Micro Economics Exam #2

For all firms, the additional revenue collected from the sale of one additional unit of output is termed:

B) marginal revenue.

If you were to start your own business, your implicit costs would include the:

B) opportunity cost of the time you spend working at the business.

Airlines that charge higher prices for customers who purchase their tickets at the last minute are:

B) price discriminating by identifying passengers with higher reservation prices.

The cumulative difference between the price producers actually receive for a good and the lowest price for which they would have been willing to sell it is called:

B) producer surplus.

Suppose the accompanying figure illustrates the demand curve facing a monopolist. If the monopolist decreases its price from $12 to $10, its total revenue will ________.

B) increase by $600

If a monopolist's marginal revenue exceeds its marginal cost at its current level of output, then to maximize its profit the monopolist should:

B) increase output until marginal revenue equals marginal cost.

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. In the short run, firms in this market will shut down if the market price is:

B) less than $5

The difference between the price a seller actually receives for a good and the seller's reservation price is:

B) producer surplus.

Suppose the accompanying table describes the relationship between price and quantity demanded for a monopolist. The marginal revenue of the fifth unit of output is:

D) $2

Unlike economic profit, economic rent:

D) may not be driven to zero by competition.

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. In the long run, how much profit will each firm in this industry earn each week?

B) $0

Which of the following statements is true for both Microsoft and a locally owned restaurant?

B) Both seek to maximize profits.

Which of the following is NOT a commitment device?

B) High fines for illegal parking on campus

Refer to the table below. An output level of 15 units, this firm's accounting profit is ________, and its economic profit is ________.

A) $12; $6

Pat used to work as an aerobics instructor at the local gym earning $35,000 a year. Pat quit that job and started working as a personal trainer. Pat makes $50,000 in total annual revenue. Pat's only out-of-pocket costs are $12,000 per year for rent and utilities, $1,000 per year for advertising and $3,000 per year for equipment. Pat's accounting profit is ________, and Pat's economic profit is ________.

A) $34,000; −$1,000

Which of the following best explains why you are more likely to see a poor person than a wealthy person picking up aluminum cans to sell?

A) The opportunity cost of picking up cans is higher for wealthy people than for poor people.

Tracy and Amy are playing a game in which Tracy has the first move at X in the decision tree shown below. Once Tracy has chosen either the top or bottom branch at X, Amy, who can see what Tracy has chosen, must choose the top or bottom branch at Y or Z. Both players know the payoffs at the end of each branch. In the equilibrium of this game:

A) Tracy gets 75 and Amy gets 150.

A dominant strategy exists if:

A) a player has a strategy that yields the highest payoff regardless of the other player's choice.

A pure monopoly exists when:

A) a single firm produces a good with no close substitutes.

A coalition of firms who agree to restrict output for the purpose of earning an economic profit is called a(n):

A) cartel.

The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist. At the socially optimal level of output, this monopolist would:

A) incur an economic loss of $64.

A profit-maximizing perfectly competitive firm must decide:

A) only on how much to produce, taking price as fixed.

A purely self-interested diner is more likely to tip:

A) only when dining in a restaurant at which he often eats.

Suppose there are two small island countries: Avarice, which is populated by people who are completely self-interested, and Altruism, which is populated by people who have adopted social norms of generosity and cooperation. If two residents of Avarice play a prisoner's dilemma game, they are likely to:

A) reach the Nash equilibrium more often than would residents of Altruism.

Monopolists use the hurdle method of price discrimination in order to:

A) separate consumers on the basis of their reservation prices

Individual supply curves generally slope ________ because ________.

A) upward; of increasing opportunity costs.

Mexico and the members of OPEC produce crude oil. Realizing that it would be in their best interests to form an agreement on production goals, a meeting is arranged and an informal, verbal agreement is reached. If both Mexico and OPEC abide by the agreement, then OPEC's profit will be $200 million and Mexico's profit will be $100 million. If both Mexico and OPEC cheat on the agreement, then OPEC's profit will be $175 million and Mexico's profit will be $80 million. If only OPEC cheats, then OPEC's profit will be $185 million, and Mexico's profit will be $60 million. If only Mexico cheats, then Mexico's profit will be $110 million, and OPEC's profit will be $150 million. To Mexico, the payoff to cheating is either:

B) $80 million or $110 million

The figure below shows the supply and demand curves for oranges in Smallville. At the price of $4 per pound, sellers offer ________ pounds of oranges per day, and buyers want to purchase ________ pounds of oranges a day.

B) 10; 30

The table below shows how the payoffs to two political candidates depend on whether the candidates run a positive or negative campaign. The payoffs are given in terms of the percentage change in the number of votes received. Running a negative campaign is ________ for the ________ candidate.

B) a dominant strategy; Democratic

Refer to the figure below. Player B can infer that Player A will:

B) always choose Up

P-TV and QRS-TV are trying to decide whether to air a sitcom or a reality show in a given time slot. Viewers like both sitcoms and reality shows, but sitcoms are more expensive to produce than reality shows since real actors need to be hired. QRS-TV makes its decision first, and then P-TV observes that choice before making its decision. Both stations know all of the information in the decision tree below. In the equilibrium of this game:

B) both stations will air reality shows.

A price-taker faces a demand curve that is:

B) horizontal at the market price.

Suppose there are two small island countries: Avarice, which is populated by people who are completely self-interested, and Altruism, which is populated by people who have adopted social norms of generosity and cooperation. Suppose residents of each island often play prisoner's dilemma games, always matched with a person from the same island, but not a person who they know or will play with again. If the same number of games is played on each island, you would expect:

B) the residents of Altruism to have higher average payoffs than the residents of Avarice

Refer to the table below. An output level of 25 units, this firm's accounting profit is ________, and its economic profit is ________.

B) zero; −$8

Suppose a small island nation imports sugar for its population at the world price of $1,500 per ton. The domestic market for sugar is shown below. If the government provides a subsidy of $500 per ton, the equilibrium price of sugar will be ________ per ton, and the equilibrium quantity will be ________ tons per day.

C) $1,000; 12

Suppose Sarah owns a small company that makes wedding cakes. The accompanying table shows how Sarah's total cost varies depending on the number of wedding cakes she makes each day. Sarah's fixed cost is ________ per day

C) $100

When Acme Dynamite produces 250 units of output, its variable cost is $2,000, and its fixed cost is $500. It sells each unit of output for $25. When Acme Dynamite produces 250 units of output, its profit is:

C) $3,750.

Which of the following firms is most likely to be a pure monopolist?

C) The only gas station in a small, isolated town

The profit maximizing rule MR = MC applies to:

C) all firms.

One implication of the shape of the demand curve facing a perfectly competitive firm is that:

C) if the firm increases its price above the market price, it will earn zero revenue.

Mexico and the members of OPEC produce crude oil. Realizing that it would be in their best interests to form an agreement on production goals, a meeting is arranged and an informal, verbal agreement is reached. If both Mexico and OPEC abide by the agreement, then OPEC's profit will be $200 million and Mexico's profit will be $100 million. If both Mexico and OPEC cheat on the agreement, then OPEC's profit will be $175 million and Mexico's profit will be $80 million. If only OPEC cheats, then OPEC's profit will be $185 million, and Mexico's profit will be $60 million. If only Mexico cheats, then Mexico's profit will be $110 million, and OPEC's profit will be $150 million. This game is ________ because ________.

C) not a prisoner's dilemma; OPEC does not have a dominant strategy

Ingrid has been waiting for the show "Mamma Mia!" to come to town. When it finally does come, tickets cost $60. Ingrid's reservation price is $75. But when Ingrid tries to buy a ticket, they are sold out. Ingrid decides to try to buy a ticket from a scalper (a person who purchased extra tickets at the box office with the intent to resell them at a higher price). If Ingrid finds someone who is willing to sell her a ticket for $70, she should:

C) purchase the ticket because doing so will make her $5 better off.

When more firms enter an industry:

C) the industry supply curve will shift right

In the Nash equilibrium of a prisoner's dilemma:

C) there is unrealized opportunity for both to gain.

The figure below shows the supply and demand curves for jeans in Smallville. Suppose jeans initially sell for $60 per pair. If the price of jeans falls to $40 per pair, then the total economic surplus will increase by ________ per day.

D) $160

Refer to the accompanying table. It is clear that diminishing returns sets in after ________ workers per day.

D) 4

Consider the accompanying payoff matrix. What is player A's dominant strategy?

D) Up

Which of the following best describes how a perfectly competitive industry would respond to a sudden increase in popularity of the product? The market demand curve would shift to the right, leading to:

D) a higher equilibrium price in the short run and entry into the market in the long run.

A ________ describes the possible moves in a game in sequence and lists the payoffs to each possible combination of moves.

D) decision tree

Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below. Mega Corp: TC = 5,000 + 100Q Big Inc: TC = 4,000 + 200Q For both firms, average total cost:

D) declines as quantity increases.

If the demand curve fails to capture all of the benefits of consumption, then the:

D) equilibrium price will be inefficiently low.

Suppose a perfectly competitive firm is producing 37 units output, and the marginal cost of the 37th unit is $3. If the firm can sell each unit of output for $5 and the firm's revenue is sufficient to cover its variable cost, the firm should:

D) increase production.

If it is possible to make a change that will help some people without harming others, then the situation is:

D) inefficient.

Suppose a monopolist faces the following demand curve. If you were to draw the monopolist's marginal revenue curve, it would:

D) intersect the horizontal axis at 35.

Suppose there are two small island countries: Avarice, which is populated by people who are completely self-interested, and Altruism, which is populated by people who have adopted social norms of generosity and cooperation. Commitment problems will be: Ffifth

D) largely avoided in Altruism, but prevalent in Avarice.

If the demand curve facing a monopolist shifts, then the monopolist's:

D) marginal revenue curve and profit-maximizing level of output will change

Most cartels cease to be effective because:

D) of the incentive to cheat on the cartel agreement.

Consider the accompanying payoff matrix. If Row Resorts keeps its rates high, then Column Cruises would receive the highest payoff if it:

D) offered reduced rates.

Adam Smith believed that the individual pursuit of self-interest:

D) often promotes the broader interests of society.

Economies of scale exist when:

D) the average cost of production falls as output rises

Individual supply curves generally slope ________ because ________.

D) upward; of increasing opportunity costs.

A monopolistically competitive firm:

B) sometimes distinguishes its output from that of its competitors by locating in a more convenient place.

Adam Smith's theory of the invisible hand posits that the most efficient allocation of resources is often achieved by:

C) the actions of independent, self-interested buyers and sellers.

Refer to the figure below. If Jess chooses A, then Cory's best response is:

C) to choose A.

Miniville is an isolated town located on the southern shore of Lake Condescending, a very large lake. The western edge of Miniville is adjacent to impassable mountains and there are no towns or businesses for many miles to the east. The 300 residents of Miniville are evenly distributed along 3 miles of shoreline on the lake, east of the mountains. Lake Shore Drive, the only street in town, provides access to Miniville's homes and businesses. All residents live between the lake and the street; businesses locate on the other side of the street. Lake Shore Drive is 3 miles long, and the points labeled A, B, and C are 1, 2, and 3 miles from the western end of Lake Shore Drive, respectively. All residents of Miniville shop at the store located closest to their homes. If one store is located at A and the other store is located at C:

A) 200 people will shop at the store at A, and 100 people will shop at the store at C.

Tracy and Amy are playing a game in which Tracy has the first move at X in the decision tree shown below. Once Tracy has chosen either the top or bottom branch at X, Amy, who can see what Tracy has chosen, must choose the top or bottom branch at Y or Z. Both players know the payoffs at the end of each branch. If before Tracy chose, Amy could make a credible commitment to choose either the top or bottom branch when her turn came, then we would expect Tracy to get a payoff of ________ and Amy to get a payoff of ________.

A) 300; 200

Suppose Sarah owns a small company that makes wedding cakes. The accompanying table shows how Sarah's total cost varies depending on the number of wedding cakes she makes each day. If the market for wedding cakes is perfectly competitive, and wedding cakes sell for $125 each, then Sarah should produce ________ cakes per day.

A) 5

Suppose two companies, Macrosoft and Apricot, are considering whether to develop a new product, a touch-screen t-shirt. The payoffs to each of developing a touch-screen t-shirt depend upon the actions of the other, as shown in the payoff matrix below (the payoffs are given in millions of dollars). Which of the following statements is correct?

A) Apricot does not have a dominant strategy

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. If the market supply curve is given by S3, then what will happen to the market supply curve in the long run?

A) It will shift to S2

Player 1 and Player 2 are playing a game in which Player 1 has the first move at A in the decision tree shown below. Once Player 1 has chosen either Up or Down, Player 2, who can see what Player 1 has chosen, must choose Up or Down at B or C. Both players know the payoffs at the end of each branch. What is the equilibrium outcome of this game?

A) Player 1 chooses Down and Player 2 chooses Up

If a firm's total revenue is $112 when it sells 16 units, $119 when it sells 17 units and $126 when it sells 18 units, then the firm is:

A) a perfectly competitive firm

A good is characterized by network economies if it:

A) becomes more valuable as more people own it.

When players cannot achieve their goals because they are unable to make credible threats or promises, the situation is called a:

A) commitment problem.

A rational seller will sell another unit of output:

A) if the cost of making another unit is less than the revenue gained from selling another unit

If a firm is earning zero economic profit, then:

A) the firm's accounting profit is equal to the firm's implicit costs.

Refer to the accompanying figure. If the market for doughnuts is perfectly competitive, then assuming this firm can earn enough revenue to cover its variable cost, it should produce:

A) the quantity of doughnuts at which marginal cost equals the market price.

Miniville is an isolated town located on the southern shore of Lake Condescending, a very large lake. The western edge of Miniville is adjacent to impassable mountains and there are no towns or businesses for many miles to the east. The 300 residents of Miniville are evenly distributed along 3 miles of shoreline on the lake, east of the mountains. Lake Shore Drive, the only street in town, provides access to Miniville's homes and businesses. All residents live between the lake and the street; businesses locate on the other side of the street. Lake Shore Drive is 3 miles long, and the points labeled A, B, and C are 1, 2, and 3 miles from the western end of Lake Shore Drive, respectively. All residents of Miniville shop at the store located closest to their homes. Because all residents of Miniville shop at the store located closest to their homes, the optimal location for the first store to open in Miniville is:

A) there is no single optimal location for the first store

15) Even when a firm produces the level of output at which price equals marginal cost, it should shut down if its total revenue is less than its:

A) variable cost.

If the demand curve facing the monopolist is P = 70 − 14Q, then the slope of its marginal revenue curve is:

A) −28.

Suppose a monopolist faces the following demand curve. The marginal revenue of the 35th unit of output is:

B) $0.

Industries in which firms have high fixed costs and low marginal costs are likely to have a:

B) small number of large firms

Imagine that you are an entrepreneur, making designer t-shirts in your garage. Your total cost (in dollars) is given by the equation TC = 300 + 10Q, where Q represents the number of t-shirts you make. If you make 1,000 t-shirts, your average total cost is ________.

B) $10.30

Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small resort town. The marginal cost to Island Bikes of renting out a bike is $3, and Island Bikes has no fixed costs. Each day Island Bikes has six potential customers, whose reservations prices are listed in the table. If Island Bikes charges a single price to all of its customers, then what will be its daily economic profit?

B) $27

John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the accompanying table.

B) $3.50

Suppose the accompanying table describes the demand for a good produced by monopolist. The total revenue from selling 6 units is ________, and the marginal revenue of selling the 6 unit is ________.

B) $30; 0

Pat used to work as an aerobics instructor at the local gym earning $35,000 a year. Pat quit that job and started working as a personal trainer. Pat makes $50,000 in total annual revenue. Pat's only out-of-pocket costs are $12,000 per year for rent and utilities, $1,000 per year for advertising and $3,000 per year for equipment. Pat's accounting profit is ________, and Pat's economic profit is ________.

B) $34,000; −$1,000

Last year Christine worked as a consultant. She hired an administrative assistant for $15,000 per year and rented office space (utilities included) for $3,000 per month. Her total revenue for the year was $100,000. If Christine hadn't worked as a consultant, she would have worked at a real estate firm earning $40,000 a year. Last year, Christine's explicit costs were ________, and her implicit costs were ________.

B) $51,000; $40,000

Refer to the table below. At what output level or levels are this firm's owners doing as well as or better than they could do with the next best use of their resources?

B) 10, 15, and 20 units

Refer to the accompanying table. To increase output from 99 to 132 units requires ________ extra employees per day; to increase output from 132 to 165 units requires ________ extra employees per day.

B) 3; 4

Suppose the accompanying figure shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. At the monopolist's profit-maximizing level of output, deadweight loss equals the area:

B) JLN

John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the accompanying table. Should John spend a third hour cleaning windows?

B) No, because the additional amount he would earn is $6, which is less than his opportunity cost of $7.

If a firm is earning zero economic profit, then its accounting profit will:

B) be positive

The market for bagels contains two firms: BagelWorld (BW) and Bagels'R'Us (BRU). The owners of the two firms decide to fix the price of bagels. The table below shows how each firm's profit (in dollars) depends on whether they abide by the agreement or cheat on the agreement. For Bagel World, ________ is a ________.

B) cheating on the agreement; dominant strategy

Joe is the owner of the 7-11 Mini Mart, Sam is the owner of the SuperAmerica Mini Mart, and together they are the only two gas stations in town. Currently, they both charge $3 per gallon, and each earns a profit of $1,000. If Joe cuts his price to $2.90 and Sam continues to charge $3, then Joe's profit will be $1,350, and Sam's profit will be $500. Similarly, if Sam cuts his price to $2.90 and Joe continues to charge $3, then Sam's profit will be $1,350, and Joe's profit will be $500. If Sam and Joe both cut their price to $2.90, then they will each earn a profit of $900. For Sam, cutting his price to $2.90 per gallon is a:

B) dominant strategy.

In the long run, in a perfectly competitive industry:

B) economic profit and loss are driven to zero by entry and exit.

One difference between the long run and the short run in a perfectly competitive industry is that:

B) firms necessarily earn zero economic profit in the long run but may earn positive or negative economic profit in the short run.

Suppose a monopolist produces two different products. If the marginal cost of producing one is lower than the marginal cost of producing the other, and the monopolist charges a different price for the two goods, then the monopolist is:

B) not price discriminating.

Under cost-plus regulation, a regulated firm is permitted to charge prices that cover the explicit cost of production plus a markup to cover the:

B) opportunity cost of the resources supplied by the firm's owners

Suppose a firm uses workers and office space to produce output. The firm is locked into a year-long lease on its office space, but it can easily vary the number of employee-hours it uses each day. The accompanying table describes the relationship between the number of employee-hours the firm uses each day and the firm's daily output. Each unit of output sells for $2, the hourly wage rate is $14, and the rent on the office space is $50 per day.

B) profit; $64

The accompanying table shows a pizzeria's fixed cost and variable cost at different levels of output. Pizzas sell for $20 each. When the pizzeria makes 100 pizzas per day, it earns an economic ________ of ________

B) profit; $650

Last year, Casey grew fresh vegetables, which she sold at her local farmers market, but this year, Casey did not plant any vegetables and went to work at a bank instead. If Casey's decision to change careers did not affect the price of vegetables at the farmers market, then this suggests that:

B) the market for vegetables is perfectly competitive.

Suppose a monopolist faces the following demand curve. This demand curve can be used to determine:

B) the monopolist's total revenue at different price and quantity combinations

Your neighbors have offered to pay you to look after their dog while they are on vacation. It will take you one hour per day to feed, walk, and care for the dog, which you can do either before or after you go to work. Your regular job pays $10 per hour, and you can work up to eight hours per day. The smallest amount of money you would accept to look after your neighbor's dog each day is equal to:

B) the value you place on one hour of leisure

Refer to the figure below. If Cory chooses A, then Jess's best response is:

B) to choose B.

Fred runs a fishing lodge and has a very profitable business during the summer. In the fall, the number of guests at the lodge starts to decline. Fred should keep the lodge open:

C) only during those months in which his total revenue exceeds his variable cost.

A price ceiling that is set below the equilibrium price will cause:

C) producer surplus to fall.

Given the total cost function TC = 2,000 + 2Q, when output is 1,000 units average total cost is ________ and total fixed cost is ________.

C) $4; $2,000

Suppose Sarah owns a small company that makes wedding cakes. The accompanying table shows how Sarah's total cost varies depending on the number of wedding cakes she makes each day. When Sarah produces 2 cakes per day, her average variable cost is ________.

C) $60

Suppose the production of cotton causes substantial environmental damage because the pesticides used by cotton farmers often make their way into nearby rivers and streams, and are very harmful to fish and other wildlife. Economists would consider the environmental damage that results from the production of cotton to be a(n):

C) relevant cost of production

Suppose Acme and Mega produce and sell identical products and face zero marginal and average cost. Below is the market demand curve for their product. Suppose Acme and Mega decide to collude and work together as a monopolist with each firm producing half the quantity demanded by the market at the monopoly price. If Mega cheats on the agreement by reducing its price to $1 and Acme matches the price cut, then if consumers are evenly split between the two firms, Acme's economic profit will be ________.

C) $75

Refer to the figure below. In this game, how many dominant strategies does Player A have?

C) 1

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. In the long run, there will be ________ firms in this market.

C) 10

Quick Buck and Pushy Sales produce and sell identical products and face zero marginal and average cost. Below is the market demand curve for their product. Suppose Quick Buck and Pushy Sales decide to collude and work together as a monopolist with each firm producing half the quantity demanded by the market at the monopoly price. If Quick Buck cheats by reducing its price to $1 while Pushy Sales continues to comply with the collusive agreement, then Quick Buck will sell ________ units and Pushy Sales will sell ________ units

C) 3,000; 0

Imagine that you are an entrepreneur, making designer t-shirts in your garage. Your total cost (in dollars) is given by the equation TC = 300 + 10Q, where Q represents the number of t-shirts you make. Your fixed cost is $________, and your marginal cost is $________.

C) 300; 10

Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small resort town. The marginal cost to Island Bikes of renting out a bike is $3, and Island Bikes has no fixed costs. Each day Island Bikes has six potential customers, whose reservations prices are listed in the table. Suppose Island Bikes knows that customers whose reservation prices are at least $10 always rent bikes before noon, while those whose reservation prices are below $10 never do so. If Island bikes can charge a different price in the morning and in the afternoon, then in the morning, it will rent out ________ bike(s) and charge ________ per bike.

C) 3; $12

Suppose Chris is a potter who makes mugs. His total costs depend on the number of mugs he makes each day, as shown in the accompanying table. If the market for mugs is perfectly competitive, and mugs sell for $7.50 each, then Chris should make ________ mugs per day.

C) 4

Suppose the accompanying figure shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. When this monopolist maximizes its profit, consumer surplus equals the area:

C) ABJ.

Hotelling's model has been used to describe differentiation in the political "market." Suppose that 100 voters are evenly distributed between the extreme left and the extreme right on the political spectrum, and that all voters vote, and they always vote for the candidate closest to them on this spectrum. The numbers on this spectrum represent the number of voters lying to the left of the number. So, at the midpoint, fifty voters lie to the left and fifty to the right. If Candidate X is running for office against Candidate Z, then:

C) Candidate Z will win.

Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below. Mega Corp: TC = 5,000 + 100Q Big Inc: TC = 4,000 + 200Q If each firm is producing 15 units, you would expect:

C) Mega Corp to charge a lower price than Big Inc.

Suppose Ben owns a small company that makes kites. The market for kites is perfectly competitive, and kites sell for $25 each. Ben's total production costs vary depending on the number of kites he makes each day, as shown in the accompanying table. Should Ben shut down?

C) No, because he can earn enough revenue to cover his variable cost

Suppose a firm produces the level of output at which the marginal cost of the last unit produced equals the price of the good. Which of the following statements is always true?

C) The firm should shutdown if its total revenue is less than its variable cost.

Which of the following is the most likely to be a variable factor of production at a university?

C) The number of librarians

The table below shows how the payoffs to two political candidates depend on whether the candidates run a positive or negative campaign. The payoffs are given in terms of the percentage change in the number of votes received. In the Nash equilibrium of this game:

C) both candidates run negative campaigns.

Suppose that you have noticed that almost all of the car dealers in your city are located along a three-block stretch of the same street. A likely reason for this clustering of car dealers is that:

C) each dealer is attempting to locate closest to the customers.

A natural monopoly is a monopoly that arises from:

C) economies of scale.

If a perfectly competitive firm produces an output level at which price is greater than marginal cost, then the firm should:

C) expand output to earn greater profits or smaller losses

The essential feature that differentiates imperfectly competitive firms from perfectly competitive firms is that an imperfectly competitive firm:

C) faces a downward-sloping demand curve.

The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist. At this monopolist's profit-maximizing level of output, it:

C) incurs an economic loss of $16 per day.

Suppose the accompanying figure illustrates the demand curve facing a monopolist. Suppose this firm maximizes its profits by charging a price of $8 per unit. This implies that the firm's:

C) marginal cost is $0.

Economic theory assumes that a firm's goal is to:

C) maximize its economic profit.

Relative to a single price monopolist, a price discriminating monopolist generates:

C) more total surplus

Adam Smith's theory of the invisible hand posits the actions of independent, self-interested buyers and sellers will ________ lead to the most efficient allocation of resources.

C) often

The accompanying table shows a pizzeria's fixed cost and variable cost at different levels of output. Pizzas sell for $20 each. When the pizzeria makes 50 pizzas a day, its average variable cost is ________.

D) $5

Suppose Grandis and Immanis are the only two companies that sell the product whose market demand curve is shown in the accompanying figure. For both companies, both average total cost and marginal cost are constant and equal to $2 (ATC = MC = $2). Suppose Grandis and Immanis agree to collude by both charging the price a monopolist would charge and each producing half of the monopolist's profit-maximizing level of output. Grandis, however, decides to cheat on the collusive agreement. If Grandis charges $1 less than the monopoly price while Immanis continues to charge the monopoly price, then Grandis will earn a profit of ________ per day.

D) $80

Suppose Juliana owns a small business making handbags. Each month she makes 18 handbags, which she sells for $100 each. The materials used to make each handbag cost $50. In addition, Juliana uses a spare room in her house to make the handbags and store her supplies. If she were not using the spare room for her business, she would use it as a guest room, an option that Juliana would value at $250 per month. If Juliana weren't making handbags, she would work at Trader Joe's earning $800 per month. What is Juliana's accounting profit each month?

D) $900

A price ceiling that is set below the equilibrium price will result in:

D) a shortage of the good

If resources are misallocated in a perfectly competitive market, then, in the long run, profit opportunities will:

D) bring about a more efficient allocation of resources

In a repeated prisoner's dilemma, players:

D) can sustain cooperation by employing a tit-for-tat strategy

Suppose the accompanying table describes the demand for a good produced by monopolist. The monopolist's marginal revenue from selling the 4th unit of output is less than $7 because:

D) it has to charge $1 less for each of the first 3 units of output

Refer to the table below. Suppose all firms in this industry have identical costs to this firm and are producing 15 units of output. One can predict that:

D) new firms will enter the industry.

Consider the accompanying payoff matrix. If Row Resorts offers reduced rates, then Column Cruises would receive the highest payoff

D) offered reduced its rates.

Consider a monopolist who charges a single price to all of its customers. If this monopolist starts price discriminating, its output will ________ and its profit will ________.

D) rise; rise

Assume that the production technology required to produce goods X and Y is very similar. If a firm that is producing good X notices that the market price of good Y is rising, it will:

D) shift into producing good Y.

Suppose that when a perfectly competitive firm produces 500 units of output a day, it earns an economic loss. If the price of each unit of output is $1.50, then, in the short run, it's clear that this firm:

D) should not shut down if its total variable cost is less than $750

If all firms in a perfectly competitive industry are experiencing economic losses, then:

D) some firms will exit the industry, until economic profit equals zero.