Microeconomics Final

____________ occurs when the economy is producing what people want at least possible cost. A. Efficiency B. Equity C. Stability D. Maximum profit

A. Efficiency

Suppose a new government policy will generate $5,000 of benefits for local businesses and $3,000 of costs. This policy can best be described as A. Pareto efficient. B. inefficient. C. potentially efficient. D. equitable.

A. Pareto efficient.

A condition in which no change is possible that will make some members of society better off without making some other members of society worse off is called A. Pareto optimality. B. partial equilibrium. C. general equilibrium. D. market failure.

A. Pareto optimality.

A conditions in which no change is possible that will make some members of society better off without making some other members of society worse off is called A. Pareto optimality. B. partial equilibrium. C. general equilibrium. D. market failure.

A. Pareto optimality.

Which of the following will shift the short-run industry supply curve of a perfectly competitive industry? A. a decrease in the price of an input B. an increase in consumer income C. an increase in the price of the product D. an increase in demand for the product

A. a decrease in the price in an input

The individual firm's demand curve facing a monopoly is A. also the market demand curve. B. the summation of all perfectly competitive firms' demand curves. C. nonexistent. D. the marginal cost curve above minimum average variable cost.

A. also the market demand curve.

The law of diminishing return indicates that: A. as extra units of a variable resources are added to a fixed resource, beyond certain point marginal product will decline. B. because of economies and diseconomies of scale a competitive firm's long-run average total cost curve will be U-shaped. C. the demand for goods produced by purely competitive industries is down-sloping. D. beyond some point the extra utilities derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction.

A. as extra units of a variable resources are added to a fixed resource, beyond certain point marginal product will decline.

If marginal cost is above average variable cost, then A. average variable cost is increasing. B. marginal cost must be decreasing. C. average variable cost is constant. D. average variable cost is decreasing.

A. average variable cost is increasing.

The ____ is the share of industry output in sales or employment accounted for by the top firms in an industry A. concentration ratio B. contestability ratio C. competitive index D. collusive level E. HHI

A. concentration ratio

Firms that are "breaking even" are A. earning zero economic profits. B. earning less than a normal rate of return. C. shutting down in the short run. D. All of the above are correct.

A. earning zero economic profits.

It is essential to establish specific criteria to judge the performance of any economic system. One such criterion is A. efficiency. B. profit opportunity. C. technological progress. D. achieving general equilibrium

A. efficiency.

It is essential to establish specific criteria to judge the performance of any economic system. One such criterion is A. efficiency. B. profit opportunity. C. technological progress. D. achieving general equilibrium.

A. efficiency.

One criterion used to judge the performance of any economic system is A. equity. B. revenue generation. C. nominal growth. D. inflation.

A. equity.

Industries in which firms are enjoying positive profits are likely to _________ in the long run. A. expand B. contract C. neither expand nor contract, as firms must earn an economic profit to stay in business D. expand or contract depending on the normal rate of return

A. expand

Which of the following is most likely to be a variable cost? A. fuel and power payments B. interest on business loans C. rental payments on IBM equipment D. real estate taxes

A. fuel and power payments

In the short run average costs eventually ___________ because of diminishing returns, and in the long run average costs eventually _________ because of diseconomies of scale. A. increase; increase B. increase; decrease C. decrease; increase D. decrease; decrease

A. increase; increase

For economies of scale, a(n) ___________ in a firm's scale of production leads to ____________ average total cost. A. increase; lower B. increase; higher C. decrease; lower D. decrease; no change in

A. increase; lower

The XYZ Computer Company has a monopoly over the production of a specialized color printer. The XYZ Computer Company will find it profitable to increase the production of specialized color printers as long as marginal cost A. is less than marginal revenue. B. equals marginal revenue. C. is greater than marginal revenue. D. is positive.

A. is less than marginal revenue.

Examining the equilibrium conditions of individual markets and for households and firms separately is referred to as A. partial equilibrium analysis. B. general equilibrium analysis. C. comparative statics. D. efficiency analysis.

A. partial equilibrium analysis.

If at the current output of X the PX > MCX, then society gains by A. producing more X. B. producing less X. C. raising the price of X. D. increasing the cost of producing X.

A. producing more X.

If at the current output of X the Px > MCx, then society gained by A. producing more X. B. producing less X. C. raising the price of X. D. increasing the cost of producing X.

A. producing more X.

Market power refers to a firm's ability to A. raise price without losing all sales of its product. B. change any price it likes. C. sell any amount of output it desires at the market-determined price. D. monopolize a market completely.

A. raise price without losing all sales of its product.

The long-run industry supply curve __________ in an increasing-cost industry. A. slopes up B. slopes down C. is vertical D. is horizontal

A. slopes up

As new firms enter a decreasing-cost industry. A. the LRAC curve shifts down. B. the LRAC curve shifts up. C. the position of the LRAC curve doesn't change, but firms move down their LRAC curve. D. the position of the LRAC curve doesn't change, but firms move up their LRAC curve.

A. the LRAC curve shifts down.

Resources are allocated efficiently when A. the market produces what people want. B. economic profits are zero. C. output is distributed in an equitable fashion. D. output is produced in a sustainable fashion.

A. the market produces what people want.

If revenue is less than _________, profit is ______________. A. total cost; negative B. total fixed cost; positive C. total variable cost; zero D. total cost; positive

A. total cost; negative

A firm earns a profit if A. total revenue exceeds total cost of production. B. total revenue equals total fixed costs. C. price is less than the total cost of production. D. price equals marginal cost.

A. total revenue exceeds total cost of production.

Amy borrowed $20,000 form her parents to open a bagel shop. She pays her parents a 5% yearly return on the money they lent her. Her other yearly fixed costs equal $9,000. Her variable costs equal $30,000. In her first year, Amy sold 40,000 dozen at a price of $1.50 per dozen. Amy's profit is: A. $0. B. $20,000. C. $30,000. D. $50,000.

B. $20,000.

The Reliable Auto Repair Shop is earning a total revenue of $7,000. Its total fixed costs are $700, and its total variable costs are $2,500. The Reliable Auto Repair Shop's profit is A. $-1,800. B. $3,800 C. $4,500 D. $6,300

B. $3,800.

The Reliable Auto Repair Shop is earning a total revenue of $7,000. Its total fixed costs are $700, and its total variable costs are $2,500. The Reliable Auto Repair Shop's profit is A. -$1,800. B. $3,800. C. $4,500. D. $6,300.

B. $3,800.

Sue is maximizing her utility. Her MUx/Px = 10 and MUy = 40. Then the price of Y must be A. $1 B. $4 C. $10 D. $40

B. $4

Amy borrowed $20,000 from her parents to open a bagel shop. She pays her parents a 5% yearly return on the money they lent her. Her other yearly fixed costs equal $9,000. Her variable costs equal $30,000. In her first year, Amy sold 40,000 dozen at a price of $1.50 per dozen. Amy's total costs equal A. $39,000. B. $40,000. C. $50,000. D. $59,000.

B. $40,000.

The Cakery Bakery sells 200 muffins at a price of $2 per muffin. Its explicit costs for producing 200 muffins are $350. If the bakery is earning A. $0 B. $50 C. $350 D. $400

B. $50

A new technology is developed for producing microwave ovens that reduces production costs by 10%. Which of the following is the most likely consequence of this technological change? A. Firms will continue to operate efficiently as long as no firm adopts his new technology. B. Firms must adopt this new technology to remain efficient. C. This new technology will not affect efficiency, but it will change the equilibrium price and quantity for this industry. D. If firms do not adopt this new technology, then the economy will remain in general equilibrium, because firms will not change their price and output decisions.

B. Firms must adopt this new technology to remain efficient.

__________ is an example of a public good. A. An automobile B. National defense C. A restaurant meal D. A medical service

B. National defense

____________ is an example of a public good. A. An automobile B. National defense C. A restaurant meal D. A medical service

B. National defense

In perfect competition, the condition that ensures that the right things are produced is A. MUx = Px. B. P = MC. C. P = ATC. D. MRPl = ATC.

B. P = MC.

The Taste Freeze Ice Cream Company is a perfectly competitive firm producing when MR = MC. The current market price of an ice cream sandwich is $5.00. Taste Freeze sells 200 ice cream sandwiches. Its AVC is $8.00 and its AFC is $3.00. What should Taste Freeze do? A. Continue to produce because price exceeds AFC. B. Shut down and produce zero sandwiches because price is less than AVC. C. Decrease production so that AVC will decrease. D. Increase production so that AFC will decrease.

B. Shut down and produce zero sandwiches because price is less than AVC.

The Sure-Screen T-Shirt Company is producing 500 units of output. Its average variable costs are $2.00 and its average fixed costs are $.50. The firm's total costs: A. are $2.50. B. are $1,250 C. are $750. D. are $1,100.

B. are $1,250.

Your next-door neighbor has a beautiful rose garden, but you are allergic to roses and cannot use your yard because of the rose pollen that drifts into your yard. In this case, the rose garden is an example of a A. public good. B. good that imposes an external cost. C. good that provides an external benefit. D. Pareto good.

B. good that imposes an external cost.

In the long run, a monopoly A. will always earn zero economic profits. B. may earn positive economic profit due to entry barriers. C. will never exit the industry. D. will yield an efficient outcome.

B. may earn positive economic profits due to entry barriers.

Assume that the marginal cost of producing steel does not include the cost of the damage to the environment as a result of pollution. By producing where P = MC, the firm will be producing A. the efficient amount of steel. B. more than the efficient amount of steel. C. less than the efficient amount of steel. D. a zero quantity of steel.

B. more than the efficient amount of steel.

References are allocated efficiently when A. everyone can afford what they want. B. production occurs at least cost. C. output is fairly distributed. D. profits are maximized.

B. production occurs at least cost.

Industries in which firms __________ are likely to contract in the long-run. A. have positive profits B. suffer losses C. break even D. have no competition

B. suffer losses

Efficiency occurs when A. the economy has a fair and just distribution of income. B. the economy is producing what people want at least possible cost. C. all markets are in equilibrium. D. unemployment is low and prices are stable.

B. the economy is producing what people want at least possible cost.

The basic characteristic of the short run is that: A. barriers to entry prevent new firms from entering the industry. B. the firm does not have sufficient time to change the size of its plant. C. the firm does not have sufficient time to cut its rate of output to zero. D. a firm does not have sufficient time to change the amounts of any of the resources it employs.

B. the firm does not have sufficient time to change the size of its plant.

A purely competitive firm's short-run supply curve is A. perfectly elastic at the minimum average total cost. B. up-sloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve. C. up-sloping and equal to the portion of the marginal cost curve that lies above the average total cost curve. D. up-sloping only when the industry has constant costs.

B. up-sloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve.

Amy borrowed $20,000 from her parents to open a bagel shop. She pays her parents a 5% yearly return on the money they lent her. Her other yearly fixed costs equal $9,000. Her variable costs equal $30,000. In her first year, Amy sold 40,000 dozen at a price of $1.50 per dozen. Amy's total fixed costs equal A. $1,000. B. $9,000. C. $10,000. D. $21,000.

C. $10,000.

XYZ Computer Company has a monopoly on the sale of a specialized color printer. If it sells two of these printers its total revenue is $1,000, and if it sells three color printers its total revenue is $1,400. The marginal revenue of the third color printer sold is A. $200. B. $300. C. $400. D. $1,300.

C. $400.

You own and are the only employees of a company that sells custom embroidered pet sweaters. Last year your total revenue was $120,000. Your costs for equipment, rent, and supplies were $30,000. To start this business you invested an amount of your own capital that could pay you a $50,000 a year return. During the year your economic costs were: A. $30,000. B. $50,000. C. $80,000 D. $120,000.

C. $80,000

What is the maximum value the HHI can take on? A. 1,000 B. 5,000 C. 10,000 D. 100,000

C. 10,000

At the Pampered Pet Salon the marginal products of the first, second, and third workers are 20, 16, and 10 dogs washed, respectively. The total product (number of dogs washed) of the three worker is A. 15.33 B. 30 C. 46 D. 138

C. 46

If there are two firms in an industry and each has 50 percent market share, then the Herfindahl-Hirschman Index equals A. 2,500. B. 2,800. C. 5,000. D. 6,600.

C. 5,000.

Which of the following is an example of economies of scale? A. As the computer industry has expanded, the number of professionally trained computer programmers has also increased, which has caused the salaries of computer programmers to increase. B. To attract firms to locate in its state, the state government reduced the tax rate that businesses must pay on its profits, thus lowering the costs to firms who locate in the state. C. A firm increases in size and is therefore able to lower its health insurance costs because as the size of the group insured increases, the premium per person decreases substantially. D. As the demand for calculators increased, the price of calculators actually fell.

C. A firm increases in size and is therefore able to lower its health insurance costs because as the size of the group insured increases, the premium per person decreases substantially.

A new technology is developed for producing solar panels that reduces production costs by 40%. Which of the following is true? A. Firms will continue to operate efficiently as long as no firm adopts this new technology. B. For the economy to remain efficient, product produced with this new technology must be equitably distributed to all consumers. C. This new technology will affect efficiency, and will change the equilibrium price and quantity for this industry. D. If firms do not adopt this new technology, then the economy will remain in general equilibrium, because firms will not change their price and output decisions.

C. This new technology will affect efficiency, and will change the equilibrium price and quantity for this industry.

A new technology is developed for producing solar panels that reduces production costs by 40%. Which of the following is true? A. Firms will continue to operate efficiently as long as no firm adopts this new technology. B. For the economy to remain efficient, product produced with this new technology must be equitably distributed to all consumers. C. This new technology will affect efficiently, and will change the equilibrium price and quantity of this industry. D. If firms do not adopt this new technology, then the economy will remain in general equilibrium, because firms will not change their price and output decisions.

C. This new technology will affect efficiently, and will change the equilibrium price and quantity of this industry.

Which of the following would be classified as an external cost? A. As more firms began hiring computer programmers, the salaries of computer programmers increased, and therefore the firm's cost of production increased. B. A private firm will not provide national defense, as it is impossible to confine the benefits to only those individuals who have paid for it. C. You are not able to study at night because there is so much noise coming from the dorm room next to yours. D. When you purchase a prescription drug, you are not made fully aware of all the possible side effects that may result from taking the drug.

C. You are not able to study at night because there is so much noise coming from the dorm room next to yours.

Engineers for The All-Terrain Bike Company have determined that a 15% increase in all inputs will cause a 15% increase in output. Assuming that input prices remain constant, you correctly deduce that such a change will cause ___________ as output increases. A. average costs to increase B. average costs to decrease C. average costs to remain constant D. marginal costs to increase

C. average costs to remain constant

Which of the following is not an example of price discrimination? A. airlines charging lower prices to travelers who stay over a Saturday night B. student discounts at movie theaters C. back-to-school sales D. discounted coffee for senior citizens at restaurants

C. back-to-school sales

Assume that firms in an oligopoly are currently colluding to set price and output to maximize total industry profit. If the government forces the oligopolies to stop colluding, the price charged by the oligopolies will ________ and the total output produced will _________. A. increase; increase B. increase; decrease C. decrease; increase D. decrease; decrease

C. decrease; increase

When an increase in the scale of production leads to higher average costs, the industry exhibits A. diminishing returns. B. increasing returns to scale. C. decreasing returns to scale. D. constant returns to scale.

C. decreasing returns to scale.

On the upward sloping portion of a firm's long-run average cost curve, it is experiencing A. economies of scale. B. constant returns to scale. C. diseconomies of scale. D. diminishing marginal returns.

C. diseconomies of scale.

As long as economic losses are being incurred in an industry, firms will ___________ the industry and the supply curve will shift to the ____________. A. enter; right B. enter; left C. exit; left D. exit; right

C. exit; left

When long-run average costs decrease as a result of industry growth, there are A. internal economies. B. internal diseconomies. C. external economies. D. external diseconomies.

C. external economies.

Sources of market failure include A. private goods. B. competitive behavior. C. externalities. D. unequal income distribution.

C. externalities.

In the short run, A. all firms that earn a loss will shut down. B. if current firms are earning a profit, new firms will enter the industry. C. firms act to minimize losses or maximize profits. D. All of the above are correct.

C. firms act to minimize losses or maximize profits.

A monopolist will not produce A. a positive level of output when its marginal revenue is declining. B. a positive level of output when its price is less than average total cost but greater than average variable cost. C. in the inelastic portion of its demand curve, where marginal revenue is negative. D. in the perfectly competitive level of output when it engages in perfect price discrimination.

C. in the inelastic portion of its demand curve, where marginal revenue is negative.

The demand for food will likely be price ___________ while the demand for Brand X Burger will likely be price ___________. A. elastic; elastic B. elastic; inelastic C. inelastic; elastic D. inelastic; inelastic

C. inelastic; elastic

For a monopolist, price A. equals marginal revenue at all output levels. B. is less than marginal revenue. C. is greater than marginal revenue. D. can be greater than or less than marginal revenue.

C. is greater than marginal revenue.

A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating: A. price and average total cost. B. price and average fixed cost. C. marginal revenue and marginal cost. D. price and marginal revenue.

C. marginal revenue and marginal cost.

A player chooses a maximin strategy to _________ gain the player can earn. A. minimize the minimum B. maximize the maximum C. maximize the minimum D. minimize the maximum

C. maximize the minimum

The smallest size plant size at which the long-run average cost curve is at its minimum is called the A. envelope. B. profit-maximizing scale of production. C. minimum efficient scale. D. shut down point.

C. minimum efficient scale.

Relative to a monopolized industry, a competitively organized industry is more likely to produce A. more output, charges higher prices , and earns economic profits. B. more output, charges lower prices, and earns economic profits. C. more output, charges lower prices, and earns only a normal profit. D. less output, charges higher prices, and earns economic profits.

C. more output, charges lower prices, and earns only a normal profit.

Assume a perfectly competitive industry is in long-run equilibrium at a price of $75. If this industry is a constant-cost industry and the demand for the product decreases, long-run equilibrium will be reestablished at a price A. greater than $75. B. less than $75. C. of $75. D. either greater than or less than $75 depending on the magnitude of the decrease in demand.

C. of $75.

Oligopoly is difficult to analyze because A. there is no price competition among oligopolistic firms. B. price is not a decision variable for oligopolistic firms. C. of the complex interdependence that usually exists among oligopolistic firms. D. there is price competition among oligopolistic firms but no competition on product quality.

C. of the complex interdependence that usually exists among oligopolistic firms.

An economist has estimated that the maintenance of a public park costs $25,000 a year and that the public park generates $30,000 a year in revenue for merchants near the park. From society's point of view, the maintenance of this park is A. inefficient because everyone in the community pays taxes to support the park, but only the merchants near the park benefit. B. inefficient because the additional revenues generated by the park are so low. C. potentially efficient because the value of the gains exceed the value of the costs. D. potentially efficient because no one would be made worse off as a result of maintaining the park.

C. potentially efficient because the value of the gains exceed the value of the costs.

Suppose a policy change will generate $180,000 of benefits for low-income families and $150,000 of costs for high-income and middle-class families. This change can best be described as A. inefficient. B. Pareto efficient. C. potentially efficient. D. equitable.

C. potentially efficient.

A firm will choose to operate rather than shut down as long as A. price is greater than or equal to AFC. B. AFC is greater than AVC. C. price is greater than or equal to AVC. D. AVC is greater than MC.

C. price is greater than or equal to AVC.

You are hired as an economic consultant to The Pampered Pet Shop. The Pampered Pet Shop operates in a perfectly competitive industry. This firm is currently producing at a point where market price equals its marginal cost. The Shop's total revenue exceeds its total variable cost, but is less than its total cost. You should advise the firm to A. cease production immediately because it is incurring a loss. B. lower its price so that it can sell more units of output. C. produce in a short run to minimize its loss, but exit the industry in the long run. D. raise its price until it breaks even.

C. produce in the short run to minimize its loss, but exit the industry in the long run.

Market failure occurs when A. firms that are incurring losses leave a market. B. perfectly competitive firms produce where MR = MC. C. resources are misallocated, or allocated inefficiently. D. firms are only able to earn a normal profit.

C. resources are misallocated, or allocated inefficiently.

A firm can minimize its losses by shutting down when ________ are less than _________ costs. A. variable costs; fixed B. fixed costs; variable C. revenues; variable D. operating profit; sunk

C. revenues; variable

The rising part of a perfectly competitive firm's marginal cost curve that is equal to or above points on its average variable cost curve is the firm's A. normal profit curve. B. economic profit curve. C. short run supply curve. D. long run supply curve.

C. short run supply curve.

In long-run equilibrium for a perfectly competitive industry, price equals A. short-run marginal cost. B. short-run average cost. C. long-run average cost. D. All of the above are correct.

D. All of the above are correct.

Perfectly competitive firms A. sell homogeneous products. B. are price takers. C. are small relative to the size of the market. D. All of the above are correct.

D. All of the above are correct.

When all the conditions for perfect competition are met, A. resources are allocated among firms efficiently. B. final products are distributed among households efficiently. C. the system produces the goods and services consumers want. D. All of the above are correct.

D. All of the above are correct.

When monopolists perfectly price discriminate, they A. charge different prices to different buyers. B. attempt to capture consumer surplus as profit. C. can eliminate the deadweight loss to society of a monopoly. D. All of the above are correct.

D. All of the above are correct.

Which of the following questions is not answered by general equilibrium analysis? A. Are equilibria in different markets compatible with one another? B. Can all markets simultaneously be in equilibrium? C. How will a change in one market affect another market? D. What outcome is most desirable for the whole society?

D. What outcomes is most desirable for the whole society?

You value your favorite shirt at $110. Someone else values it at $150, and that person is willing to pay you $120 for your shirt. Would selling your shirt to this person for $120 be Pareto efficient? A. No, because you did not receive the maximum amount the other person would have been willing to pay for the shirt. B. No, the person paid you $120 for the shirt so his net benefit was $30, while your net benefit was $10. For this change to be Pareto efficient, each of you should have the same net benefit. C. Yes, because even though you gain from the trade and he loses, there is the potential for you to compensate him for his loss. D. Yes, because both of you are better off as a result of the trade.

D. Yes, because both of you are better off as a result of the trade.

A monopoly is an industry with a single firm which produces A. a standardized product. B. a product for which there are a few close substitutes. C. a product for which there are many close substitutes. D. a product for which there are no close substitutes.

D. a product for which there are no close substitutes.

A technological change in the production of cars will A. affect only the markets for inputs used to produce cars. B. affect only the way cars are produced. C. have no affect on consumers. D. affect input and output markets in the automobile industry and other related industries.

D. affect input and output markets in the automobile industry and other related industries.

To conduct a general equilibrium analysis of a change in consumer preferences away from beef and toward chicken, you must consider A. changes in the equilibrium prices and quantities of beef and chicken. B. changes in the amount of resources allocated to the production of beef and chicken. C. changes in the price of resources allocated to the production of beef and chicken. D. all of the above

D. all of the above

Initially the beef and mutton markets are in equilibrium, then preferences shift away from beef and into mutton. If you are a cattle rancher, the best profit-maximizing strategy is to A. shut down. B. increase output so as to increase your market share. C. shift some of your ranching capacity into cattle raising. D. decrease output so as to minimize short run losses.

D. decrease output so as to minimize short run losses.

For constant returns to scale, a(n) _________ in a firm's scale of production leads to ___________ average total cost. A. increase; lower B. increase; higher C. decrease; a change in D. decrease; no change in

D. decrease; no change in

The condition that exists when all markets in an economy are in simultaneous equilibrium is known as A. market equity. B. Pareto efficiency. C. partial equilibrium. D. general equilibrium.

D. general equilibrium.

The case for advertising includes the fact that A. it creates wants that otherwise would not have existed. B. firms spend large sums of money to create meaningless differences among products. C. it wastes society's scarce resources. D. it provides consumers with valuable information about product availability, quality, and price.

D. it provides consumers with valuable information about product availability, quality, and price.

For a non-discriminating monopolist to sell one more unit, it must A. raise the price of only the last unit produced. B. lower the price of only the last unit produced. C. raise the price of the last as well as all previous units produced. D. lower the price of the last as well as all previous units produced.

D. lower the price of the last as well as all previous units produced.

A profit-maximizing monopolist will produce the level of output where A. marginal revenue is zero. B. marginal cost is minimized. C. price equals marginal cost. D. marginal revenue equals marginal cost.

D. marginal revenue equals marginal cost.

An industry that realizes such large economies of scale in producing its product that single-firm production of that good or service is most efficient is called a(n) ____________ monopoly. A. fixed cost B. economies of scale C. patent D. natural

D. natural

You read that 25 firms that grow and export strawberries to the United States decide to form a cartel. The cartel aims to raise the price of strawberries and reduce output to increase profits for the strawberry growers. You predict that this cartel will probably A. be successful because it will be very easy to enforce the rules among only 40 firms. B. not be successful because there are too few firms that are trying to organize the cartel. C. be successful because the demand for strawberries is very elastic. D. not be successful because the number of firms is unmanageable and there are a number of good substitutes for strawberries.

D. not be successful because the number of firms is unmanageable and there are a number of good substitutes for strawberries.

Under perfect competition, the efficient level of output is produced because A. government regulates the output level that must be produced. B. firms earn only a normal profit in the long run. C. firms can earn an economic profit in the long run. D. price equals marginal cost.

D. price equals marginal cost.

Which one of the following is not a source of market failure? A. externalities B. public goods C. imperfect information D. price increases

D. price increases

Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting: A. profits were $100,000 and its economic profits were zero. B. losses were $500,000 and its economic losses were zero. C. profits were $500,000 and its economic profits were $1 million. D. profits were zero and its economic losses were $500,000.

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

Because public goods are characterized by being collectively consumed, A. the government cannot produce them . B. they are illegal. C. they are very expensive; thus the private sector cannot provide them. D. the private sector may not provide them because they cannot exclude those who do not pay.

D. the private sector may not provide them because they cannot exclude those who do not pay.

A form of oligopoly in which a dominant firm sets the price and all smaller firms in the industry follow the dominant firm's pricing policy is called the

price- leadership model.