Microeconomics Final Exam

Tommy's Tie Company, a monopolist, has the following cost and revenue information. Assume that Tommy's is able to engage in perfect price discrimination. Refer to Table 15-21. If the monopolist can engage in perfect price discrimination, what is the marginal revenue from selling the 5th tie?

$120

The table represents a demand curve faced by a firm in a competitive market. Refer to Table 14-3. For this firm, the price is

$13.

Kelly is willing to pay $5.20 for a gallon of gasoline. The price of gasoline at her local gas station is $3.80. If she purchases ten gallons of gasoline, then Kelly's consumer surplus is

$14.

Refer to Table 7-16. Both the demand curve and the supply curve are straight lines. If 6 units are bought and sold, then total surplus is

$18 lower than it would be if the equilibrium number of units were bought and sold.

Scenario 12-1 Ken places a $20 value on a cigar, and Mark places a $17 value on it. The equilibrium price for this brand of cigar is $15. Refer to Scenario 12-1. Suppose the government levies a tax of $1 on each cigar, and the equilibrium price of a cigar increases to $16. How much tax revenue is collected?

$2

Josh is willing to pay $500 for a set of tire, but he is able to pay $300 at the local tire store. His consumer surplus is

$200.

The vertical distance between points A and B represents the tax in the market. Refer to Figure 6-18. The price that buyers pay after the tax is imposed is

$24

Table 15-12 The following table provides information on the price, quantity, and average total cost for a monopoly. Refer to Table 15-12. At what price will the firm maximize its profit?

$3

Refer to Table 13-14. What is the average fixed cost of producing 3 units of output?

$3.33

Scenario 12-1 Ken places a $20 value on a cigar, and Mark places a $17 value on it. The equilibrium price for this brand of cigar is $15. Refer to Scenario 12-1. Suppose the government levies a tax of $1 on each cigar, and the equilibrium price of a cigar increases to $16. What is total consumer surplus after the tax is levied?

$5

The vertical distance between points A and C represents a tax in the market. Refer to Figure 8-9. The amount of amount of deadweight loss as a result of the tax is

$5,000.

Consider a profit-maximizing monopoly pricing under the following conditions. The profit-maximizing price charged for goods produced is $12.The intersection of the marginal revenue and marginal cost curves occurs where output is 10 units and marginal cost is $6. The socially efficient level of production is 12 units. The demand curve and marginal cost curves are linear. What is the value of the deadweight loss created by the monopolist?

$6

Suppose that a firm in a competitive market faces the following revenues and costs: Refer to Table 14-10. If the firm produces the profit-maximizing level of production, how much profit will the firm earn?

$6

The vertical distance between points A and B represents a tax in the market. Refer to Figure 8-6. Without a tax, total surplus in this market is

$6,000.

Refer to Table 17-27. If both countries follow a dominant strategy, the value of trade flow benefits for Farland will be

$75 b.

Refer to Figure 6-26. The effective price received by sellers after the tax is imposed is

$8

The vertical distance between points A and B represents a tax in the market. Refer to Figure 8-4. The equilibrium price before the tax is imposed is

$8, and the equilibrium quantity is 50.

Refer to Table 14-12. What is the marginal revenue from selling the 5th unit?

$80

Suppose that a firm operating in perfectly competitive market sells 300 units of output at a price of $3 each. Which of the following statements is correct? (i) Marginal revenue equals $3. (ii) Average revenue equals $100. (iii) Total revenue equals $300.

(i) only

Refer to Figure 4-4. If Yasmine and Mercedes are the only two consumers in the market, then the market quantity demanded at a price of $12 is

9 units.

Refer to Table 12-9. Bill is a single person whose taxable income is $35,000 a year. What happened to his average tax rate between 2012 and 2013?

It decreased.

Refer to Table 12-9. Ruby Sue is a single person whose taxable income is $100,000 a year. What happened to her marginal tax rate between 2012 and 2013?

It decreased.

How long does it take a firm to go from the short run to the long run?

It depends on the nature of the firm.

Melissa engages in an activity that influences the well-being of a bystander. In order for Melissa's activity to give rise to an externality, it must be the case that

Melissa neither pays nor receives any compensation for her activity.

Suppose a firm in a competitive industry has the following cost curves: Refer to Figure 14-13. If the price is $4.50 in the short run, what will happen in the long run?

Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry.

Refer to Figure 10-9. The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the market for smokestack scrubbers is shown in

Panel (c)

Refer to Figure 15-3. Which panel could represent the demand curve facing a soybean farmer?

Panel B

Suppose the state of Illinois passes a law that bans smoking in restaurants. As a result, residents of Wisconsin who do not like breathing second-hand smoke begin driving across the border to Illinois to eat at restaurants there. Which of the following principles does this best illustrate?

People respond to incentives

Which parable describes the problem of wild animals that are hunted to the point of extinction?

The Tragedy of the Commons

Which of the following would shift the supply of Packers football jerseys to the right?

The cost of the fabric used to make the jerseys decreases.

A dentist shares an office building with a radio station. The electrical current from the dentist's drill causes static in the radio broadcast, causing the radio station to lose $10,000 in profits. The radio station could put up a shield at a cost of $30,000; the dentist could buy a new drill that causes less interference for $6,000. Either would restore the radio station's lost profits. What is the economically efficient outcome?

The dentist gets a new drill; it does not matter who pays for it.

When average cost is greater than marginal cost, marginal cost must be

The direction of change in marginal cost cannot be determined from this information.

Which of the following in not a reason that a lump-sum tax imposes a minimal administrative burden on taxpayers?

The government can easily forecast tax revenues.

Which of the following events could cause an increase in the supply of ceiling fans?

The number of sellers of ceiling fans increases.

Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. The airline should sell a ticket to a standby passenger only if the passenger is willing to pay

This cannot be determined from the information given.

When the government places a tax on a product, the cost of the tax to buyers and sellers

exceeds the revenue raised from the tax by the government.

In a market economy, who makes the decisions that guide most economic activity?

firms and households

An increase in the price of a good would

give producers an incentive to produce more.

Economists at the Department of Justice

help enforce the nation's antitrust laws.

In 2011, which category represented the largest category of spending for the U.S. federal government?

income security

Scenario 13-18 Farmer Jack is a watermelon farmer. If Jack plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 30 watermelons. If he plants 2 bags of seeds, he gets 50 watermelons. If he plants 3 bags of seeds he gets 60 watermelons. A bag of seeds costs $100, and the costs of seeds are his only costs. Refer to Scenario 13-18. Farmer Jack's production function will

increase at a decreasing rate.

The largest source of income for the federal government is

individual income taxes.

In the long run,

inputs that were fixed in the short run become variable.

Firms that are involved in more than one type of business could be evidence of an attempt to

internalize some forms of positive externalities.

For a monopolist, marginal revenue is

less than price, whereas marginal revenue is equal to price for a perfectly competitive firm.

When the government imposes taxes on buyers or sellers of a good, society

loses some of the benefits of market efficiency.

Suppose the government imposes a 25-cent tax on the buyers of incandescent light bulbs. Which of the following is not correct? The tax would

lower the equilibrium price by 25 cents.

You know an economist has crossed the line from scientist to policy adviser when he or she

makes normative statements.

Kate is a professional opera singer who gives voice lessons. The vocal-music industry is competitive. Kate hires a business consultant to analyze her financial records. The consultant recommends that Kate give fewer voice lessons. The consultant must have concluded that Kate's

marginal cost exceeds her marginal revenue.

When a tax is placed on the sellers of a product, buyers pay

more, and sellers receive less than they did before the tax.

All remedies for externalities share the goal of

moving the allocation of resources toward the socially optimal equilibrium.

If a road is congested, then use of that road by an additional person would lead to a

negative externality.

Refer to Figure 6-6. If the government imposes a price ceiling of $8 on this market, then there will be

no shortage.

Inefficiency exists in an economy when a good is

not being produced by the lowest-cost producers.

Refer to Figure 6-14. If the horizontal line on the graph represents a price floor, then the price floor is

not binding, and there will be no surplus or shortage of the good.

Refer to Figure 8-21. Suppose the market is represented by Demand 1 and Supply 1. At first the government places a $3 per-unit tax on this good. Then the government decides to raise the tax to $6 per unit. Compared to the original tax rate, the higher tax will

not change tax revenue and increase the deadweight loss from the tax.

A congested side street in your neighborhood is

not excludable and rival in consumption.

When all market participants are price takers who have no influence over prices, the markets have

numerous buyers and sellers.

The higher a country's tax rates, the more likely that country will be

on the negatively sloped part of the Laffer curve.

In calculating accounting profit, accountants typically don't include

opportunity costs that do not involve an outflow of money.

Assume that your roommate is very messy. According to campus policy, you have a right to live in an uncluttered apartment. Suppose she gets an $80 benefit from being messy but imposes a $60 cost on you. The Coase theorem would suggest that an efficient solution would be for your roommate to

pay you at least $60 but less than $80 to live with the clutter.

An example of an externality is the impact of

pollution from a factory on the health of people in the vicinity of the factory.

When the price is P1, area C represents

producer surplus.

When economists are trying to explain the world, they are

scientists.

Suppose that a decrease in the price of good X results in fewer units of good Y being demanded. This implies that X and Y are

substitute goods

Suppose chocolate-dipped strawberries are currently selling for $30 per dozen, but the equilibrium price of chocolate-dipped strawberries is $20 per dozen. We would expect a

surplus to exist and the market price of chocolate-dipped strawberries to decrease.

Deadweight losses are associated with

taxes that distort the incentives that people face.

Suppose after graduating from college you get a job working at a bank earning $30,000 per year. After two years of working at the bank earning the same salary, you have an opportunity to enroll in a one-year graduate program that would require you to quit your job at the bank. Which of the following should not be included in a calculation of your opportunity cost?

the $45,000 salary that you will be able to earn after having completed your graduate program

Economists who are primarily responsible for advising Congress on economic matters work in which agency?

the Congressional Budget Office

Some, but not all, government economists are employed within the administrative branch of government. Which of the following government agencies employs economists outside of the administrative branch?

the Congressional Budget Office

Prior to the collapse of communism, communist countries worked on the premise that economic well-being could be best attained by

the actions of government central planners.

The failure of communism in a large number of countries is at least partly explained by

the lack of information, on the part of central planners in those countries, about tastes and preferences in their economies.

Refer to Figure 6-30. In which market will the majority of the tax burden fall on sellers?

the market shown in panel (a).

If a firm uses labor to produce output, the firm's production function depicts the relationship between

the number of workers and the quantity of output.

Very often, the reason that players can solve the prisoners' dilemma and reach the most profitable outcome is that

the players play the game not once but many times.

Cartels are difficult to maintain because

there is always tension between cooperation and self-interest in a cartel.

When firms are neither entering nor exiting a perfectly competitive market,

total revenue must equal total cost for each firm., economic profits must be zero., Both a and b are correct.

Differences in scientific judgment between economists are similar to all of the following except

two politicians arguing about the fairness of the tax code.

Without government intervention, public goods tend to be

underproduced and common resources tend to be overconsumed.

The minimum wage does not apply to

unpaid internships.

The federal taxes owed by a taxpayer depend

upon all the marginal tax rates up to the taxpayer's overall level of income.

A monopolist faces the following demand curve: Refer to Table 15-4. In order to maximize profits, the monopolist should produce

where marginal revenue equals marginal cost.

Advocates of the minimum wage

emphasize the low annual incomes of those who work for the minimum wage.

Suppose Max values a concert ticket at $45. Charles values the same concert ticket at $40. The pre-tax price of a concert ticket is $30. The government imposes a tax of $5 on each concert ticket, and the price rises to $35. The deadweight loss from the tax is

$0

In the figure below, panel (a) depicts the linear marginal cost of a firm in a competitive market, and panel (b) depicts the linear market supply curve for a market with a fixed number of identical firms. Refer to Figure 14-9. When 100 identical firms participate in this market, at what price will 15,000 units be supplied to this market?

$1.50

The following table gives information on the price, quantity, and total cost of production for a monopolist. Refer to Table 15-13. How much profit will the firm earn at the profit-maximizing price?

$12

Refer to Scenario 17-3. Suppose the two countries agreed to disarm existing weapons. In reality these two countries may have a hard time keeping this agreement due to which of the following reasons? (i) Even though Kinglandia has no incentive to cheat on the agreement, Rovinastan has an incentive to cheat on the agreement. (ii) Much like the prisoners' dilemma, both countries are better off reneging on the agreement and building new weapons. (iii) Both countries want to increase their world power by building new weapons.

(ii) and (iii)

Which of the following is an example of an externality?

-A drunk driver causes an accident that injures another person. -A paper mill dumps waste into the river. -A neighbor's loud music disrupts sleep.

Refer to Figure 10-11. Which of the following statements is correct?

-The social value of the 420th unit of output is $42. -The external benefit of the 420th unit of output is $27. -The private value of the 420th unit of output is $15.

Yi and Avik are both economists. Yi thinks that taxing consumption, rather than income, would result in higher household saving because income that is saved would not be taxed. Avik does not think that household saving would respond much to a change in the tax laws. In this example, Yi and Avik

-hold different normative views about the tax system. -have a fundamental misunderstanding of the tax system. -disagree about the validity of a positive theory.

As the number of sellers in an oligopoly becomes very large,

-the price approaches marginal cost. -the quantity of output approaches the socially efficient quantity. -the price effect is diminished.

If a binding price ceiling is imposed on the baby formula market, then

-the quantity of baby formula demanded will increase. -a shortage of baby formula will develop. -the quantity of baby formula supplied will decrease.

Refer to Table 11-5. Suppose the cost to run the ferry for each roundtrip is $1,000 per day and the 4 business owners have agreed to split the costs of the ferry trips equally. How many ferry trips would the owner of Store A prefer to have?

0

Refer to Figure 10-11. A benevolent social planner would prefer

420 units to any other quantity of output.

Refer to Figure 10-2. Suppose that the production of plastic creates a social cost which is depicted in the graph above. Without any government regulation, how much plastic will be produced?

650

Suppose that a firm has only one variable input, labor, and firm output is zero when labor is zero. When the firm hires 6 workers the firm produces 90 units of output. Fixed costs of production are $6 and the variable cost per unit of labor is $10. The marginal product of the seventh unit of labor is 4. Given this information, what is the average variable cost of production when the firm hires 7 workers?

75 cents

Refer to Figure 15-17. Which of the following areas represents the consumer surplus from this profit-maximizing monopolist?

ABE

Refer to Figure 14-14. Suppose a firm in a competitive market, like the one depicted in panel (a), observes market price rising from P1 to P2. Which of the following could explain this observation?

An increase in market demand from D0 to D1.

Refer to Figure 8-22. Suppose the government initially imposes a $3 per-unit tax on this good. Now suppose the government is deciding whether to lower the tax to $1.50 or raise it to $4.50. Which of the following statements is not correct?

Compared to the original tax, the larger tax will decrease tax revenue.

The vertical distance between points A and B represents a tax in the market. Refer to Figure 8-6. What happens to consumer surplus when the tax is imposed in this market?

Consumer surplus falls by $2,700.

The design of tax policy is one of the responsibilities of economists who work at the

Department of the Treasury.

The table shows the town of Driveaway's demand schedule for gasoline. Assume the town's gasoline seller(s) incurs a cost of $2 for each gallon sold, with no fixed cost. Refer to Table 17-12. If there are exactly five sellers of gasoline in Driveaway and if they collude, then which of the following outcomes is most likely?

Each seller will sell 30 gallons, charge a price of $5, and earn a profit of $90.

Which of the following is not an example of a market?

In the United States, a sick person cannot legally purchase a kidney.

Suppose that Bill wants to dine at a fancy restaurant, but the only available table is in the smoking section. Bill dislikes the smell of cigarette smoke. He notices that only one person, Peter, is smoking in the smoking section. Bill values the absence of smoke at $15. Peter values the ability to smoke in the restaurant at $10. In order for Bill to pay Peter not to smoke, he will need to tip the waiter $10 to facilitate the transaction. Which of the following represents an efficient solution?

Peter continues to smoke because the cost to Bill to pay him not to smoke is between $20 and $25, which exceeds the benefit to him of no smoking ($15).

Supply-side economics is a term associated with the views of

Ronald Reagan and Arthur Laffer.

Which of the following statements is correct?

Sales taxes and property taxes are the two most important revenue sources for state and local governments.

The Chicken Game is named for a contest in which drivers test their courage by driving straight at each other. John and Paul have a common interest to avoid crashing into each other, but they also have a personal, competing interest to not turn first to demonstrate their courage to those observing the contest. The payoff table for this situation is provided below. The payoffs are shown as (John, Paul). Refer to Table 17-21. If John chooses Drive Straight, what will Paul choose to do and what will Paul's payoff equal?

Turn, 5

Which of the following is an example of a normative, as opposed to positive, statement?

Universal health care would be good for U.S. citizens.

This table shows a game played between two players, A and B. The payoffs in the table are shown as (Payoff to A, Payoff to B). Refer to Table 17-14. Which of the following statements about this game is true?

Up is a dominant strategy for A and Left is a dominant strategy for B.

Which of the following demonstrates the law of supply?

When the price of leather belts rose, leather belt sellers increase their quantity supplied of leather belts.

Refer to Figure 4-8. Suppose the figure shows the market demand for laptop computers. Suppose the price of wireless keyboards, a complementary good, increases. Which of the following changes would occur?

a shift from D1 to D2

European countries tend to rely on which type of tax more so than the United States does?

a value-added tax

Market power refers to the

ability of market participants to influence price.

The firm's efficient scale is the quantity of output that minimizes

average total cost.

Total surplus measures the

buyers' willingness to pay less the sellers' costs.

The property of society getting the most it can from its scarce resources is called

efficiency.

Economists speaking like policy advisers make

claims about how the world should be.

An agreement among firms in a market about quantities to produce or prices to charge is called

collusion.

Goods that are rival in consumption but not excludable would be considered

common resources.

In the long run a company that produces and sells dog beds incurs total costs of $1,200 when output is 30 beds and $1,600 when output is 40 beds. Firm A exhibits

constant returns to scale because average total cost is constant as output rises.

Suppose that a firm's long-run average total costs of producing an individual income tax return is $75 when it produces 1,000 returns and $75 when it produces 1,200 returns. For this range of output, the firm is experiencing

constant returns to scale.

When a firm operates under conditions of monopoly, its price is

constrained by demand.

If a consumer places a value of $20 on a particular good and if the price of the good is $25, then the

consumer does not purchase the good.

An efficient tax system is one that imposes small

deadweight losses and administrative burdens.

Hot dogs and hot dog buns are complements. An increase in the price of flour used to make hot dogs buns will

decrease consumer surplus in the market for hot dog buns and decrease producer surplus in the market for hot dogs.

The government has just passed a law requiring that all residents earn the same annual income regardless of work effort. This law is likely to

decrease efficiency but increase equality.

For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of the day. Assume Allison, Bob, and Charisse are the only three buyers of oranges, and only three oranges can be supplied per day. Refer to Table 7-5. If the market price of an orange increases from $0.80 to $1.05, then consumer surplus

decreases by $0.95.

In an oligopoly, each firm knows that its profits

depend on both how much output it produces and how much output its rival firms produce.

One advantage of a lump-sum tax over other taxes is that it

doesn't cause deadweight loss.

Suppose that a professional photographer takes a prize-winning digital photo. She can sell a 5"x7" color print of the photo for $10. She can also sell the digital file for $20. There are 500 people willing to buy the color print and 2,000 people willing to buy the digital file. Assume the costs to the photographer are zero and that the people who purchase the digital file cannot resell the file itself or any prints made from it. What should she do in order to maximize her profits?

earn $45,000 by selling both the color prints and the digital files at their respective prices