ECON 202 Review Quiz

If the total cost of producing 20 units of output is $1,000 and the average variable cost is $35, what is the firm's average fixed cost at that level of output? $65 $50 $15 It is impossible to determine without additional information.

$15 (1000/20 = 50 --> 50-35 = 15)

What is the difference between a public franchise and a public enterprise? Both refer to a service provided directly to consumers through the government, but "public franchise" is a term more commonly used in the United States while "public enterprise" is more commonly used in European countries. A public enterprise is owned by the public through its holdings of shares of stock in the enterprise. A public franchise is a firm owned by the government. A public enterprise grants a firm the right to be the sole legal provider of a good or service. A public franchise refers to a service that is provided directly to consumers through the government. A public franchise grants a firm the right to be the sole legal provider of a good or service. A public enterprise refers to a service that is provided directly to consumers through the government.

A public franchise grants a firm the right to be the sole legal provider of a good or service. A public enterprise refers to a service that is provided directly to consumers through the government.

In the United States, the bulk of health care spending is paid by health insurance companies. Such a system is also called a third-party payer system where consumers of health care pay a nominal fee and the rest are paid by the health insurance provider. Why might such a system lead to an inefficient outcome? Physicians concerned that insurance companies may not approve payments tend not to order expensive tests for their patients. Consumers have an incentive to over-consume health care services because they pay prices well below the cost of providing these services. Consumers fearing that excessive use of health care services may lead to a rise in insurance premiums tend to under-consume health care services. Health insurance companies have an incentive to control cost and therefore tend to deny consumers many cutting edge medical treatments.

Consumers have an incentive to over-consume health care services because they pay prices well below the cost of providing these services.

Which of the following is a characteristic shared by a perfectly competitive firm and a monopoly? Each must lower its price to sell more output. Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost. Each sets a price for its product that will maximize its revenue. Each maximizes profits by producing a quantity for which price equals marginal cost.

Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost.

Adam spent $10,000 on new equipment for his small business, "Adam's Fitness Studio." Membership at his fitness center is very low and at this rate, Adam needs an additional $12,000 per year to keep his studio open. Which of the following is true? The $10,000 Adam spent on equipment is a fixed cost of business and the $12,000 he'll need to continue operations is a variable cost. The variable cost of running the studio is $22,000. The fixed cost of running the studio is $22,000. The $10,000 Adam spent on equipment is the total cost of starting the business and the $12,000 he'll need to continue operations is a marginal cost.

The $10,000 Adam spent on equipment is a fixed cost of business and the $12,000 he'll need to continue operations is a variable cost.

Which of the following would cause an increase in the equilibrium wage? The supply of jobs increases less than the demand for jobs. The supply of labor increases more than the demand for labor. The supply of labor increases and the demand for labor decreases. The demand for labor increases faster than the supply of labor.

The demand for labor increases faster than the supply of labor.

Refer to Figure 15-1. Which of the following statements about the firm depicted in the diagram is true? The fact that this firm is a natural monopoly is shown by the fact that marginal cost lies below the long-run average total cost where the firm maximizes its profits. The fact that this firm is a natural monopoly is shown by the continually declining market demand curve as output rises. The fact that this firm is a natural monopoly is shown by the continually declining marginal revenue curve as output rises. The fact that this firm is a natural monopoly is shown by the long-run average total cost curve still falling when it crosses the demand curve.

The fact that this firm is a natural monopoly is shown by the long-run average total cost curve still falling when it crosses the demand curve.

What is always true at the quantity where a firm's average total cost equals average revenue? The firm's profit is maximized. The firm breaks even. The firm's revenue is maximized. Marginal cost equals marginal revenue.

The firm breaks even.

The total value to society of having garbage removed is greater than the value of baseball games. Why, then, are baseball players paid more than garbage collectors? Garbage removal results in significant external benefits that are not captured in the price paid for garbage removal. As a result, wages of garbage collectors do not reflect their social benefits. There is greater competition in the garbage collection industry than there is in Major League Baseball. Wages do not depend on total values but marginal values. The marginal revenue product of baseball players exceeds the marginal revenue product of garbage collectors. Although the total value of garbage removal is greater than the total value of baseball, wages are determined by average values.

Wages do not depend on total values but marginal values. The marginal revenue product of baseball players exceeds the marginal revenue product of garbage collectors.

Relative to a perfectly competitive market, a monopoly results in a gain in producer surplus equal to the loss in consumer surplus. greater economic efficiency. a gain in producer surplus equal to the gain in consumer surplus. a gain in producer surplus less than the loss in consumer surplus.

a gain in producer surplus less than the loss in consumer surplus.

Scenario: Jack and Jill are two siblings. Jack's father asked him how much he would offer to Jill if he gives him $50 as pocket money. He also told Jack that if Jill refuses the offer Jack makes, neither of them will get any money. Refer to the scenario above. A player should use ________ to play this game. his dominated strategy mixed strategies backward induction forward induction

backward induction

The Brooks Appliance Store and the Lefingwell Appliance Store (both are located in the same city) each sell an identical washer-dryer pair. The owner of each store considered offering the washer-dryer pair for $700, but decided on a price of $500. If this is a Nash equilibrium we can conclude that charging $500 was the most profitable strategy for each store, regardless of what price was charged by the other store. each store owner feared charging the higher price would result in being undercut by the other store charging the lower price. the owners of the stores feared that charging $700 could be used as evidence of collusion. the stores were less concerned about making a profit from the washer-dryer pair than they were with attracting customers who would also buy other appliances.

charging $500 was the most profitable strategy for each store, regardless of what price was charged by the other store.

Marginal cost is calculated for a particular increase in output by dividing the total cost by the change in output. dividing the change in total cost by the change in output. multiplying the change in total cost by the change in output. multiplying the total cost by the change in output.

dividing the change in total cost by the change in output.

Marginal cost is calculated for a particular increase in output by multiplying the total cost by the change in output. dividing the change in total cost by the change in output. multiplying the change in total cost by the change in output. dividing the total cost by the change in output

dividing the change in total cost by the change in output.

If fixed costs do not change, then marginal cost also remains constant. equals the change in average fixed cost divided by the change in output. equals the change in variable cost divided by the change in output. equals the change in average variable cost divided by the change in output

equals the change in variable cost divided by the change in output.

If marginal cost is above the average variable cost, then average variable cost is decreasing. Selected Answer: Incorrect True Answers: True Correct False

false

If price is equal to average variable cost, then a perfectly competitive firm breaks even. True False

false

If, for a perfectly competitive firm, price exceeds the marginal cost of production, the firm should keep output constant and enjoy the above normal profit. lower the price. reduce its output. increase its output.

increase its output.

If, in a perfectly competitive industry, the market price facing a firm is above its average total cost at the output where marginal revenue equals marginal cost, then existing firms will exit the industry. firms are breaking even. market supply will remain constant. new firms are attracted to the industry.

new firms are attracted to the industry.

A dominant strategy ________. results in a higher payoff irrespective of the strategy chosen by the other player always results in zero payoff to the opponent always results in equal payoffs to all the players in a game always results in a lower payoff irrespective of the strategy chosen by the other player

results in a higher payoff irrespective of the strategy chosen by the other player

In the long run, a perfectly competitive market will supply whatever amount consumers will buy at a price which earns the market an economic profit. generate a long-run equilibrium where the typical firm operates at a loss. supply whatever amount consumers demand at a price determined by the minimum point on the typical firm's average total cost curve. produce only the quantity of output that yields a long-run profit for the typical firm.

supply whatever amount consumers demand at a price determined by the minimum point on the typical firm's average total cost curve.

Economically rational means that consumers and firms take actions that are appropriate to reach goals given available information. take into account monetary costs and sunk costs. are realistic about the present but not necessarily the future. obtain full information prior to taking actions to reach goals. take into account monetary costs but ignore non-monetary opportunity costs.

take actions that are appropriate to reach goals given available information.

Marginal revenue product for a perfectly competitive seller is equal to the change in total revenue that results from hiring another worker. the output price multiplied by the total product of labor. the output price multiplied by the number workers hired. the marginal cost of production.

the change in total revenue that results from hiring another worker.

One reason why the average salary of Major League Baseball players is higher than the average salary of college professors is the marginal revenue product of baseball players is greater than the marginal revenue product of college professors. college professors accept lower salaries in exchange for better working conditions. the careers of most baseball players are much shorter than the careers of most college professors. competition among baseball club owners forces player salaries to be much higher than the players' marginal revenue products.

the marginal revenue product of baseball players is greater than the marginal revenue product of college professors.

All of the following are ways by which existing firms can deter the entry of new firms into an industry except continuously producing new and improved products. earning less than maximum profit. threatening to raise prices. advertising products aggressively.

threatening to raise prices.

Average total cost is equal to average fixed cost minus average variable cost. total cost divided by the number of workers. total cost divided by the level of output. marginal cost plus variable cost.

total cost divided by the level of output.

Average total cost is equal to total cost divided by the number of workers. average fixed cost minus average variable cost. marginal cost plus variable cost. total cost divided by the level of output.

total cost divided by the level of output.

An increase in a firm's fixed cost will not change the firm's profit-maximizing output in the short run. True False

true

An increase in wages raises the opportunity cost of leisure and leads to an increase in the quantity of labor supplied. True False

true

Moral hazard refers to the actions people take after they have entered into a transaction that make the other party to the transaction worse off. True False

true