ECN1A

If the average variable cost of producing 150 units is $3.65, the total fixed cost is $470, and the marginal cost of the 150th unit is $3.75, then the total cost of producing 150 units is $1,017.50. $547.50. $562.50. $1,110.00

$1,017.50. Feedback: Incorrect. If the average variable cost of producing 150 units is $3.65, then the total variable cost is $3.65 × 150, or $547.50. Adding the total variable cost ($547.50) to the total fixed cost ($470) yields the total cost, which is $1,017.50. The value of marginal cost does not help answer the question of total cost without more information.

If the average variable cost of producing 150 units is $3.65, the total fixed cost is $470, and the marginal cost of the 150th unit is $3.75, then the total cost of producing 150 units is $1,017.50. $547.50. $562.50. $1,110.00

$1,017.50. If the average variable cost of producing 150 units is $3.65, then the total variable cost is $3.65 × 150, or $547.50. Adding the total variable cost ($547.50) to the total fixed cost ($470) yields the total cost, which is $1,017.50. The value of marginal cost does not help answer the question of total cost without more information.

Perfect price discrimination describes a situation in which the monopolist knows exactly each customer's willingness to pay and can charge each customer a different price. In this case, the monopolist gets the entire surplus in every transaction and there are no unrealized trades, so deadweight loss is ______.

0

Suppose a tax of $20 per unit is imposed on a good. The supply curve is a typical upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. The tax decreases consumer surplus by $18,000 and decreases producer surplus by $18,000. The deadweight loss of the tax is $4,000. The tax decreased the equilibrium quantity of the good from 3,200 to 1,600. 1,800 to 1,400. 4,000 to 2,000. 2,000 to 1,600.

2,000 to 1,600. When a $20 tax leads to a deadweight loss of $4,000, the tax decreased the quantity from 2,000 to 1,600. The base of the deadweight loss triangle is the decrease in quantity, so substituting the known values, $4,000 = ½ x base x $20. Thus, the decrease in quantity is 400 units. Computing the total loss of welfare and subtracting deadweight loss, $18,000 + $18,000 -$4,000 = $32,000, and dividing by the tax per unit, $32,000 / $20 = 1,600, gives the quantity after the tax.

In the market for ink cartridges for printers, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for ink cartridges is 5,000 per month when there is no tax. Then a tax of $2.50 per cartridge is imposed. As a result, the government is able to raise $11,750 per month in tax revenue. We can conclude that the after-tax quantity of cartridges is 5,000 per month. 2,000 per month. 4,700 per month. 12,500 per month.

4,700 per month. Tax revenue is tax per unit multiplied by the after-tax quantity of cartridges. Because tax revenue is $11,750 and the tax per unit is $2.50, the after tax quantity of cartridges is $11,750 / $2.50 = 4,700 cartridges per month.

Suppose the government has imposed a price floor on cheese. Which of the following events could transform the price floor from one that is binding to one that is not binding? New technology makes the production of cheese cheaper. A bovine disease affects half of the cow population resulting in a higher price for milk. The price of crackers, a complement to cheese, increases. Consumption of cheese is found to cause cancer.

A bovine disease affects half of the cow population resulting in a higher price for milk.

Which of the following statements is not correct? A monopolist can charge any price and sell any quantity that it chooses. The demand curve facing a competitive firm is horizontal. A monopolist can change the market price by altering the quantity it produces. The demand curve facing a monopolist is downward sloping.

A monopolist can charge any price and sell any quantity that it chooses.

Which of the following statements is not correct? A monopolist can charge any price and sell any quantity that it chooses. The demand curve facing a monopolist is downward sloping. A monopolist can change the market price by altering the quantity it produces. The demand curve facing a competitive firm is horizontal.

A monopolist can charge any price and sell any quantity that it chooses.

Which of the following statements about antitrust laws is true? Antitrust laws can reduce social welfare if they prevent mergers that would lower costs through more efficient joint production. Antitrust laws give the government power to increase the efficiency of both competitive and non-competitive markets. Antitrust laws are only used in cases where a single firm controls 100% of a national market. Antitrust laws automatically prevent mergers between companies that produce similar products.

Antitrust laws automatically prevent mergers between companies that produce similar products.

Which of the following is not a difference between monopolies and perfectly competitive markets? Monopolies face downward-sloping demand curves while perfectly competitive firms face horizontal demand curves. Monopolies charge a price higher than marginal cost while perfectly competitive firms charge a price equal to marginal cost. Average revenue is equal to the market price for a competitive firm but not for a monopoly. Monopolies can earn profit in the long run while perfectly competitive firms earn zero profit.

Average revenue is equal to the market price for a competitive firm but not for a monopoly.

Which of the following statements is true? When a competitive firm sells an additional unit of output, its revenue increases by an amount less than the price. Competitive firms and monopolies are subject to the price effect. Average revenue is the same as price for both competitive and monopoly firms. When a monopoly firm sells an additional unit of output, its revenue increases by an amount equal to the price.

Average revenue is the same as price for both competitive and monopoly firms.

Which of these arguments supports splitting up monopolies? Large firms are unwilling to invest in new-product development. Competition is almost always more efficient. Consumers have an easier time dealing with small firms. Smaller firms usually have lower average production costs.

Competition is almost always more efficient.

When regulators use a marginal-cost pricing strategy to regulate a natural monopoly, which of the following is not true? The regulated monopoly may rely on a government subsidy to remain in business. The regulated monopoly will experience a price below average total cost. Deadweight loss still remains in this market. The regulated monopoly will experience a loss.

Deadweight loss still remains in this market.

George Stigler expressed concern about the trade-offs between market failure and political failure in the American economy. This concern supports which of the following solutions that policymakers can take to respond to the problem of a monopoly? Regulation Antitrust laws Public ownership Do nothing

Do nothing

The monopolist's supply curve is shown by the marginal cost curve above the minimum point of average total cost, like the competitive firm's supply curve. True False

False

If a firm experiences diminishing marginal productivity of labor, the total-cost curve gets flatter as the quantity of output increases. True False

False The total-cost curve gets steeper as the quantity of output increases because of diminishing marginal product. When the marginal product of labor is diminishing, producing an additional unit of output requires a lot of additional labor and is thus increasingly costly.

When average total cost equals marginal cost, marginal cost is at its minimum. True False

False When marginal cost is less than average total cost, average total cost is declining. When marginal cost is greater than average total cost, average total cost is rising. When marginal cost equals average total cost, the marginal cost curve intersects the average total cost curve at minimum average total cost.

Diminishing marginal productivity implies that total output decreases as the quantity of the input increases. True False

False Diminishing marginal productivity implies that the marginal product of an input declines as the quantity of the input increases. Even though marginal product declines, it is positive, so total output increases.

Assuming that implicit costs are positive, economic profit is greater than accounting profit. True False

False Feedback: Incorrect. Accounting profit equals total revenues minus explicit costs. Economic profit equals total revenues minus both explicit and implicit costs. Assuming that implicit costs are positive, accounting profit is greater than economic profit.

If a firm experiences diminishing marginal productivity of labor, the total-cost curve gets flatter as the quantity of output increases. True False

False Feedback: Incorrect. The total-cost curve gets steeper as the quantity of output increases because of diminishing marginal product. When the marginal product of labor is diminishing, producing an additional unit of output requires a lot of additional labor and is thus increasingly costly.

In the short run, if a firm does not produce any output then it does not incur any costs. True False

False In the short run, at least one factor of production is fixed, so the firm incurs fixed costs even if the firm does not produce any output.

Which of the following is not true about patents and copyrights? A benefit to society of the patent and copyright laws is that those laws encourage creative activity. The laws governing patents and copyrights promote monopolies. If a firm has a patent or copyright, its fixed costs are reduced. They enhance the ability of monopolists to earn above-average profits.

If a firm has a patent or copyright, its fixed costs are reduced.

Forgone income is an __________, ___________ are included in economic costs but not accounting costs.

Implicit costs

How does monopoly that engages in perfect price discrimination compare to a competitive market? In both cases, there is deadweight loss. In both cases, total social welfare is maximized. Consumer surplus is the same in both cases. Total social welfare is lower with the perfectly price discrimination monopoly than in the competitive market.

In both cases, total social welfare is maximized.

Which of the following statements is correct? In the long run, all costs are fixed. In the long run, there are no fixed costs. In the short run, there are no fixed costs. In the short run, all costs are fixed.

In the long run, there are no fixed costs. In the long run, there are no fixed costs. In the short run, at least one cost is fixed, but not all costs are fixed.

Which of the following statements is correct? In the short run, there are no fixed costs. In the long run, all costs are fixed. In the long run, there are no fixed costs. In the short run, all costs are fixed.

In the long run, there are no fixed costs. In the long run, there are no fixed costs. In the short run, at least one cost is fixed, but not all costs are fixed.

Which of the following statements is not correct about how competitive firms differ from monopolies? Monopolies must lower their price in order to sell more of their product, while competitive firms do not. Marginal revenue for a competitive firm equals price, while marginal revenue for a monopoly is less than the price it is able to charge. Monopolies cannot make positive profit in the long run but competitive firms can. Competitive firms do not have to worry about the price effect lowering their total revenue.

Monopolies cannot make positive profit in the long run but competitive firms can.

Which of the following is not correct? Natural monopolies are often subject to regulation. Antitrust laws may prevent mergers that would actually raise social welfare. Sometimes the best public policy toward a monopoly is to do nothing. Public ownership is the most common and effective public policy toward monopolies in the United States.

Public ownership is the most common and effective public policy toward monopolies in the United States.

Which legislation was passed by Congress in 1890 in order to reduce the market power of large and powerful "trusts?" 14th Amendment. Clayton Act Sherman Act Morgan Act

Sherman Act

A farmer owns 50 bee hives. The farmer is able to produce 2,000 pounds of honey when he hires 2 workers. He is able to produce 4,000 pounds of honey 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 6,000 pounds of honey when he hires 4 workers. The farmer is able to produce 8,000 pounds of honey when he hires 4 workers. The farmer is able to produce 5,500 pounds of honey when he hires 4 workers. The farmer is able to produce 9,000 pounds of honey when he hires 4 workers.

The farmer is able to produce 5,500 pounds of honey when he hires 4 workers. Feedback: Incorrect. The marginal productivity of the third worker is 2,000 pounds (4,000 - 2,000 = 2,000). The fourth worker must increase total production by less than 2,000 pounds to illustrate diminishing marginal productivity, so the total production with 4 workers must be less than 6,000 pounds (4,000 + 2,000 = 6,000).

If the government regulates the price that a natural monopoly can charge to be equal to the firm's average total cost, which of the following is not true? The firm will earn zero profits. The firm will not have an incentive to lower its production costs. There will be deadweight loss in this market. The firm will earn positive profits.

The firm will earn positive profits.

Which of the following statements is not correct regarding the imposition of a tax on cigarettes? Because there are few close substitutes for cigarettes, the buyers are likely to bear a greater share of the tax burden than the sellers. The incidence of the tax depends upon the price elasticities of demand and supply. Because many cigarette smokers consider cigarettes to be a necessity, the sellers are likely to bear a smaller share of the tax burden than the buyers. The incidence of the tax depends upon whether the buyers or the sellers are required to remit tax payments to the government.

The incidence of the tax depends upon the price elasticities of demand and supply. Tax incidence is determined by the relative elasticities of demand and supply. Imposing the tax on the buyers or the sellers has no effect on the tax incidence.

In a monopoly market, which of these occurs when marginal revenue equals zero? Marginal cost is negative. Total revenue is maximized. Average revenue is zero. Profit is maximized.

Total revenue is maximized.

In a monopoly market, which of these occurs when marginal revenue equals zero? Average revenue is zero. Marginal cost is negative. Total revenue is maximized. Profit is maximized.

Total revenue is maximized. marginal-revenue curve and the marginal-cost curve

When deciding what price to charge consumers, the monopolist may choose to charge them different prices based on the customer's gender. True False

True

GianCarlo used to work as an architect for $50,000 per year but quit in order to start his own photography business. To invest in his photography business, he withdrew $20,000 from his savings, which paid 2% interest, and borrowed $40,000 from his brother, whom he pays 3% interest per year. Last year GianCarlo paid $10,000 for supplies and had revenues of $70,000. GianCarlo asked William the accountant and Henry the economist to calculate his photography business's annual profit. William says his profit is $58,800, and Henry says his profit is $58,800. William says his profit is $60,000, and Henry says his profit is $8,400. William says his profit is $58,800, and Henry says his profit is $8,400. William says his profit is $60,000, and Henry says he lost $50,000.

William says his profit is $58,800, and Henry says his profit is $8,400. Feedback: Correct. Explicit costs include cost of supplies ($10,000) and interest paid on the loan from his brother ($1,200). Implicit costs include forgone earnings as an architect ($50,000) and forgone interest on savings ($400). Accounting profit equals total revenue minus explicit costs ($70,000 - $11,200 = $58,800). Economic profit equals total revenue minus both explicit and implicit costs ($70,000 - $61,600 = $8,400).

Which of the following statements comparing monopoly with competition is correct? With or without price discrimination, the consumer surplus under monopoly is larger than it would be under competition. With perfect price discrimination, the total surplus under monopoly can be the same as under competition. Monopolies cannot price discriminate but competitive firms can. A monopolist produces the same level of output but charges a higher price than a competitive firm would.

With perfect price discrimination, the total surplus under monopoly can be the same as under competition.

A policy to help the poor that would not reduce the quantity of housing supplied is a price ceiling on the rental amounts that landlords can charge. new property taxes on real estate owned by landlords. an increase in mortgage interest rates for multi-family homes. a subsidy from the government to offset a portion of a poor family's rent.

a subsidy from the government to offset a portion of a poor family's rent.

A binding minimum wage affects only the demand for labor; it does not affect the supply of labor. affects only the supply of labor; it does not affect the demand for labor. alters both the quantity demanded of labor and the quantity supplied of labor. alters both the demand for and supply of labor.

alters both the quantity demanded of labor and the quantity supplied of labor.

Which of the following is an example of a market force that can prevent firms from successfully price discriminating? arbitrage collusion anti-trust laws high average total cost

arbitrage

A tractor company plans to operate out of its current factory, which is estimated to last 25 years. All cost decisions it makes during the 25-year period are long-run decisions. involve only maintenance of the factory. are short-run decisions. represent fixed-cost decisions.

are short-run decisions. All cost decisions are short-run decisions as long as the company has a fixed input (plant size).

A firm produces 500 units of output at a total cost of $1,500. If total variable costs are $500, then average variable cost is $2. average fixed cost is $1. marginal cost is $2. average total cost is $3.

average total cost is $3. TC = FC + VC. $1,500 = FC + $500, so FC = $1,000. AFC = FC/Q = $1,000/500 = $2. ATC = TC/Q = $1,500/500 = $3. AVC = VC/Q = $500/500 = $1. We are unable to determine MC from the information given.

Wilbur's Bean Emporium serves barbeque sandwiches over the lunch hour. The marginal cost of the 50th barbeque sandwich is $1.50. The average total cost of the 49th sandwich is $1.75. For Wilbur's Bean Emporium, __________ when output is 50 sandwiches. average total costs are falling average total costs are rising average variable costs are falling total costs are falling

average total costs are falling The marginal cost of the 50th sandwich is lower than the average total cost of the 49th sandwich, so the marginal cost is pulling down the average total cost when output is 50 sandwiches.

Wilbur's Bean Emporium serves barbeque sandwiches over the lunch hour. The marginal cost of the 50th barbeque sandwich is $1.50. The average total cost of the 49th sandwich is $1.75. For Wilbur's Bean Emporium, __________ when output is 50 sandwiches. average variable costs are falling average total costs are falling average total costs are rising total costs are falling

average total costs are falling The marginal cost of the 50th sandwich is lower than the average total cost of the 49th sandwich, so the marginal cost is pulling down the average total cost when output is 50 sandwiches.

Wilbur's Bean Emporium serves barbeque sandwiches over the lunch hour. The marginal cost of the 50th barbeque sandwich is $2. The average total cost of the 49th sandwich is $1.75. For Wilbur's Bean Emporium, __________ when output is 50 sandwiches. average variable costs are falling average total costs are falling average total costs are rising total costs are falling

average total costs are rising The marginal cost of the 50th sandwich is higher than the average total cost of the 49th sandwich, so the marginal cost is pulling up the average total cost when output is 50 sandwiches.

A firm produces 500 units of output at a total cost of $1,500. If total variable costs are $500, then average variable cost is $1. average fixed cost is $3. average total cost is $4. marginal cost is $2.

average variable cost is $1. TC = FC + VC. $1,500 = FC + $500, so FC = $1,000. AFC = FC/Q = $1,000/500 = $2. ATC = TC/Q = $1,500/500 = $3. AVC = VC/Q = $500/500 = $1. We are unable to determine MC from the information given.

A government-mandated maximum price that is set below the market equilibrium price is a nonbinding price floor that results in an equilibrium quantity. binding price floor that results in a surplus. nonbinding price ceiling that results in an equilibrium quantity. binding price ceiling that results in a shortage.

binding price ceiling that results in a shortage.

A government-mandated maximum price that is set below the market equilibrium price is a nonbinding price floor that results in an equilibrium quantity. binding price floor that results in a surplus. nonbinding price ceiling that results in an equilibrium quantity. binding price ceiling that results in a shortage.

binding price ceiling that results in a shortage.

If the demand is highly inelastic and the supply is highly elastic, the burden of the tax will fall more heavily on the ________.

buyers

Suppose that the government imposes a tax on corn used in the production of ethanol. The deadweight loss from this tax will likely be greater if buyers and sellers have two months to adjust to the tax than if buyers and sellers have two years to adjust to the tax, because demand and supply will be more elastic. buyers and sellers have two years to adjust to the tax than if buyers and sellers have two months to adjust to the tax, because demand and supply will be more elastic. corn is a necessity rather than a luxury, because demand and supply will be more inelastic. corn has few close substitutes rather than many close substitutes, because demand and supply will be more elastic.

buyers and sellers have two years to adjust to the tax than if buyers and sellers have two months to adjust to the tax, because demand and supply will be more elastic. Both demand and supply are more elastic with a longer time horizon to adjust to a price change. The greater the elasticities of demand and supply, the greater the deadweight loss of a tax.

How can the economic efficiency of a monopolist not be measured? by the monopolist's profit by the area above marginal cost but beneath demand from the monopoly output to the socially-efficient output by deadweight loss by the value of the unrealized trades that could be made if the monopolist produced the socially-efficient output

by the monopolist's profit

Rent control is an example of a price floor; in cities with rent control prices are used to ration housing. floor; in cities with rent control mechanisms other than price are used to ration housing. ceiling; in cities with rent control prices are used to ration housing. ceiling; in cities with rent control mechanisms other than price are used to ration housing.

ceiling; in cities with rent control mechanisms other than price are used to ration housing.

Rent control is likely to cause a large shortage of housing in the short run, but a small shortage in the long run. considered to be an inefficient way to help the poor raise their standard of living. considered to be an efficient way to help the poor raise their standard of living. likely to cause a small shortage of housing in both the short run and the long run.

considered to be an inefficient way to help the poor raise their standard of living.

The decrease in total surplus that results from a market distortion, such as a tax, is called shortage. tax revenue. disequilibrium. deadweight loss.

deadweight loss.

Relative to a situation in which hotel rooms are not taxed, the imposition of a tax on hotel rooms causes the equilibrium quantity of hotel rooms to increase, and the price buyers pay for hotel rooms to decrease. decrease, and the price buyers pay for hotel rooms to increase. increase, and the price buyers pay for hotel rooms to increase. decrease, and the price buyers pay for hotel rooms to decrease.

decrease, and the price buyers pay for hotel rooms to increase.

When a monopoly decreases its output and sales, the output effect works to ______ total revenue, and the price effect works to ______ total revenue. decrease; decrease increase; increase increase; decrease decrease; increase

decrease; increase

If marginal revenue is currently less than marginal cost at the current level of output, then decreasing output by one unit will increase profits for the firm. decreasing output by one unit will decrease profits for the firm. increasing output by one unit will have no effect on profits for the firm. increasing output by one unit will increase profits for the firm.

decreasing output by one unit will increase profits for the firm. Feedback: Incorrect. If marginal revenue is less than marginal cost at the current level of output, then decreasing output by one unit will increase profits for the firm. The reduction in cost from producing one fewer unit will be greater than the reduction in revenue and will increase profits.

The socially-efficient quantity is found where the ______________.

demand curve and the marginal-cost curve intersect

If a firm finds that increases in output lead to increases in long-run average total cost, then it must be experiencing ____________________ , which could be caused by __________________. economies of scale; specialization constant returns to scale; coordination problems diseconomies of scale; coordination problems diseconomies of scale; specialization

diseconomies of scale; coordination problems Diseconomies of scale exist when the long-run average total cost rises as the quantity of output increases. These diseconomies can arise because of coordination problems that are inherent in any large organization.

If a firm finds that increases in output lead to increases in long-run average total cost, then it must be experiencing ____________________ , which could be caused by __________________. economies of scale; specialization constant returns to scale; coordination problems diseconomies of scale; coordination problems diseconomies of scale; specialization

diseconomies of scale; coordination problems Feedback: Incorrect. Diseconomies of scale exist when the long-run average total cost rises as the quantity of output increases. These diseconomies can arise because of coordination problems that are inherent in any large organization.t

Which of the following statements is not correct? Monopolies are socially inefficient because they earn profits at the expense of consumers. produce too little. do not maximize the market's total surplus. charge a price above marginal cost.

earn profits at the expense of consumers.

If a firm finds that it could reduce its long-run average total cost by increasing output, then it must be experiencing economies of scale. constant returns to scale. diseconomies of scale. coordination problems.

economies of scale. Feedback: Incorrect. Economies of scale exist when the long-run average total cost falls as the quantity of output increases. Coordination problems sometimes cause diseconomies of scale.

A binding price ceiling restricts the price such that sellers are price makers and buyers are price takers. forces the price lower than the market price. forces the price higher than the market price. sets the price equal to the market price.

forces the price lower than the market price.

A binding price ceiling sets the price equal to the market price. restricts the price such that sellers are price makers and buyers are price takers. forces the price higher than the market price. forces the price lower than the market price.

forces the price lower than the market price.

Suppose that PF Pharmaceuticals has a patent for a new drug that will cure heart failure. Which of the following reasons describes the fundamental barrier to entry for this industry? the production process government regulation declining average total cost monopoly resources

government regulation

Suppose that PF Pharmaceuticals has a patent for a new drug that will cure heart failure. Which of the following reasons describes the fundamental barrier to entry for this industry? the production process monopoly resources declining average total cost government regulation

government regulation

Refer to the Figure. Ronald Reagan made cutting taxes part of his platform when running for president in 1980 because while an overall cut in tax rates normally reduces revenue, a tax cut is more likely to raise tax revenue if the cut applies to those taxpayers facing the lowest tax rates. he believed the U.S. was operating at a point like point N. at the time, a typical worker in the U.S. faced a marginal tax rate of about 80 percent. he believed the U.S. was operating at a point like point M.

he believed the U.S. was operating at a point like point N.

As more people become elderly, which allows them to choose when to retire, we would expect the deadweight loss from the federal income tax to increase, and the revenue generated from the tax to increase. decrease, and the revenue generated from the tax to decrease. decrease, and the revenue generated from the tax to increase. increase, and the revenue generated from the tax to decrease.

increase, and the revenue generated from the tax to decrease. With a more elastic supply of labor, the deadweight loss from the federal income tax will increase and the revenue generated from the tax will decrease.

If the tax on a good is increased from $2.50 per unit to $7.50 per unit, the deadweight loss from the tax remains constant. increases by a factor of 4. increases by a factor of 16. increases by a factor of 9.

increases by a factor of 9. The deadweight loss is an area of a triangle and the area of a triangle depends on the square of its size. In this case, the size of the tax triples, so the base and height of the deadweight loss triangle triple and the deadweight loss rises by a factor of 9.

Suppose the government increases the size of a tax by 20 percent. The deadweight loss from that tax increases but by less than 20 percent. increases by more than 20 percent. decreases by 20 percent. increases by 20 percent.

increases by more than 20 percent.

Suppose the government increases the size of a tax by 20 percent. The deadweight loss from that tax increases but by less than 20 percent. increases by 20 percent. increases by more than 20 percent. decreases by 20 percent.

increases by more than 20 percent. The deadweight loss of a tax increases more rapidly than the size of the tax because the deadweight loss is an area of a triangle and the area of a triangle depends on the square of its size.

A deadweight loss is a consequence of a tax on a good because the tax increases buyers' willingness to pay, but sellers are not willing to supply more. decreases sellers' cost of production, but buyers are not willing to buy more. causes a shortage in the market. induces buyers to consume less, and sellers to produce less.

induces buyers to consume less, and sellers to produce less. A tax increases the price the buyers must pay, so the quantity demanded decreases. A tax also decreases the price the sellers receive, so the quantity supplied decreases.

Deadweight loss exists when a market is operated by a monopoly because the monopolist produces at an output level that is _______ the socially optimal level. less than sometimes greater than and sometimes less than equal to greater than

less than

The size of the deadweight loss that results from a tax on cola is smaller, the less time cola sellers have to adjust to the tax. more time cola sellers have to adjust to the tax. more substitutes there are for cola. less of a necessity cola drinkers consider cola to be.

less time cola sellers have to adjust to the tax.

The deadweight loss from a $1 tax per unit will be largest in a market with a short amount of time for sellers to adjust to a price change and many close substitutes. long amount of time for sellers to adjust to a price change and few close substitutes. short amount of time for sellers to adjust to a price change and few close substitutes. long amount of time for sellers to adjust to a price change and many close substitutes.

long amount of time for sellers to adjust to a price change and many close substitutes.

In the ______, all costs are ________. long run, variable short run, fixed long run, fixed short run, variable

long run, variable In the long run, all costs are variable. In the short run, at least one cost is fixed, but not all costs are fixed.

Gavin observes that his average variable costs of producing widgets are rising. For Gavin's firm, total costs could be falling. marginal costs must be higher than average variable costs. average total costs must also be rising. average fixed costs must exceed average variable costs.

marginal costs must be higher than average variable costs.

Gavin observes that his average total costs of producing widgets are decreasing. For Gavin's firm, marginal costs must be lower than average total costs. average variable costs must also be decreasing. total costs could be falling. average variable costs must exceed average total costs.

marginal costs must be lower than average total costs.

Which of the following is true if a firm increases its level of output by one unit and profits decrease? marginal revenue is equal to marginal cost price is greater than average total cost marginal revenue is greater than marginal cost marginal revenue is less than marginal cost

marginal revenue is less than marginal cost Feedback: Incorrect. If a firm increases its level of output and profits decrease, then marginal revenue is less than marginal cost. The additional revenue is less than the additional cost from producing the extra unit and profits will decrease.

The intersection of the ________________ determines the profit-maximizing quantity.

marginal-revenue curve and the marginal-cost curve

The Earned Income Tax Credit is a policy to institute a price ceiling on basic goods needed by all households. method of raising living standards of the working poor without creating unemployment. tax credit given to high income families to incentivize hard work. policy to eliminate a price floor on basic goods needed by all households.

method of raising living standards of the working poor without creating unemployment.

The demand for mint chip ice cream is more elastic than the demand for candy. Suppose the government levies an equivalent tax on mint chip ice cream and candy. The deadweight loss would be larger in the market for candy than in the market for mint chip ice cream because the quantity of candy would fall by more than the quantity of mint chip ice cream. candy than in the market for mint chip ice cream because the quantity of mint chip ice cream would fall by more than the quantity of candy. mint chip ice cream than in the market for candy because the quantity of mint chip ice cream would fall by more than the quantity of candy. mint chip ice cream than in the market for candy because the quantity of candy would fall by more than the quantity of mint chip ice cream.

mint chip ice cream than in the market for candy because the quantity of mint chip ice cream would fall by more than the quantity of candy.

If the government removes a $4 tax on buyers of restaurant meals and imposes the same $4 tax on sellers of restaurant meals, then the price paid by buyers will not change, and the price received by sellers will not change. decrease, and the price received by sellers will not change. decrease, and the price received by sellers will decrease. not change, and the price received by sellers will decrease.

not change, and the price received by sellers will not change.

For a monopoly firm, any price-quantity combination will maximize profits. price always exceeds marginal revenue. marginal revenue is constant. price always exceeds average revenue.

price always exceeds marginal revenue.

A firm in a competitive market will shut down in the short run if price is equal to marginal cost. price is below average variable cost. price is below marginal cost. price is below average total cost.

price is below average variable cost. Feedback: Incorrect. A firm in a competitive market will shut down in the short run when price is below average variable cost. Shutting down when price is less than average variable costs limits losses equal to a firm's fixed costs.

The relationship between the quantity of an input and the quantity of output is called the total cost function. production possibilities frontier. production function. profit function.

production function.

A binding price ceiling forces the price lower than the market price. restricts the price such that sellers are price makers and buyers are price takers. forces the price higher than the market price. sets the price equal to the market price.

restricts the price such that sellers are price makers and buyers are price takers.

Suppose that in a particular market, the supply curve is relatively inelastic and the demand curve is relatively elastic. If a tax is imposed in this market, then the size of the market will not change. buyers will bear a greater burden of the tax than the sellers. size of the market will increase. sellers will bear a greater burden of the tax than the buyers.

sellers will bear a greater burden of the tax than the buyers. Feedback: Incorrect. The burden of a tax falls more heavily on the side of the market that is more inelastic. With a relatively inelastic supply curve and a relatively elastic demand curve, the sellers will bear a greater burden of the tax than the buyers.

When OPEC raised the price of crude oil in the 1970s, it caused a surplus of gasoline as the nonbinding price ceiling became binding. shortage of gasoline as the nonbinding price floor became binding. shortage of gasoline as the nonbinding price ceiling became binding. surplus of gasoline as the nonbinding price floor became binding.

shortage of gasoline as the nonbinding price ceiling became binding.

Most labor economists believe workers, rather than firms, bear most of the burden of the payroll tax because the supply of labor is more elastic than the demand for labor. supply and demand for labor are equally elastic. government mandated that workers pay a greater share of the payroll tax. supply of labor is less elastic than the demand for labor.

supply of labor is less elastic than the demand for labor.

Assume the price elasticity of supply is the same between Good A and Good B and the demand for Good A is relatively elastic while the demand for Good B is relatively inelastic. If a $2.00 per unit tax is imposed on both markets, the deadweight loss in the market for Good A will be larger than the deadweight loss in the market for Good B. the deadweight loss in the market for Good B will be larger than the deadweight loss in the market for Good A. the burden of the tax will fall more heavily on the buyers in the market for Good A than the market for Good B. the tax burden and deadweight loss will depend on whether the tax is collected from the buyers or the sellers in each market.

the deadweight loss in the market for Good A will be larger than the deadweight loss in the market for Good B. When demand is relatively elastic, the deadweight loss of a tax is large; and when demand is relatively inelastic, the deadweight loss of a tax is small. The tax burden falls more heavily on the inelastic side of the market, and both tax burden and deadweight loss are independent of tax collection. Play video

If the equilibrium wage exceeds the minimum wage, then the actual quantity demanded of labor will be less than the equilibrium quantity. the minimum wage will be binding. there will be no unemployment. the actual quantity supplied of labor will exceed the equilibrium quantity.

there will be no unemployment.

If the equilibrium wage exceeds the minimum wage, then the minimum wage will be binding. the actual quantity demanded of labor will be less than the equilibrium quantity. there will be no unemployment. the actual quantity supplied of labor will exceed the equilibrium quantity.

there will be no unemployment.

When policymakers impose a luxury tax on buyers of a good, the supply curve shifts to the left. they are successful in redistributing income from the rich to the poor. the burden of the tax falls more heavily on the buyers of the good than on the sellers. they are not successful in redistributing income from the rich to the poor.

they are not successful in redistributing income from the rich to the poor.

What is economic welfare generally measured by? total surplus consumer surplus the market price of a good profit

total surplus

A data analysis firm has an idle computer. If the firm hires another worker to put the idle computer to use, fixed costs will fall. variable costs will rise. variable costs will fall. both fixed and variable costs will rise.

variable costs will rise. Hiring an additional worker to use currently idle equipment will increase variable costs. Fixed costs will be unchanged.

Lucy is a young entrepreneur who sells lemonade from her lemonade stand in her driveway on Saturday afternoons. During the first hour, Lucy sells 30 glasses of lemonade and incurs an average variable cost of $0.20. Lucy's _________ for the first hour are __________. variable costs; $6.00 marginal costs; $0.20 total costs; $6.00 marginal costs; $0.15

variable costs; $6.00 AVC = VC/Q, so VC = AVC x Q. VC = $0.20 x 30 = $6.00. We are unable to determine TC and MC from the information given.

If a firm produces nothing, _____ costs are zero, and the firm will incur _____ costs. fixed and variable; no variable; fixed opportunity; variable fixed; variable

variable; fixed