Microeconomics Final MC Questions + Terms

13. Kate is a florist. Kate can arrange 20 bouquets per day. She is considering hiring her husband William to work for her. Together Kate and William can arrange 35 bouquets per day. What is William's marginal product

15 bouquets

13. Number of Workers - Total Output - Marginal Product 0 0 -- 1 30 2 45 3 60 4 50 5 40 What is total output when 4 workers are hired?

185

20. If income were equally distributed among households,

50 percent of the households would receive exactly 50 percent of the income.

Excludability

The property of a good whereby a person can be prevented from using it

Diminishing Marginal Product

The property whereby the marginal product declines as the quantity of the input increases

Marginal Rate of Substitution

The rate at which a consumer is willing to trade one good for another

20. The maximin criterion suggests that social policy should

elevate the well-being of those at the bottom of the income distribution.

11. Cost-benefit analysts often encounter the problem that those who would benefit from government provision of a public good tend to

overstate the benefit they would receive from the public good and those who would be harmed by government provision of a public good tend to overstate the costs they would incur from the public good.

13. Pete owns a shoe-shine business. Which of the following costs would be implicit costs? i. shoe polish ii. rent on the shoe stand iii. wages Pete could earn delivering newspapers iv. interest that Pete's money was earning before he spent his savings to set up the shoe-shine business

(iii.) & (iv.)

14. Suppose a firm in each of the two markets listed below were to increase its price by 15 percent. In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed would not?

#2 Lead pencils and college textbooks

14. Suppose a firm in a competitive market earned $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold?

$10 and 100 units

13. Kelly has decided to start his own business giving sailing lessons. To purchase equipment for the business, Kelly withdrew $1,000 from his savings account, which was earning 3% interest, and borrowed an additional $2,000 from the bank at an interest rate of 7%. What is Kelly's annual opportunity cost of the financial capital that has been invested in the business?

$170

15. Consider a profit-maximizing monopoly pricing under the following conditions. The profit-maximizing quantity is 40 units, the profit-maximizing price is $160, and the marginal cost of the 40th unit is $120. If the good were produced in a perfectly competitive market, the equilibrium quantity would be 50, and the equilibrium price would be $150. The demand curve and marginal cost curves are linear. What is the value of the deadweight loss created by the monopolist? (HINT: Draw what you see.)

$200

20. If the U.S. government determines that the cost of feeding an urban family of four is $7,500 per year, then the official poverty line for a family of that type is

$22,500

15. When a certain monopoly sets its price at $8 it sells 64 units. When the monopoly sets its price at $9 it sells 62 units. The marginal revenue for the firm over this range is

$23

13. The Carolina Christmas Tree Corporation grows and sells 500 Christmas trees. The average cost of production per tree is $50. Each tree sells for a price of $65. The Carolina Christmas Tree Corporation's total revenues are

$32,500

13. Christine is an artist who creates custom cookie jars. Her annual revenue from selling the cookie jars is $90,000. The annual explicit costs of the materials used to make the cookie jars are $54,000. Christine used $5,000 from her personal savings account to buy pottery tools for her business. The savings account paid 1% annual interest. What is Christine's annual opportunity cost of the financial capital that she invested in her business?

$50

15. The profit-maximization problem for a monopolist differs from that of a competitive firm in which of the following ways?

A competitive firm maximizes profit at the point where average revenue equals marginal cost; a monopolist maximizes profit at the point where average revenue exceeds marginal cost.

Indifference curve

A curve that shows consumption bundles that give the consumer the same level of satisfaction

Elasticity

A measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants

20. Which of the following represents a problem in measuring inequality?

A normal life-cycle pattern causes inequality in the income distribution but may not reflect inequality in living standards.

Tragedy of the Commons

A parable that illustrates why common resources are more desirable from the standpoint of society as a whole

15. Which of the following is not an example of a barrier to entry?

A soybean farmer is the first in her county to use a new brand of fertilizer.

17. Juan Pablo and Zak are competitors in a local market. Each is trying to decide if it is better to advertise on TV, on radio, or not at all. If they both advertise on TV, each will earn a profit of $8,000. If they both advertise on radio, each will earn a profit of $14,000. If neither advertises at all, each will earn a profit of $20,000. If one advertises on TV and other advertises on radio, then the one advertising on TV will earn $12,000 and the other will earn $10,000. If one advertises on TV and the other does not advertise, then the one advertising on TV will earn $22,000 and the other will earn $4,000. If one advertises on radio and the other does not advertise, then the one advertising on radio will earn $24,000 and the other will earn $8,000. If both follow their dominant strategy, then Juan Pablo will

Advertise on radio and earn $14,000

18. Suppose that Chloe opens a dog grooming business in a local shopping center. Which of the following would be an example of a factor of production used by Chloe? i. her employees' time ii. brushes, combs, scissors, and clippers iii. shampoo, water, and flea prevention treatments iv. Chloe's time spent on bookkeeping and bill paying

All four

17. Suppose that Bieber and Rihanna are duopolists in the music industry. In May, they agree to work together as a monopolist, charging the monopoly price for their music and producing the monopoly quantity of songs. By June, each singer is considering breaking the agreement. What would you expect to happen next?

Bieber and Rihanna will each break the agreement. Both singers' profits will decrease.

Income Effect

Change in consumption that results when a price change moves the consumer to a higher or lower indifference point

18. Fiona's hourly wage increases from $8 to $10. Which of the following describes a consequence of the increase in Fiona's wage?

Fiona may choose to work fewer hours due to the increase in her wage.

18. Sunshine's Organic Market sells organic produce. Assume that labor is the only input that varies for the firm. The store manager has determined that if she hires 5 workers, the store can sell 150 pounds of produce per day. If she hires 6 workers, the store can sell 170 pounds of produce per day. The store earns $4 for each pound of produce that it sells, and the manager pays each worker $60 per day. Which of the following is not correct?

For the 6th worker, the marginal revenue product is $20 per day.

20. Assume that the government proposes a negative income tax that calculates the taxes owed as follows: Taxes Owed = (1/3 Income) - 10,000. If a family doesn't earn any income, how does the negative income tax affect it?

It will receive an income subsidy of $10,000.

16. Hotels in New York City frequently experience an average vacancy rate of about 20 percent (i.e., on an average night, 80 percent of the hotel rooms are full). This kind of excess capacity is indicative of what kind of market?

Monopolistic competition

16. Which of the following statements is correct

Monopolistic competition is similar to monopoly because both market structures are characterized by firms being price makers rather than price takers.

17. Which of the following statements is false?

Most economists agree that predatory pricing is a profitable business strategy that usually preserves market power.

Rivalry in Consumption

The property of a good whereby one person's use diminished another person's use

15. After the patent runs out on a brand name drug, generic drugs enter the market. What happens next in the market?

Price decreases and total surplus increases

16. As firms exit a monopolistically competitive market, profits of remaining firms

Rise, and product diversity in the market decreases

Comparative Advantage

The ability to produce a good at a lower opportunity cost than another producer

Absolute Advantage

The ability to produce a good using lower inputs than another competitor

Consumer Surplus

The amount a buyer is willing to pay for a good minus what they actually end up paying for it

Producer Surplus

The amount a seller is paid minus the seller's cost of producing it

Substitution Effect

The change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution

13. On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers. He is able to produce 4,400 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent with the property of diminishing marginal product?

The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers

Externality

The uncompensated impact of one person's actions on the well-being of a bystander

13. Since the 1980s, Wal-Mart stores have appeared in almost every community in America. Wal-Mart buys its goods in large quantities and, therefore, at cheaper prices. Wal-Mart also locates its stores where land prices are low, usually outside of the community business district. Many customers shop at Wal-Mart because of low prices. Local retailers, like the neighborhood drug store, often go out of business because they lose customers. This story demonstrates that

There are economies of scale in retail stores

11. The sign on a church in your neighborhood reads "All are welcome at Sunday Service." Because the church has limited seating and is usually full, the Sunday Service is

a common resource.

17. Suppose a market is initially perfectly competitive with many firms selling an identical product. Over time, however, suppose the merging of firms results in the market being served by only three or four firms selling this same product. As a result, we would expect

a decrease in market output and an increase in the price of the product.

15. Microsoft faces very little competition from other firms for its Windows software. Why isn't the price of the software $1,000 per copy?

because the company would sell so few copies at a higher price that they would earn higher profits by selling at a lower price

11. Bob owns 5 acres of land. Bob sells the land to a real estate developer who builds a subdivision with 10 houses. The land is an example of a good that is

both rival in consumption and excludable.

14. Land of Many Lakes (LML) sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML does not

choose the price at which it sells butter

14. Susan quit her job as a teacher, which paid her $36,000 per year, in order to start her own catering business. She spent $12,000 of her savings, which had been earning 10 percent interest per year, on equipment for her business. She also borrowed $12,000 from her bank at 10 percent interest, which she also spent on equipment. For the past several months she has spent $1,000 per month on ingredients and other variable costs. Also for the past several months she has earned $4,500 in monthly revenue. In the short run, Susan should

continue to operate her business, but in the long run she will probably face competition from newly entering firms.

17. In a two-person repeated game, a tit-for-tat strategy starts with

cooperation and then each player mimics the other player's last move.

16. Joe's Juice Shop operates in a monopolistically competitive market. Joe's is currently producing where its average total cost is minimized. In the long run we would expect Joe's output to

decrease and average total cost to increase.

20. The United States has greater income

disparity than most other economically advanced countries, but a more equal income distribution than some developing countries.

17. In a particular town, Comvision and Veriview are the only two providers of cable TV service. Comvision and Veriview constitute a

duopoly, whether they collude or not

17. An agreement between two duopolists to function as a monopolist usually breaks down because

each duopolist wants a larger share of the market to capture more profit

16. Suppose that monopolistically competitive firms in a certain market are earning positive profits. In the transition from this initial situation to a long-run equilibrium,

each existing firm experiences a decrease in demand for its product.

13. In the long run a company that produces and sells popcorn incurs total costs of $1,050 when output is 90 canisters and $1,200 when output is 120 canisters. The popcorn company exhibits

economies of scale because average total cost is falling as output rises.

11. One economically efficient way to eliminate the Tragedy of the Commons is to

establish private ownership of the resource.

14. Suppose a profit-maximizing firm in a competitive market produces rubber bands. When the market price for rubber bands falls below the minimum of its average total cost, but still lies above the minimum of average variable cost, in the short run the firm will

experience losses but will continue to produce rubber bands

16. A profit-maximizing firm in a monopolistically competitive market differs from a firm in a perfectly competitive market because the firm in the monopolistically competitive market

faces a downward sloping demand curve for his product

14. A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will

fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.

14. For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $7 and a marginal cost of $10. It follows that the

firm's profit-maximizing level of output is less than 100 units.

17. Suppose that two poker players believe that they are superior players to the rest of the people at their table. Further suppose that the two players make an agreement to concede hands to each other in order to drive the other players from the game first. Economists would model such behavior as

game theory

15. Granting a pharmaceutical company a patent for a new medicine will lead to i. a product that is priced higher than it would be without the exclusive rights. ii. incentives for pharmaceutical companies to invest in research and development. iii. higher quantities of output than without the patent.

i. and ii. only

15. Which of the following are necessary characteristics of a monopoly? i. The firm is the sole seller of its product. ii. The firm's product does not have close substitutes. iii. The firm generates a large economic profit. iv. The firm is located in a small geographic market.

i. and ii. only

17. In a prisoner's dilemma game,

if the players play the game repeatedly, the players can achieve a higher payoff, on average, than when they play the game only once.

18. Consider the market for capital equipment. Suppose the price of firms' output increases. Holding all else constant, the equilibrium rental price of capital equipment will

increase

18. Consider the market for medical doctors. Suppose the opportunity cost of going to medical school decreases for many individuals. Suppose it generally takes about ten years to become a practicing doctor. Holding all else constant, in ten years the equilibrium quantity of doctors will

increase

20. Ms. Spring currently earns $100,000 a year, while her junior partner, Mr. Fall, earns $55,000 a year. From the perspective of a utilitarian, if both of their incomes are subject to diminishing marginal utility, taking a dollar from Ms. Spring and giving it to Mr. Fall will

increase society's total utility

11. Private decisions about consumption of common resources and production of public goods usually lead to an

inefficient allocation of resources and external effects.

20. In the parable of the leaky bucket, a fundamental problem with government redistribution programs is identified. As long as the government only has "leaky buckets" at its disposal,

it should not try to reach complete equality in income.

18. If the price of Verizon cell phones falls, what will happen to the demand curve for Verizon sales people?

it will shift to the left

16. Monopolistically competitive firms have excess capacity. To maximize profits, firms will

maintain the excess capacity

15. If a profit-maximizing monopolist faces a downward-sloping market demand curve, its

marginal revenue is less than the price of the product.

11. Which of the following goods is the best example of a public good?

music that is broadcast over the airwaves by a privately-owned FM radio station

15. When a natural monopoly exists, it is

never cost effective for two or more private firms to produce the product.

11. A congested side street in your neighborhood is

not excludable and rival in consumption

20. In 2011, the poverty rate in the United States was 15 percent. This means that 15%

of the population had a total family income that fell below the poverty line.

20. Caroline earns more than John. Under a new tax system, some of the taxes paid by Caroline would go to John. A libertarian would

oppose the system if it redistributed income in the presence of equal opportunity.

18. When a production function exhibits a diminishing, but positive, marginal product of labor,

output increases, but at a decreasing rate, as more workers are employed.

13. Suppose the production function per the link attached shifts firom TP1 to TP2. Such a shift in the total product curve is most likely due to an increase in the

productivity

14. In the short run for a particular market, there are 300 firms. Each firm has a marginal cost of $30 when it produces 200 units of output. One point on the market supply curve is

quantity = 600,000, price = $30

14. A competitive firm has been selling its output for $20 per unit and has been maximizing its profit, which is positive. Then, the price falls to $18, and the firm makes whatever adjustments are necessary to maximize its profit at the now-lower price. Once the firm has adjusted, its

quantity of output is lower than it was previously

17. If nations such as Germany, Japan, and the United States prohibited international trade in automobiles, a likely effect would be that

the price effect would become a more significant consideration for each firm that makes automobiles.

18. Which of the following statements is correct? An individual worker's labor supply curve

slopes backward if that person responds to a higher opportunity cost of leisure by working fewer hours per week.

11. The difference between specific knowledge and general knowledge is that

specific knowledge is excludable, while general knowledge is not excludable.

16. Which of the following is most likely sold in a monopolistically competitive market?

sunglasses

18. Consider the labor market for computer programmers. Because of the dot.com boom in the late 1990s, a lot of workers went to school to learn how to write computer code for one of thousands of new dot.com companies. However, when these computer programming students graduated, the dot.com bust took place. The dot.com bust decreased the value of the marginal product of computer programmers. Holding all else equal, what effect did these two circumstances have on the equilibrium wage in the labor market for computer programmers?

the equilibrium wage decreased

16. A monopolistically competitive firm is currently producing 20 units of output. At this level of output the firm is charging a price equal to $20, has marginal revenue equal to $12, has marginal cost equal to $12, and has average total cost equal to $18. From this information we can infer that

the firm is currently maximizing its profit

16. If we observe a great deal more advertising for Mucinex, an over-the-counter drug, than for a Grainger drill press, we can infer that

the market for Mucinex is more highly differentiated than the market for Grainger drill presses

11. When good X is produced, some people benefit. A free-rider problem arises when

the number of beneficiaries is large and it is impossible to prevent anyone from benefiting.

11. Governments can grant private property rights over resources that were previously viewed as public, such as fish or elephants. Why would governments want to do so?

to prevent overuse

18. To maximize profit, a competitive firm hires workers up to the point of intersection of the

value of marginal product curve and the wage line.

14. If the market elasticity of demand for potatoes is -0.3 in a perfectly competitive market, then the individual farmer's elasticity of demand

will be infinite