Optional Homework (A)

Refer to the accompanying figure. At the equilibrium price, total consumer surplus in this market is: a) $4,000 per day. b) $8,000 per day. c) $12,000 per day. d)$24,000 per day.

$12,000 per day.

The payoff matrix below shows the payoffs (in millions of dollars) for two firms, A and B, for two different strategies, investing in new capital or not investing in new capital. Firm B InvestNot InvestFirm AInvest20 for A70 for A20 for B5 for BNot Invest5 for A50 for A70 for B50 for B An industry spy from firm A comes to firm B and offers to pay B in exchange for B's certain and enforceable promise to not invest. What is the most that firm A will be willing to pay B to not invest? a) $30 million b) $20 million c) $35 million d)$50 million

$50 million

A village has five residents, each of whom has an accumulated savings of $50. Each villager can use the money to buy a government bond that pays 10% interest per year or to buy a year-old goat, send it onto the commons to graze, and sell it after one year. The price of the goat that the villager will get at the end of the year depends on the amount of weight it gains while grazing on the commons, which in turn depends on the number of goats sent onto the commons, as shown in the table below. Assume that if a villager is indifferent between buying a bond and buying a goat, the villager will buy a goat. Number of goatson the commonsPrice per 2-yearold goat ($)Income pergoat ($/year)180302752537020465155555 The villagers will buy a year-old goat if the goat can be sold for a price of at least _____ when it is 2 years old. a) $55 b) $75 c) $70 d) $65

$55

Jamie's marginal utility from muffins and from doughnuts (in utils) is shown in the accompanying table. Jamie spends a total of $8 on muffins and/or doughnuts every morning. The price of each muffin is $2 and the price of each doughnut is $1. MuffinsPer DayMarginal UtilityPer MuffinDoughnutsPer DayMarginal UtilityPer Doughnut140220230415320510 What is Jamie's optimal combination of muffins and doughnuts each day? A) 1 muffin, 6 doughnuts b) 2 muffins, 4 doughnuts c) 3 muffins, 2 doughnuts d) 4 muffins, zero doughnuts

2 muffins, 4 doughnuts

Suppose the most you would be willing to pay for a plane ticket home is $250. If you buy one for $175, then your economic surplus is: a) $250. b) $175. c) $75. d) $0

c) $75.

Refer to the figure below. If a price ceiling were imposed at point G, then excess demand would be measured by the distance between points: a) G and I b) F and I c) K and I d) F and K

F and I

All profit-maximizing firms chose the level of output at which: a) MR = MC b) P = MC c) MR = P d) MR< P

MR = MC

Suppose Cathy and Lewis work in a bakery making pies and cakes. Suppose it takes Cathy 1.5 hours to make a pie and 1 hour to make a cake, and suppose it takes Lewis 2 hours to make a pie and 1.5 hours to make a cake. What is the opportunity cost to Cathy of making a cake? a) 2/3 of a pie. b) 1 pie. c) 1.5 pies. d) 1.33 pies.

Opportunity cost of Cathy to make a pie = 1/1.5 = 0.66 cake

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) Wealthy people do not care about the environment. b)The opportunity cost of picking up cans is higher for wealthy people than for poor people. c)Wealthy people are more concerned about their public image than are poor people. d)Wealthy people are more aware of diseases transmitted through litter than are poor people.

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

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. Republican Candidate Positive CampaignNegative CampaignDemocratic CandidatePositive Campaign0% for D-5% for D0% for R+5% for RNegative Campaign+5% for D-2% for D-5% for R-2% for R Running a negative campaign is ______ for the ______ candidate. a) a dominated strategy; Democratic b) a dominated strategy; Republican c) a dominant strategy; Democratic d) neither a dominant nor dominated strategy; Republican

a dominant strategy; Democratic

Suppose that in most car collisions between cars of unequal size, the smaller car sustains the most damage and its occupants suffer the most injury. In answering the following question, assume that, on average, smaller cars generate less air pollution than larger cars and that every person in the economy drives at least one car. Relative to driving an average car, driving a larger-than-average car generates: a) an external cost. b) an external benefit. c) neither an external benefit nor an external cost. d) a prisoner's dilemma.

an external cost.

Suppose that the technology used to manufacture laptops has improved. The likely result would be: a) an increase in supply of laptops. b) an increase in quantity supplied of laptops. c) a decrease in supply of laptops. d) a decrease in quantity supplied of laptops.

an increase in supply of laptops.

You are trying to decide whether to purchase the latest Harry Potter book online or borrow it from the library. There is no charge for borrowing a book from the library, but going to the library takes more time than ordering a book online. Regardless of how you get the book, its benefit to you is the same. If the cost of buying the book online is $13, then you should: a) borrow the book from the library because you can get it from the library for free. b) borrow the book from the library if the cost of doing so (in terms of the extra time it takes) is less than $13. c) borrow the book from the library if the cost of doing so (in terms of the extra time it takes) is greater than $13. d) buy the book online because it takes less time.

b) Borrow the book from the library if the cost of doing so (in terms of the extra time it takes) is less than $13

Normative economic principles are concerned with how people ______ make decisions while positive economic principles are concerned with how people ______ make decisions. a) do; should b) should; do c) in power; in ordinary life d) in ordinary life; in power

b) should; do

If a firm is earning zero economic profit, then its accounting profit will: a) be negative. b) decrease in the long run. c) increase in the long run. d) be positive.

be positive.

The payoff matrix below shows the daily profit for two firms, Row Restaurant and Column Cafe, for two different strategies, publishing coupons in the student paper and not publishing coupons in the student paper. Column Cafe PublishDo not Publish CouponsCouponsRow RestaurantPublish Coupons$25 for Row$200 for Row$25 for Column$10 for ColumnDo not Publish Coupons$10 for Row$120 for Row$200 for Column$120 for Column The payoffs of this game are such that: a) if Row Restaurant expects Column Cafe to choose its dominant strategy, then Row Restaurant should choose its dominated strategy. b) profit at each firm is higher when they both follow their dominant strategy than when they both follow their dominated strategy. c) both firms would benefit from a law that made publishing coupons illegal. d) an agreement not to publish coupons would be easy to maintain because neither firm has an incentive to defect.

both firms would benefit from a law that made publishing coupons illegal.

Price discrimination means charging: a) higher prices to women and minorities. b) different prices for different products because production costs are different. c) the same price to all buyers even if production costs are different. d) different prices to different buyers for essentially the same good or service.

different prices to different buyers for essentially the same good or service.

Sydney sells snow globes from a cart. When the cart is located on the sidewalk near a discount store, Sydney's customers have reservation prices of $5. When Sydney's cart is located on a sidewalk in an upscale mall, wealthier customers with reservation prices of $10 buy snow globes. Assume that Sydney can sell the same volume at either location and that marginal and average costs are $3 per globe at both locations. Information about the reservation prices of Sydney's customers increases total surplus by: a) allowing consumers with different incomes to acquire things they value. b) helping to ensure that snow globes go to consumers who like them most. c) encouraging sellers to locate in underserved areas. d) helping to ensure that snow globes go to consumers with the greatest willingness to pay.

encouraging sellers to locate in underserved areas.

According to the theory of disappearing political discourse, politicians remain silent about issues because politicians: a) are unsure of their opinions. b) don't have enough information. c) fear that if they speak out they will be misunderstood. d) fear that voters do not fully understand the issues.

fear that if they speak out they will be misunderstood.

At the beginning of the fall semester, college towns experience large increases in their populations, causing a(n): a) decrease in the quantity of apartments demanded. b) increase in the supply of apartments. c) increase in the demand for apartments. d)decrease in the quantity of apartments supplied.

increase in the demand for apartments.

If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then demand for textbooks is: a) negative. b) inelastic. c) elastic. d) unit elastic.

inelastic.

During Thanksgiving you participated in a pumpkin-pie eating contest. You really enjoyed the first two pies, the third one was okay, but as soon as you ate the fourth one you became ill and lost the contest. You got ______ utility from eating the first pie than from eating the third pie. a) less b) more c) the same amount of d) less variable

less

The most efficient distribution of pollution abatement is such that the: a) extent of pollution abatement is the same across all geographic regions. b) extent of pollution abatement is the same across all polluters. c) largest reductions in pollution are made by the largest polluters. d) marginal cost of abatement is the same across all polluters.

marginal cost of abatement is the same across all polluters.

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: a) all year because his summer profits offset any losses he might have in the winter. b) only during those months in which his total revenue exceeds his total cost. c) only during those months in which his total revenue exceeds his fixed cost. d) only during those months in which his total revenue exceeds his variable cost.

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

Because monopolists charge a price in excess of marginal cost, it must be the case that monopolists: a) earn a positive economic profit. b) earn a negative economic profit. c) produce more than the socially optimal level of output. d) produce less than the socially optimal level of output.

produce less than the socially optimal level of output.

Oil and oil products remain the main fuel for cars, planes, ships, and power plants. The amount of oil still in the earth is finite. Given this information, the supply of gasoline is: a) relatively elastic. b) relatively inelastic. c) unit elastic. d) greater than the quantity demanded.

relatively inelastic.

The marginal benefit of additional information: a) rises as more information is collected. b) is independent of the amount of information that has already been acquired. c) tends to be lower for expensive items than inexpensive items. d) falls as more information is collected.

rises as more information is collected.

For the nation whose PPC is shown, it must be true that: a) the nation's productive resources are better-suited to making milk than to making movies. b) the nation's productive resources are better-suited to making movies than to making milk. c) some of the nation's productive resources are better-suited to making milk, and some are better-suited to making movies. d) the nation has a comparative advantage in making milk.

some of the nation's productive resources are better-suited to making milk, and some are better-suited to making movies.

Economic rent is: a) the amount people pay for an apartment in a perfectly competitive market. b) the payment made to the owner of a factor of production, which is usually equal to the owner's reservation price. c) the difference between the payment made to the owner of a factor of production and the owner's reservation price. d) sometimes higher and sometimes lower than the owner's reservation price.

the difference between the payment made to the owner of a factor of production and the owner's reservation price.

Suppose that the price of doughnuts decreases. Given that doughnut holes are a by-product of producing doughnuts, one would expect: a) the supply of doughnut holes to decrease. b) the supply of doughnuts to decrease. c) the supply of doughnut holes to increase. d) the supply of doughnuts to increase.

the supply of doughnut holes to decrease