.00 and follows the marginal cost curve for prices above $4.00 c. vertical axis for prices less than $2.50 and follows the marginal cost curve for prices above $2.50 d. vertical axis for prices less than $5.50 and follows the marginal cost curve for prices above $5.50 e. horizontal axis for quantities less than 50 and follows the marginal cost curve for quantities above 50

c. vertical axis for prices less than $2.50 and follows the marginal cost curve for prices above $2.50

T2. 16 To maximize profits or minimize losses. in the short run, the firm in Figure H-11 should produce an output of a. 0 b. 1 c. 2 d. 3 e. 4

d. 3

3.11 In Figure D-8, the price elasticity of demand equals __________ between points T and U and equals __________ between points V and W. a. -0.33; -1.86 b. -0.54; -3 c. -3; -0.54 d. -1.86; -0.33 e. -2; -2

d. -1.86; -0.33

4.9 Figure E-6 shows the total utility that Jerry receives from consuming different numbers of apples per week. What is Jerry's marginal utility from consuming the second apple after he already consumed the first one? a. 0 b. 17 c. 20 d. 14 e. 34

d. 14

4.3 Joe spends all of his money on concert tickets and compact disks. Figure E-1 shows his budget constraint when his income is $100. The price of a ticket is $20, while the price of a compact disk is $10. If Joe currently buys 3 tickets and would like to purchase a fourth, his opportunity cost would be a. 1 compact disk b. $20 c. $10 d. 2 compact disks e. 4 compact disks

d. 2 compact disks

If bread costs $1 per pound and meat costs $4 per pound, a consumer whose marginal utility of meat equals 80 utils per pound is maximizing utility only if the marginal utility per pound of bread equals a. 4 utils b. 5 utils c. 10 utils d. 20 utils e. 80 utils

d. 20 utils

1.16 Which production possibilities frontier(s) in Figure B-5 depict(s) a situation in which all resources are perfect substitutes in production? a. both C and E b. both D and E c. C d. D e. E

d. D

A single-price monopolist will set the output level where a. P = MC b. P = MR c. TR = TC d. MR = MC e. P = ATC

d. MR = MC

Which of the following expressions equals profit per unit of output? a. MR - MC b. P - AVC c. MR - P d. P - ATC e. MC - ATC

d. P - ATC

An assumption that affects a model in important ways is a. a key step b. a simplifying assumption c. a bad assumption, one that should be avoided in economic theory d. a critical assumption e. one that should be replaced with empirical evidence

d. a critical assumption

T1. 18 Consider the market for ground beef represented by Figure C-12, which is initially in equilibrium at point J. Assume that ground beef is an inferior good. Which of the following could explain a movement to a new equilibrium at point M? a. a change in tastes away from hamburgers combined with an increased price for cattle feed b. an increase in buyers' incomes combined with a cost-saving technological improvemnet c. a decrease in the price of hot dogs combines with an increased price for labor d. a decrease in buyers' incomes combines with a decrease in the number of acres owned by cattle ranches e. a drop in the population combined with a increased price for an alternate form of packaged beef

d. a decrease in buyers' incomes combines with a decrease in the number of acres owned by cattle ranches

Which of the following is an example of a positive externality? a. air pollution b. a person who litters in a public park c. a consumer whose dream comes true when she buys a new convertible d. a nice garden in front of your neighbor's house e. the pollution of a stream

d. a nice garden in front of your neighbor's house

T3. 12 The maximum total economic profit, or minimum economic loss, for the monopolistically competitive firm in Figure K-2 is a. zero b. a profit of $575.00 c. a profit of $1,562.50 d. a profit of $2,000.00 e. a loss of $375.00

d. a profit of $2,000.00

2.7 Which of the following could explain a movement from point F to point G in Figure C-2? Assume that the good represented is an inferior good. a. all of the following are correct b. an increase in buyers' incomes c. a decrease in the expected future price of the good d. an increase in the price of the good e. an increase in the price of a complement

d. an increase in the price of the good

If a firm's managers inappropriately decide to operate where total revenue is maximized, they will continue to increase output a. as long as marginal revenue exceeds marginal cost b. as long as marginal cost exceeds marginal revenue c. as long as the total revenue curve is above zero d. as long as the marginal revenue curve is above the horizontal axis e. until the total revenue curve intersects the total cost curve

d. as long as the marginal revenue curve is above the horizontal axis

Along a society's production possibilities frontier, a. the level of technology is changing b. more of one good can be produced without giving up some of the other good c. resources are not being fully utilized d. available resources are being used efficiently e. there is productive inefficiency in the economy

d. available resources are being used efficiently

Suppose that a single-price monopolist lowers its price from $75 to $70 in order to sell more output. Marginal revenue will a. equal $75 b. equal $70 c. be between $75 and $70 d. be less than $70 e. be greater than $75

d. be less than $70

In the long run, market forces each perfectly competitive firm to produce at the lowest point on a. its short-run average total cost curve b. its long-run average total cost curve c. its marginal cost curve d. both its short-run and long-run average total cost curves e. both its short-run average cost curve and its marginal cost curve

d. both its short-run and long-run average total cost curves

The private market will produce goods that are a. neither rival nor excludable b. rival, but not excludable c. socially desirable, regardless of their excludability and their rivalrous characteristics d. both rival and excludable e. rival, but not profitable

d. both rival and excludable

A perfectly competitive firm a. can increase total revenue by raising its price b. can sell more goods by lowering its price c. can sell more goods by raising its price d. cannot increase sales or total revenue by changing its price e. typically tries to offer lower prices than rival firms

d. cannot increase sales or total revenue by changing its price

The slope of the demand curve and the price elasticity of demand are a. basically the same thing b. determined by supply c. are derived from production and distribution costs d. different because slope is based on absolute changes and elasticity is based on percentage changes e. implicit in the shape of the supply curve

d. different because slope is based on absolute changes and elasticity is based on percentage changes

Firms are assumed to be price takers in a perfectly competitive market because a. they are not allowed by law to charge any price other than the market price b. they must accept any price offered by consumers c. they earn high enough profits at the market price, so they do not want to hurt consumers by raising their prices d. each firms is too small to influence the market price there are too few buyers in the market t o absorb price changes

d. each firms is too small to influence the market price

Due to a scarcity of resources, a. every society must undertake central planning b. the government must decide how to allocate available resources c. some members of each society must live in poverty d. every society must choose among competing uses of available resources e. resource availability exceeds the possible uses for available resources

d. every society must choose among competing uses of available resources

3.2 In Figure D-2, if the government imposes a price ceiling of $2, the result will be a. equilibrium b. excess supply c. no different than before the price ceiling is imposed d. excess demand e. demand will shift leftward and supply will shift rightward

d. excess demand

6.4 If a firm's marginal product of labor curve is represented by Figure G-10, then the firm's marginal cost is a. steadily falling b. steadily rising c. rising and then falling d. falling and then rising e. constant

d. falling and then rising

If Holly's demand for fast food decreases as her income rises, then a. fast food is a normal good for her b. the law of demand must apply c. fast food is a complementary good d. fast food is an inferior good for her e. fast food is a substitute good

d. fast food is an inferior good for her

Monopolization of a competitive industry will, if technology is fixed, lead to a. lower prices and higher output b. higher prices and the same level of output c. lower output and the same level of price d. higher prices and lower output e. higher output and higher prices

d. higher prices and lower output

For a normal good, the a. income effect is greater than 1.0 b. income effect is negative c. substitution effect is zero d. income effect and the substitution effect work in the same direction e. demand curve is horizontal

d. income effect and the substitution effect work in the same direction

If the price of ground beef falls, the demand for hamburger buns will a. increase because the two goods are substitutes b. decrease because the two goods are complements c. decrease because the two goods are substitutes d. increase because the two goods are complements e. not change unless the price of hamburger buns also changes

d. increase because the two goods are complements

An increase in both equilibrium price and quantity could be produced by a(n) a. decrease in supply, with demand constant b. increase in supply, with demand constant c. decrease in demand, with supply constant d. increase in demand, with supply constant e. rise in resource prices

d. increase in demand, with supply constant

orange juice and cranberry juice are substitute goods. An increase in the price of orange juice results in a(n) a. increase in the demand for orange juice b. increase in the supply of cranberry juice c. increase in the quantity demanded of orange juice d. increase in the demand for cranberry juice e. decrease in the quantity demanded of cranberry juice

d. increase in the demand for cranberry juice

Suppose that when the price of aspirin rises from $2 to $3 per bottle, the quantity demanded falls from 800 bottles per day to 700 bottles per day. Over this range, the demand for aspirin is a. elastic b. unitary elastic c. perfectly elastic d. inelastic e. perfectly inelastic

d. inelastic

At a price of $5.00 per doll, most stores cannot keep Beanie Baby dolls in stock because consumers buy them all as soon as shipments arrive. This implies that there a. is an excess supply of Beanie Babies and the price must fall for equilibrium to be reached b. will be a downward shift in the demand curve for Beanie Babies c. will be an upward shift in the supply curve for Beanie Babies d. is an excess demand for Beanie Babies, and the price must rise for equilibrium to be reached. e. is an excess demand for Beanie Babies, and the price must fall for equilibrium to be reached

d. is an excess demand for Beanie Babies, and the price must rise for equilibrium to be reached.

A professional basketball players' union negotiates a contract that dramatically increases all players' salaries. How would this influence the opportunity cost for a player who was considering giving up basketball to pursue a career in broadcasting? a. it would not affect the opportunity cost of playing basketball or of broadcasting b. it would increase the opportunity cost of continuing to play professional basketball c. it would cause the production possibilities frontier to become convex d. it would increase the opportunity cost of becoming a broadcaster e. it should have no bearing on the player's decision from an economic standpoint

d. it would increase the opportunity cost of becoming a broadcaster

The law of supply states that the quantity supplied of a good and a. the price of a key input are inversely related b. its price are inversely related c. the price of a key input are positively related d. its price are positively related e. the price of an alternate good are positively related

d. its price are positively related

For the single-price monopoly, marginal revenue is a. more important than marginal cost b. always more than marginal cost c. always less than average cost d. less than the price of output e. more significant than total revenue

d. less than the price of output

Opportunity costs exist because a. there is a price attached to virtually every good or service b. technology is not fixed in the economy c. people have different tastes and preferences d. limited resources cannot satisfy all of the wants in society e. the production possibilities frontier is bowed in with respect to the origin

d. limited resources cannot satisfy all of the wants in society

The overall performance of the economic system as a whole is the focus of a. international finance b. labor economics c. microeconomics d. macroeconomics e. public economics

d. macroeconomics

The change in cost to the firm from producing one additional unit of output is a. average total cost b. total variable cost c. average variable cost d. marginal cost e. total cost

d. marginal cost

In the presence of a negative externality, a. marginal private costs exceed marginal social costs b. marginal social benefits exceed marginal social costs c. marginal social benefits exceed marginal private costs d. marginal social costs exceed marginal private costs e. the price is equal to both marginal social cost and marginal private cost

d. marginal social costs exceed marginal private costs

A monopolist is constrained in the price that it charges by a. patents b. copyrights c. competition from other firms d. market demand e. market supply

d. market demand

A firm's production function indicates the a. minimum level of output that could be produced with different combinations of inputs b. relationship between output and total cost c. relationship between output and total revenue d. maximum level of output that could be produced with different combinations of inputs e. relationship between output and profit

d. maximum level of output that could be produced with different combinations of inputs

In monopolistic competition, nonprice competition a. allows firms to earn above-normal profits in the long run b. initially causes a leftward shift in the demand curve for a firm's output c. causes the firm to move upward along a given average total cost curve d. might lead to economic profits in the short run e. causes a firm to move toward the right along a given demand curve for the firm's output

d. might lead to economic profits in the short run

The more available substitutes there are for a good, the a. larger the number of consumers b. smaller the number of consumers c. smaller the supply side response d. more elastic the demand for that good e. less elastic the demand for that good

d. more elastic the demand for that good

The law of increasing opportunity cost is based on the idea that a. wages tend to increase with the level of employment b. interest rates tend to rise with increasing inflation c. labor costs for a typical firm are a large and growing proportion of total cost d. most resources are better suited to producing some goods than others e. the less of something we produce, the greater is the opportunity cost of producing still more

d. most resources are better suited to producing some goods than others

The number of sellers in a market is considered to be large when a. the total exceeds 100 b. no single buyer can affect the price through his or her demand for the product c. they cannot be easily counted d. no single seller can affect the price by changing its level of output e. no seller controls more than 20 percent of the total market supply

d. no single seller can affect the price by changing its level of output

Public goods are a. rival and excludable b. rival and nonexcludable c. nonrival but excludable d. nonrival and nonexcludable e. those provide by government agencies

d. nonrival and nonexcludable

The law of demand says that a. the customer is always right b. quantity supplied equals quantity demanded c. price and quantity supplied are inversely related d. price and quantity demanded are inversely related e. income and quantity demanded are directly related

d. price and quantity demanded are inversely related

Suppose there are three buyers in the market for bottled water. At a price of $2 per bottle, Jerry demands 23 bottles, Elaine demands 14 bottles, and Kramer demands 7 bottles. At one point, the market demand curve for bottled water is a. price= $2 and quantity= 23 bottles b. price= $88 and quantity= 44 bottles c. price= $88 and quantity= 14 bottles d. price= $2 and quantity= 44 bottles e. impossible to determine from the information given

d. price= $2 and quantity= 44 bottles

Economic models are used primarily to a. abstract from reality in order investigate economic issues b. make an abstract reproduction of all the details of the economy c. confuse undergraduate students d. provide simple answers to simple questions e. give inaccurate forecasts of the future

d. provide simple answers to simple questions

Individuals must make choices because a. resources are scarce and wants are limited b. resources and wants are unlimited c. assets and wealth are distributed unevenly d. resources are scarce and wants are unlimited e. inflation usually outpaces income growth

d. resources are scarce and wants are unlimited

When a firm incurs losses in the short run, the most important consideration in determining whether to continue producing is if a. marginal cost equals marginal revenue b. average total cost is at its minimum c. average variable cost is at its minimum d. revenues cover some of its fixed costs and all of its variable cost e. total revenue exceeds total cost

d. revenues cover some of its fixed costs and all of its variable cost

Price discrimination refers to a. the actions of a single-price monopolist to discern the best price for its output b. selling the same product to different customers at different prices as a result of different production costs c. government regulation of public utility prices d. selling the same product to different customers at different prices for reasons unrelated to production costs e. charging a price just above average total cost in order to drive competing firms from the market

d. selling the same product to different customers at different prices for reasons unrelated to production costs

Using a ________________ is a way of omitting extraneous details from an economic model. a. critical assumption b. theory c. normative statement d. simplifying assumption e. descriptive simplification

d. simplifying assumption

Unlimited liability for the firm's losses occurs in a. sole proprietorships only b. partnerships only c. corporations only d. sole proprietorships and partnerships e. all types of business firms

d. sole proprietorships and partnerships

1.17 A shift in the production possibilities frontier from DC to EC in Figure B-7 could be due to a a. technological improvement in the production of ice cream b. reduction in the rate of unemployment c. rise in the rate of unemployment d. technological improvement in the production of frozen yogurt e. fall in the demand for frozen yogurt

d. technological improvement in the production of frozen yogurt

Which of the following most clearly illustrates the law of diminishing marginal utility? a. the total satisfaction from consuming a good falls as more of the good is consumed b. marginal utility falls as total utility falls c. the quantity of a good demanded falls as price rises d. the additional satisfaction from consuming a good falls as more of the good is consumed e. there is a direct relationship between the price of a good and its total utility

d. the additional satisfaction from consuming a good falls as more of the good is consumed

The demand curve faced by a monopolist is a. perfectly elastic b. perfectly inelastic c. undefined d. the market demand curve e. the sum of the demand curves for perfectly competitive firms in a similar industry

d. the market demand curve

Production possibilities frontiers are typically concave (bowed out) from the origin because a. of the law of supply b. there is usually a one-for-one trade-off in resources used in production c. economies of scale enable firms to reduce the average costs of production as output rises d. the opportunity cost of a good rises as the quantity of the good produced increases e. resources are often left idle in the firm

d. the opportunity cost of a good rises as the quantity of the good produced increases

If a consumer's budget line between meat and potatoes has a vertical axis intercept at 100 pounds of meat and a horizontal axis intercept at 100 pounds of potatoes. a. demand must be inelastic b. the consumer's budget must be equal c. both meat and potatoes must be priced at $1 per round d. the price of a pound of meat must equal the price of a pound of potatoes e. the opportunity cost of meat in terms of potatoes cannot be determined

d. the price of a pound of meat must equal the price of a pound of potatoes.

Each point along the market demand curve shows a. the quantity of the good that firms would be willing and able to supply at a specific price b. the relationship between the price of the good and total quantity demanded at a series of prices c. the opportunity cost of supplying a given quantity of goods to the market d. the quantity of the good that consumers would be willing and able to purchase at a specific price e. how population changes affect the quantity demanded at a specific price

d. the quantity of the good that consumers would be willing and able to purchase at a specific price

Imperfect competition (e.g., monopolistic competition and oligopoly) differs from monopoly because a. only a monopoly faces a downward-sloping demand curve for its product b. all imperfectly competitive firms produce the same homogeneous product c. no single imperfectly competitive firm can affect the market price d. there is more than one seller in imperfect competition e. all imperfectly competitive firms are small

d. there is more than one seller in imperfect competition

Average fixed cost is a. the sum of variable and fixed costs b. total cost minus variable cost c. variable cost plus marginal cost d. total fixed cost per unit of output e. constant as output changes

d. total fixed cost per unit of output

In the short run, a. utilization of any input can be varied b. the period of time must be less than one year c. all resources are limited in supply d. utilization of at least one input in assumed constant e. equilibrium cannot occur

d. utilization of at least one input is assumed constant

Which of the following, necessarily, equals zero when the firm's short-run output level is zero? a. sunk costs b. fixed costs c. implicit costs d. variable costs e. opportunity costs

d. variable costs

Carl is considering attending a concert with a ticket price of $35. He estimates that the cost of driving to the concert and parking there will total an additional $20. In order to attend the concert, Carl will have to take time off from his part-time job. He estimates that he will lose 5 hours at work, at a wage of $6 per hour. Carl's opportunity cost of attending the concert equals a. $35 b. $55 c. $30 d. $65 e. $85

e. $85

which of the following is assumed constant along a given supply curve for pistachio ice cream? a. the price of pistachios and the price of pistachio ice cream b. the price of pistachio ice cream and the price of alternate flavors of ice cream c. the prices of alternate foods, but not the prices of inputs d. all variables affecting supply other than the productive capacity of the industry e. all variables affecting supply other than the price of pistachio ice cream

e. all variables affecting supply other than the price of pistachio ice cream

The distinguishing characteristics of different market structures include a. how frequently the product is purchased b. the extent of capitalization in the industry c. the presence or absence of technological innovation d. the presence or absence of collusion e. both the number of sellers and the number of buyers

e. both the number of sellers and the number of buyers

Price ceilings are primarily targeted to help __________, while price floors generally benefit __________. a. producers; no one b. increase tax revenue for governments; producers c. increase tax revenue for governments; consumers d. producers; consumers e. consumers; producers

e. consumers; producers

A natural monopoly is based on a. diseconomies of scale b. diseconomies of scope c. external diseconomies d. economic freedom e. economies of scale

e. economies of scale

For dessert, Mac has the choice between cheesecake and apple pie. The cheesecake has a marginal utility of 50 and a price of $5, and the apple pie has a marginal utility of 30 and a price of $3. Therefore, Mac should buy a. the cheesecake since the marginal utility is greater b. the apple pie because its price is lower c. two servings of apple pie and no cheesecake d. four servings of cheesecake e. either the apple pie or the cheesecake, it makes no difference

e. either the apple pie or the cheesecake, it makes no difference

Economies organize according to the principle of specialization and exchange because doing so a. enables the government to exercise greater control than would otherwise be possible b. forces people to work longer hours than they would do normally c. eliminates the "law of increasing opportunity costs" d. enables workers to move up to management in the least amount of time e. enables greater consumption and higher standards of living to be realized than would otherwise be possible

e. enables greater consumption and higher standards of living to be realized than would otherwise be possible

If food is measured on the horizontal axis of a budget line diagram, and clothing is measured on the vertical axis, the slope of the budget line a. may be positive if the price of clothing is high enough b. may be positive if the price of food is high enough c. may be positive if income is large enough d. equals minus the maximum consumption of food divided by the maximum consumption of clothing e. equals minus the maximum consumption of clothing divided by the maximum consumption of food

e. equals minus the maximum consumption of clothing divided by the maximum consumption of food

The demand curve that a monopolist faces a. is steeper than the market demand curve b. is the same as its marginal revenue curve c. is controlled by the government d. does not exist e. is the same as the market demand curve

e. is the same as the market demand curve

Roger spends all of his money on racquetballs and food. What would happen to Roger's budget line if his income increased by 10 percent, holding prices constant? a. it would shift inward b. it would pivot about the axis for food c. it would pivot about the axis for racquetballs d. nothing would happen to the budget line, since the relative prices for food and racquetballs have not changed e. it would shift outward

e. it would shift outward

Given the marginal cost and average total cost curve in Figure K-6, a monopolistically competitive firm in long-run equilibrium will produce a. 250 units and charge a price of $6 b. less than 250 units and charge a price below $6 c. more than 250 units and charge a price below $6 d. more than 250 units and charge a price above $6 e. less than 250 units and charge a price above $6

e. less than 250 units and charge a price above $6

The term capital, as used by economists, refers to a. money b. the physical space in which production occurs c. the time allocated to producing goods and services d. financial securities such as stocks and bonds e. long-lasting tools used to produce goods and services

e. long-lasting tools used to produce goods and services

In a perfectly competitive market, the a. market demand curve is horizontal b. short-run market supply curve is horizontal c. short-run market demand curve slopes upward d. short-run market supply curve slopes downward e. market demand curve slopes downward

e. market demand curve slopes downward

The property of a public good that allows additional persons to consume the good without reducing its availability to others is called a. free riding b. an externality c. allocative efficiency d. nonexcludability e. nonrivalry

e. nonrivalry

Economies of scale act as a barrier to entry because a. one large firm can supply the market at a higher average cost than many small firms could b. firms are not allowed by law to sell output below average cost c. large firms can hire inputs at a higher price than smaller firms d. firms will not compete with a larger firm when there are differences in marginal cost e. one large firm can produce the market output at a lower average cost than many small firms

e. one large firm can produce the market output at a lower average cost than many small firms

If there is an increase in the demand for automobiles, and at the same time auto workers receive a substantial raise, what will happen to equilibrium price and quantity in the automobile market? a. price and quantity will rise b. price and quantity will fall c. price will rise; quantity will fall d. quantity will rise; price change cannot be determined e. price will rise; quantity change cannot be determined

e. price will rise; quantity change cannot be determined

Whenever marginal cost exceeds marginal revenue, a. profit declines if the firm reduces output b. profit increases if the firm increases output c. the firm should shut down d. losses decrease if the firm increases output e. profit declines if the firm increases output

e. profit declines if the firm increases output

8.11 What is the total profit (or loss) for the monopolist shown in Figure J-9? a. profit of cbgf b. loss of fcbg c. profit of egbd d. loss of edcf e. profit of edcf

e. profit of edcf

Many gift shops along the ocean shut down during the winter because a. revenues cannot cover fixed costs b. marginal revenue does not equal marginal cost c. costs are minimized by shutting down d. revenues are maximized by shutting down e. revenues cannot cover variable costs

e. revenues cannot cover variable costs

In order to maximize its profit in the short run, an airline should offer an additional flight whenever a. its marginal revenue exceeds its sunk costs b. it marginal revenue exceeds its average total cost c. the average seat price exceeds its sunk costs d. the average seat price exceeds its average total costs e. the additional revenue exceeds the additional costs

e. the additional revenue exceeds the additional costs

The prisoner's dilemma demonstrates that a. breaking out of prison may be too costly for most prisoners b. the opportunity cost of being a prisoner is indeterminate c. the dominant strategies followed by two prisoners may lead to disequilibrium that is unpredictable d. the weak strategy may be followed by both prisoners if the opportunity cost is low e. the dominant strategies followed by two players may lead to an equilibrium that is less than optimal for both players together

e. the dominant strategies followed by two players may lead to an equilibrium that is less than optimal for both players together

T3. 11 consider the monopolistically competitive firm whose demand curve and cost structure are illustrated in Figure K-1. Which of the following statements is correct in the short run? a. a firm will produce 100 units and suffer a loss of $400 per week b. the firm will produce 100 units and suffer a loss of $300 per week c. the firm will produce 100 units and suffer a loss of $1,000 per week d. the firm will produce 100 units and suffer a loss of $100 per week e. the firm will produce zero units and suffer a loss of $300 per week

e. the firm will produce zero units and suffer a loss of $300 per week

According to the law of increasing opportunity cost, a. production points outside the production possibility frontier are unattainable b. the production possibility frontier becomes flatter as production increases along the horizontal axis c. the opportunity cost of producing a good rises as production of that good falls d. production points inside the production possibility frontier are unattainable e. the opportunity cost of producing a good rises as production of that good rises

e. the opportunity cost of producing a good rises as production of that good rises

Firms in a perfectly competitive market cannot influence a. the quantity of the good that they produce b. how much labor to use in production c. how much capital to employ in production d. the level of advertising that they use e. the price of the product they sell

e. the price of the product they sell

An important difference between a perfectly competitive market and a monopolistically competitive market is that, in the latter, a. there are more sellers of the good b. there are only a few large sellers c. there are no barriers to entry or exit d. there is only one seller of the good e. the product is not standardized

e. the product is not standardized

When there is an improvement in technology, holding all else constant, a. the production possibilities frontier will shift inward b. society faces larger opportunity costs from shifting productive resources from one use to another c. goods and services will increase in price d. the economy must have some idle resources e. the production possibilities frontier will shift outward

e. the production possibilities frontier will shift outward

If biscuits are an inferior good for Aster, then if their price falls, she a. will definitely buy more biscuits b. will definitely buy fewer biscuits c. may buy more biscuits d. will buy fewer biscuits if the substitution effect is larger than the income effect e. will buy more biscuits if the substitution effect is larger than the income effect

e. will buy more biscuits if the substitution effect is larger than the income effect