Econ Final

Gomez runs a small pottery firm. He hires one helper at $10,000 per year, pays annual rent of $4,000 for his shop, and spends $16,000 per year on materials. He has $40,000 of his own funds invested in equipment (pottery wheels, kilns, and so forth) that could earn him $4,000 per year if alternatively invested. He has been offered $18,000 per year to work as a potter for a competitor. He estimates his entrepreneurial talents are worth $2,000 per year. Total annual revenue from pottery sales is $65,000. Calculate Gomez's economic profit

$11,000

Suppose that a car dealership wishes to see if efficiency wages will help improve its salespeople's productivity. Currently, each salesperson sells an average of 2 cars per day while being paid $30 per hour for an 8-hour day. 1. What is the current labor cost per car sold? 2.Suppose that when the dealer raises the price of labor to $40 per hour the average number of cars sold by a salesperson increases to 4 per day. What is now the labor cost per car sold? 3. By how much is it higher or lower than it was before? (higher/lower) by: 4: Has the efficiency of labor expenditures by the firm (cars sold per dollar of wages paid to salespeople) increased or decreased? 5. Suppose that if the wage is raised a second time to $55 per hour the number of cars sold rises to an average of 5 per day. What is now the labor cost per car sold? 6. If the firm's goal is to maximize the efficiency of its labor expenditures, which of the three hourly salary rates should it use: $30 per hour, $40 per hour, or $55 per hour? 7. By contrast, which salary maximizes the productivity of the car dealer's workers (cars sold per worker per day)?

$120, $80, lower, $40, increased, $88, $40, $55

Suppose that low-skilled workers employed in clearing woodland can each clear one acre per month if each is equipped with a shovel, a machete, and a chainsaw. Clearing one acre brings in $1,400 in revenue. Each worker's equipment costs the worker's employer $255 per month to rent and each worker toils 40 hours per week for 4 weeks each month. 1. What is the marginal revenue product of hiring one low-skilled worker to clear woodland for one month? 2. How much revenue per hour does each worker bring in? 3. If the minimum wage were $8.65, would the revenue per hour in part b exceed the minimum wage? (yes/no) 4.If so, by how much per hour? 5. Consider the employer's total costs. These include the equipment costs as well as a normal profit of $50 per acre. If the firm pays workers the minimum wage of $8.65 per hour, what will the firm's economic profit or loss be per acre? 6. The firm's (gain/loss) per acre will be: 7. At what value would the minimum wage have to be set so that the firm would make zero economic profit from employing an additional low-skilled worker to clear woodland?

$1400, $8.75, yes, $0.1, loss, $289, $6.84

Consider a small landscaping company run by Mr. Viemeister. He is considering increasing his firm's capacity. If he adds one more worker, the firm's total monthly revenue will increase from $54,000 to $72,000. If he adds one more tractor, monthly revenue will increase from $54,000 to $66,000. Each additional worker costs $6,000 per month, while an additional tractor would also cost $6,000 per month. 1. What is the marginal revenue product of labor? 2. The marginal revenue product of capital? 3. What is the ratio of the marginal revenue product of labor to the price of labor (MRPL/PL)? 4. What is the ratio of the marginal revenue product of capital to the price of capital (MRPK/PK)? 5. Is the firm using the least-costly combination of inputs? (yes/no) 6. Does adding an additional worker or adding an additional tractor yield a larger increase in total revenue for each dollar spent? (worker/tractor)

$18000, $12000, 3, 2, no, worker

$1,000 invested at 10 percent compound interest will grow into $1,331 after three years. What is the present value of $2,662 in three years if it is discounted back to the present at a 10 percent compound interest rate?

$2000

Gomez runs a small pottery firm. He hires one helper at $10,000 per year, pays annual rent of $4,000 for his shop, and spends $16,000 per year on materials. He has $40,000 of his own funds invested in equipment (pottery wheels, kilns, and so forth) that could earn him $4,000 per year if alternatively invested. He has been offered $18,000 per year to work as a potter for a competitor. He estimates his entrepreneurial talents are worth $2,000 per year. Total annual revenue from pottery sales is $65,000. Calculate the accounting profit for Gomez's pottery firm

$35,000

Suppose that a delivery company currently uses one employee per vehicle to deliver packages. Each driver delivers 30 packages per day, and the firm charges $20 per package for delivery. 1. What is the MRP per driver per day? 2. Now suppose that a union forces the company to place a supervisor in each vehicle at a cost of $300 per supervisor per day. The presence of the supervisor causes the number of packages delivered per vehicle per day to rise to 40 packages per day. What is the MRP per supervisor per day? 3. By how much per vehicle per day do firm profits fall after supervisors are introduced? 4. How many packages per day would each vehicle have to deliver in order to maintain the firm's profit per vehicle after supervisors are introduced? 5. Suppose that the number of packages delivered per day cannot be increased but that the price per delivery might potentially be raised. What price would the firm have to charge for each delivery in order to maintain the firm's profit per vehicle after supervisors are introduced?

$600, $200, $100, $45, $30

Suppose that a monopolistically competitive restaurant is currently serving 240 meals per day (the output where MR = MC). At that output level, ATC per meal is $10 and consumers are willing to pay $13 per meal. a. What is the size of this firm's profit or loss? b. Will there be entry or exit? c. Will this restaurant's demand curve shift left or right? d. Suppose that the allocatively efficient output level in long-run equilibrium is 200 meals. In long-run equilibrium, suppose that this restaurant charges $11 per meal for 180 meals and that the marginal cost of the 180th meal is $9. What is the size of the firm's economic profit? e. Suppose that the allocatively efficient output level in long-run equilibrium is 200 meals. In long-run equilibrium, suppose that this restaurant charges $11 per meal for 180 meals and that the marginal cost of the 180th meal is $9. Is the deadweight loss for this firm greater than or less than $40?

$720, Entry, Left, $0, Less than

There are economies of scale in ranching, especially with regard to fencing land. Suppose that barbed-wire fencing costs $19,000 per mile to set up. How much would it cost to fence a single property whose area is one square mile if that property also happens to be perfectly square, with sides that are each one mile long? How much would it cost to fence exactly four such properties separately, which together would contain four square miles of area? Now, consider how much it would cost to fence in four square miles of ranch land if, instead, it comes as a single large square that is two miles long on each side. Which is more costly—fencing in the four, one-square-mile properties or the single four-square-mile property?

$76,000. $304,000. $152,000. Four one square mile properties

Suppose that you own a 10-acre plot of land that you would like to rent out to wheat farmers. For them, bringing in a harvest involves $30 per acre for seed, $80 per acre for fertilizer, and $70 per acre for equipment rentals and labor. With these inputs, the land will yield 40 bushels of wheat per acre. Now suppose the price at which wheat can be sold is $7 per bushel and that farmers want to earn a normal profit of $10 per acre. 1. What is the most that any farmer would pay to rent your 10 acres? 2. What if the price of wheat rose to $8 per bushel?

$900, $1300

You are currently a worker earning $60,000 per year but are considering becoming an entrepreneur. You will not switch unless you earn an accounting profit that is on average at least as great as your current salary. You look into opening a small grocery store. Suppose that the store has annual costs of $150,000 for labor, $70,000 for rent, and $30,000 for equipment. There is a one-half probability that revenues will be $200,000 and a one-half probability that revenues will be $430,000. Instructions: For all parts, enter a loss as a negative number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. a. In the low-revenue situation, what will your accounting profit or loss be? In the high-revenue situation, what will your accounting profit or loss be? b. On average, how much do you expect your revenue to be? Your accounting profit? Your economic profit? Will you quit your job and try your hand at being an entrepreneur? (yes/no) c. Suppose the government imposes a 25 percent tax on accounting profits. This tax is only levied if a firm is earning positive accounting profits. What will your after-tax accounting profit be in the low-revenue case? In the high-revenue case? What will your average after-tax accounting profit be? What about your average after-tax economic profit? Will you now want to quit your job and try your hand at being an entrepreneur? (yes/no) d. Other things equal, does the imposition of the 25 percent profit tax increase or decrease the supply of entrepreneurship in the economy? (increase/decrease)

-50000, 180000, 315000, 65000, 5000, yes, -50000, 135000, 42500,-17500, no, decrease

Karen runs a print shop that makes posters for large companies. It is a very competitive business. The market price is currently $1 per poster. She has fixed costs of $100. Her variable costs are $2,000 for the first thousand posters, $1,600 for the second thousand, and then $1,000 for each additional thousand posters. a. What is her AFC per poster (not per thousand!) if she prints 1,000 posters? What if she prints 2,000 posters? What if she prints 10,000 posters? b. What is her ATC per poster if she prints 1,000? What if she prints 2,000? What if she prints 10,000? c. If the market price fell to 95 cents per poster, would there be any output level at which Karen would not shut down production immediately? (yes/no)

.1, .05, .01, 2.1, 1.85, 1.17, no

A firm in a purely competitive industry is currently producing 1,400 units per day at a total cost of $600. If the firm produced 1,200 units per day, its total cost would be $400, and if it produced 900 units per day, its total cost would be $375. a. What are the firm's ATC at these three levels of production? At 1400 units/day ATC= At 1200 units/day ATC= At 900 units/day ATC= b. If every firm in this industry has the same cost structure, is the industry in long-run competitive equilibrium? (Yes/no) c. From what you know about these firms' cost structures, what is the highest possible price per unit that could exist as the market price in long-run equilibrium? d. If that price ends up being the market price and if the normal rate of profit is 10 percent, then how big will each firm's accounting profit per unit be?

0.43, 0.33, 0.42, no, 0.33, 3.33

Suppose that Sea Shell oil company (SS) is pumping oil at a field off the coast of Nigeria. At this site, it has an extraction cost of $30 per barrel for the first 10 million barrels it pumps each year and then $60 per barrel for all subsequent barrels that it pumps each year, up to the site's maximum capacity of 90 million barrels per year. 1. Suppose the user cost is $70 per barrel for all barrels and that the current market price for oil is $110 per barrel. How many barrels will SS pump this year? __ million 2.What is the total accounting profit on the total amount of oil it pumps? __ million 3. What is the total economic profit on those barrels of oil? __ million 4. What if the current market price for oil rises to $140 per barrel, while the user cost remains at $70 per barrel? How many barrels will SS pump? __ million 5. What will be its accounting profit? __ billion 6. What will be its economic profit? __ billion 7. If the current market price remains at $140 per barrel but the user cost rises to $115 per barrel, how many barrels will SS pump this year? __ barrels 8. What will be its accounting profit? 9. What will be its economic profit?

10, 800, 100, 90, 7.5, 1.2, 0, 0, 0f

A firm in a purely competitive industry has a typical cost structure. The normal rate of profit in the economy is 8 percent. This firm is earning $5.50 on every $50 invested by its founders. a. What is its percentage rate of return? b. Is the firm earning an economic profit? (Yes/No) c. If so, how large? d. Will this industry see entry or exit? (Entry/Exit) d. What will be the rate of return earned by firms in this industry once the industry reaches long-run equilibrium?

11, yes, 3, entry, 8

To fund its wars against Napoleon, the British government sold consol bonds. They were referred to as "perpetuities" because they would pay £6 every year in perpetuity (forever) a. If a citizen could purchase a consol for £50 , what would its annual interest rate be? b.What if the price were £100 ? c.What if the price were £200? d. Bonds are known as "fixed income" securities because the future payments that they will make to investors are fixed by the bond agreement in advance. Do the interest rates of bonds and other investments that offer fixed future payments vary positively or inversely with their current prices?

12%, 6%, 3%, inversely

Suppose that the interest rate is 5 percent. a. What is the future value of $100 four years from now? b. How much of the future value is total interest? c. By how much would total interest be greater at an interest rate of 7 percent than at an interest rate of 5 percent?

121.55, 21.55, 9.53

Suppose that the marginal product of labor (MPL) for a local brewery is 96 units per day and the price of labor (PL) is $6 per day. 1. What does the least-cost rule say that the ratio of the marginal product of capital (MPC) to the price of capital (PC) should be? 2. Now suppose that the marginal product of labor (MPL) is 96 units per day, the price of labor (PL) is $6 per day, and the price of capital (PC) is $4 per day. What does the least-cost rule say that the marginal product of capital (MPC) should be?

16, 64

A delivery company is considering adding another vehicle to its delivery fleet; each vehicle is rented for $250 per day. Assume that the additional vehicle would be capable of delivering 1,750 packages per day and that each package that is delivered brings in $0.25 in revenue. Also assume that adding the delivery vehicle would not affect any other costs. 1. What are the MRP and MRC? 2. Should the firm add this delivery vehicle? (yes/no) 3. Now suppose that the cost of renting a vehicle doubles to $500 per day. What are the MRP and MRC? 4. Should the firm add a delivery vehicle under these circumstances? (yes/no) 5. Next suppose that the cost of renting a vehicle falls back down to $250 per day but, due to extremely congested freeways, an additional vehicle would only be able to deliver 750 packages per day. What are the MRP and MRC in this situation? MRP= MRC= 6. Would adding a vehicle under these circumstances increase the firm's profits? (yes/no)

437.5, 250, yes, 437.5, 500, no, 187.5, 250, no

Suppose that the demand for loanable funds for car loans in the Milwaukee area is $11 million per month at an interest rate of 10 percent per year, $12 million at an interest rate of 9 percent per year, $13 million at an interest rate of 8 percent per year, and so on. a. If the supply of loanable funds is fixed at $14 million, what will be the equilibrium interest rate? __ percent per year b. If the government imposes a usury law and says that car loans cannot exceed 3 percent per year, how big will the monthly shortage (or excess demand) for car loans be? $__ million per month c. How big will the monthly shortage for car loans be if the usury limit is raised to 8 percent per year? $__ million per month

7, 4, 0

Suppose that the current (first) generation consists of 3 million people, half of whom are women. Assume the total fertility rate is 1.25 and the only way people die is of old age. 1. How big will the fourth generation (the great-grandchildren) be? 2. How much smaller (in percentage terms) is each generation than the previous generation? 3. How much smaller (in percentage terms) is the fourth generation than the first generation? 4. Which statement correctly explains the answers in the previous parts? a. A fertility rate of 1 would cause each successive generation to double in size, so a fertility rate of 1.25 should lead to a relatively small decline in population. b. A fertility rate of 1 would cut each successive generation in half, so a fertility rate of 1.25 should lead to a relatively large decline in population. c. A fertility rate of 1 would cause each successive generation to double in size, so a fertility rate of 1.25 should lead to a relatively large increase in population.

732422, 63%, 37.5%, b

There are 300 purely competitive farms in the local dairy market. Of the 300 dairy farms, 298 have a cost structure that generates profits of $24 for every $300 invested. 1. What is the percentage rate of return for these 298 dairies? 2. The other two dairies have a cost structure that generates profits of $22 for every $200 invested. What is their percentage rate of return? 3. Assuming that the normal rate of profit in the economy is 10 percent, and firms cannot copy each other's technology, will there be entry or exit? (Entry/exit) 4. Will the change in the number of firms affect the two that earn $22 for every $200 invested? a) No, because the exiting firms didn't belong in the industry. b) Yes, because those two can claim a larger market share. c) No, because these firms are too small. d) Yes, because those exiting firms will spread the technology. 5. What will be the rate of return earned by most firms in the industry in long-run equilibrium? 6. If firms can copy each other's technology, what will be the rate of return eventually earned by all firms?

8, 11, exit, b, 10, 10

Suppose that a small town has seven burger shops whose respective shares of the local hamburger market are (as percentages of all hamburgers sold): 27%, 25%, 21%, 12%, 8%, 5%, and 2%. a. What is the four-firm concentration ratio of the hamburger industry in this town? b. What is the Herfindahl index for the hamburger industry in this town? c. If the top three sellers combined to form a single firm, what would happen to the four-firm concentration ratio and to the Herfindahl index? four firm= herfindahl=

85%, 2032, 98%, 5566

Suppose in Fiscalville there is a 0 percent tax on the first $10,000 of income, but a 20 percent tax on earnings between $10,000 and $20,000 and a 30 percent tax on income between $20,000 and $30,000. Any income above $30,000 is taxed at 40 percent. a. If your income is $40,000, how much will you pay in taxes? b. Determine your marginal tax rate. c. Determine your average tax rate. d. Is this a progressive tax?

9000, 40%, 23%, yes

You are a newspaper publisher. You are in the middle of a one-year rental contract for your factory that requires you to pay $500,000 per month, and you have contractual labor obligations of $1,250,000 per month that you can't get out of. You also have a marginal printing cost of $0.35 per paper as well as a marginal delivery cost of $0.10 per paper. What happens to MC per paper? (Increases/Decreases/Does not change)

Does not change

A municipal property tax on real estate is a. regressive, and the incident is on the consumer if the property is used in business. b. progressive, and the incident is on the taxpayer if the property is rented. c. proportional, and the incident is on the consumer if it is an owner-occupied residence or land. d. average, and the incident is on the consumer if one owns or rents.

a

A regressive tax is one in which a. the average rate decreases as income increases. b. the average rate is constant as income increases. c. the same taxes are paid as income increases. d. the average rate increases as income increases.

a

An important factor influencing labor productivity in the United States is a. high capital per worker. b. immigrant labor. c. high levels of imported resources. d. relatively high technology import levels.

a

An increase in the minimum wage could a. reduce employment and increase income. b. increase employment and decrease income. c. increase employment and increase income. d. reduce employment and decrease income.

a

Assume that a pure monopolist and a purely competitive firm have the same unit costs. In this case, determine what is true with respect to (a) price, (b) output, and (c) profits. 1. PMonopoly > PCompetition 2. PMonopoly < PCompetition 3. PMonopoly = PCompetition 4.QMonopoly > QCompetition 5.QMonopoly < QCompetition 6.QMonopoly = QCompetition 7.ProfitMonopoly > ProfitCompetition 8.ProfitMonopoly < ProfitCompetition 9.ProfitMonopoly = ProfitCompetition Which of the combinations above are accurate? a. 1, 5, and 7 b. 1, 4, and 8 c. 3, 6, and 9 d. 2, 6, and 8

a

Even though both monopolists and competitive firms follow the MC = MR rule in maximizing profits, there are differences in the economic outcomes because a. pure competitors are small with no market power. b. pure monopolists will try to buy their competitors. c. monopolists can charge any price they want to. d. monopolists will try to buy their competitors.

a

If a monopoly can experience economies of scale, it can a. reduce the price below a pure competitor and improve resource allocation. b. lower cost and eliminate competitors, which reduces resource use. c. raise the price and lower output, which reduces resource use. d. raise the price above a pure competitor and improve resource allocation.

a

If the future market price rises, all else equal, current extraction will a. decrease. b. increase. c. remain the same. d. decrease and then increase.

a

In the long run in a purely competitive industry, a) entry and exit of firms can occur. b) the industry is composed of a specific number of firms. c) firms do not have sufficient time to liquidate their assets. d) plant size is fixed.

a

Resource consumption per person in the United States is either flat or falling, depending on the resource. Yet living standards are rising because of technological improvements that allow more output to be produced for every unit of input used in production. This implies that we are a. unlikely to run out of resources. b. unlikely to experience future technological advances. c. likely to realize higher birth rates. d. likely to run out of resources.

a

Resource consumption per person in the United States is either flat or falling, depending on the resource. Yet living standards are rising because of technological improvements that allow more output to be produced for every unit of input used in production. If the population were expected to rise in the future rather than fall, a. we could maintain or improve our living standards because of technological advances. b. we could maintain or improve our living standards because of demographic changes. c. we would experience declining living standards because of limitations to the food supply. d. we would experience declining living standards because of demographic changes.

a

The demand curve faced by a purely monopolistic seller is a. downward sloping, whereas that facing the purely competitive firm is perfectly elastic. b. downward sloping, whereas that facing the purely competitive firm is perfectly inelastic. c. perfectly elastic, whereas that facing the purely competitive firm is perfectly inelastic. d. perfectly inelastic, whereas that facing the purely competitive firm is perfectly elastic.

a

The demand for loanable funds is downsloping because there are a. few investment projects that yield a high rate of return. b. few investment projects that yield a low rate of return. c. many investment projects that yield a high rate of return. d. many investment projects that yield an equal rate of return

a

The efficiency loss of a tax is the net benefit society gives up because a. too little of the product is produced. b. too little revenue is raised. c. too much of the product is produced. d. too much of the product is consumed.

a

The equality of marginal revenue and marginal cost is essential for profit maximization in all market structures because if a) marginal revenue and marginal cost are equal, any other output level will result in reduced profits. b) marginal revenue is greater than marginal cost, producing more will lower profits. marginal revenue is less than c) marginal cost, producing more will increase profits. d) marginal revenue and marginal cost are equal, economic profits will be zero.

a

The federal corporate income tax is a. proportional, if the incidence is on shareholders. b. regressive, if the incidence is on producers. c. progressive, if the incidence is on consumers. d. average, if the incidence is on shareholders.

a

The firm should produce in the short run as long as price a. exceeds the average variable cost. b) is less than the average fixed cost. c) is less than the average variable cost. d) exceeds the average fixed cost.

a

The pure (profit maximizing) monopolist's demand curve is not a. perfectly inelastic, because MR is negative when demand is inelastic, so MR = MC < 0. b. perfectly elastic, because the firm will still have some competitors even if they are not close. c. downward sloping, because MR is negative when demand is elastic, so MR = MC < 0. d. perfectly inelastic, because MR < MC when demand is inelastic, so the price would be falling.

a

The single most important factor underlying the long-run increase in average real-wage rates in the United States is a. labor productivity. b. labor cost. c. educational levels. d. age demographics.

a

Monopolistic competition: a. Differentiated products b. Many firms c. Unique product d. Difficult entry e. Some price control

a, b, c

Monopolistic competition: a. Differentiated products b. Many firms c. Unique product d. Difficult entry e. Some price control

a, b, e

Pure competition: a. Very large number of firms checked b. One firm checked c. No control over price checked d. Many obstacles to entry checked e. Non-price competition

a, c

Pure monopoly: a. One firm b. Few firms c. Unique product d. Easy entry e. Much control over price

a, c, e

"In the long run, monopolistic competition leads to a monopolistic price but not to monopolistic profits." This statement is a. true, since P < MC, but the lack of available close substitutes pushes the price of the average firm up until it equals ATC. b. true, since P > MC, but the availability of close substitutes pushes the price of the average firm down until it equals ATC. c. false, since P > MC, but the availability of close substitutes pushes the price of the average firm down until it equals ATC. d. false, since P < MC, but the lack of available close substitutes pushes the price of the average firm up until it equals ATC.

b

A proportional tax is one in which a. the average rate decreases as income increases. b. the average rate is constant as income increases. c. the same amount of taxes are paid as income increases. d. the average rate increases as income increases.

b

According to the benefits-received principle of taxation, a. everyone should pay for government services. b. those who make use of government services should pay for them. c. the lower one's income, the lower the tax, and the higher the percentage of one's income paid in tax. d. the higher one's income, the higher the tax, and the higher the percentage of one's income paid in tax.

b

An economist's use of the term "rent" differs from everyday usage in that in the economist's understanding, economic rent a. includes any security deposit that must be paid. b. is the price paid for the use of land and other natural resources that are completely fixed in total supply. c. is the price paid for the use of all resources that are completely variable in supply. d. cannot be used to determine profit.

b

Assume that a pure monopolist and a purely competitive firm have the same unit costs. In the case of a pure monopolist, resources will be allocated a. efficiently, because the pure competitor produces at the point of minimum ATC and equates price and MC. b. inefficiently, because the monopolist does not produce at the point of minimum ATC and does not equate price and MC. c. inefficiently, because the monopolist does not produce in the elastic range of the demand curve. d. efficiently, because the pure competitor earns only a normal profit.

b

Compared to pure monopoly and pure competition, monopolistically competitive industries a. might have economic profits, they will remain constant as competitors enter, and there will be productive efficiency. b. might have economic profits, they will diminish as competitors enter, and there will be productive inefficiency. c. will have economic profits, they will diminish constant as competitors enter, and there will be productive efficiency. d. will have economic profits, they will remain constant as competitors enter, and there will be productive efficiency.

b

Consider: "All economic profit can be traced to either uncertainty or the desire to avoid it." This statement suggests that a. firms only take insurable risks. b. demand and supply conditions are always unknown. c. demand an supply conditions are always known. d. firms only take uninsurable risks.

b

Oligopoly differs from monopolistic competition in that oligopoly a. has many firms, whereas monopolistic competition has few firms. b. has few firms, whereas monopolistic competition has more firms. c. the firms have relatively easy entry. d. the firms are not mutually interdependent with regard to price.

b

The basic model of pure competition reviewed in this chapter finds that in the long run all firms in a purely competitive industry will earn normal profits. If all firms only earn a normal profit in the long run, firms will develop new products or lower-cost production methods because they can a) improve their management and earn an economic profit in the long run. b) innovate and possibly earn an economic profit in the short run. c) innovate and possibly earn a normal profit in the short run. d) eliminate competition.

b

The demand curve facing a a. purely competitive firm is downsloping, because the purely competitive firm is faced by a normal downward-sloping industry demand curve. b. purely competitive firm is perfectly elastic, because the purely competitive firm may sell all that it wishes at the equilibrium price. c. pure monopolist is perfectly inelastic, because a pure monopolist may choose any desired price and quantity combination. d. pure monopolist is downsloping, because the firm's supply is so small a part of the total industry supply that it cannot affect the price.

b

The equilibrium interest rate is determined where the interest rate is equal to a. expected personal income. b. the expected rate of return. c. the expected rate of spending. d. loanable funds.

b

There is a gap in the oligopolist's marginal-revenue curve because a. the cost of production changes abruptly. b. the slope of the demand curve changes abruptly. c. price drops abruptly. d. price rises abruptly.

b

Which of the following statements is true regarding the costs associated with owning and operating an automobile? a) Fixed costs include repairs, and variable costs include depreciation. b) Fixed costs include insurance, and variable costs include gasoline. c) Fixed costs include depreciation, and variable costs include insurance d) Fixed costs include gasoline, and variable costs include repairs.

b

Which of the following statements is true? a. The lower one's income, the lower the tax, and the higher the percentage of one's income paid in tax, which is unfair to those with restricted income. b. Redistribution of income by government—transfer payments—would be impossible with the benefits-received principle. c. Redistribution of income by government—transfer payments—would be impossible with the ability-to-pay principle. d. The lower one's savings, the lower the tax, and the lower the percentage of one's income paid in tax, which is unfair to those with restricted income.

b

A progressive tax is one in which a. the average rate decreases as income increases. b. more taxes are paid as income increases. c. the average rate increases as income increases. d. the average rate is constant as income increases.

c

Changes in market prices and extraction rates a. cause externalities. b. cause significant market disruptions. c. assure that resources will be extracted when their economic value is greatest. d. reduce firm profits.

c

Consider the statement: "Even if a firm is losing money, it may be better to stay in business in the short run." This statement is a) true, if the loss is less than variable costs. b) false, because a firm should only operate if it is making money. c) true, if the loss is less than fixed costs. d) false, because it could be better to stay in business in the long run.

c

Explicit costs are payments the firm makes for: a) outputs such as desks for its employees, whereas implicit costs are expenditure costs that occur for services such as travel expenses for its employees. b) outputs such as desks for its employees, whereas implicit costs are nonexpenditure costs that occur through the use of self-owned resources such as forgone income. c) inputs such as wages and salaries to its employees, whereas implicit costs are nonexpenditure costs that occur through the use of self-owned resources such as forgone income. d) inputs such as wages and salaries to its employees, whereas implicit costs are expenditure costs that occur for services such as travel expenses for its employees.

c

If the current market price rises, all else equal, current extraction will a. decrease. b. increase and then decrease. c. increase. d. remain the same.

c

Other things equal, a. the smaller the elasticities of demand and supply, the greater the efficiency loss of a particular tax. b. the greater the elasticities of demand and supply, the smaller the efficiency loss of a particular tax. c. the greater the elasticities of demand and supply, the greater the efficiency loss of a particular tax. d. the more elastic demand is relative to supply, the greater the efficiency loss of a particular tax.

c

Price can be substituted for marginal revenue in the MR = MC rule when an industry is purely competitive because a) price minus cost equals marginal revenue. b) price is the same as average revenue. c) price is constant regardless of the quantity demanded. d) price and marginal cost are the same in pure competition.

c

Resource demand curves slope downward because a. of the diminishing marginal cost of the resource. b. in perfectly competitive markets, the lower the price, the greater the output. c. of the diminishing marginal product of the resource. d. of economies of scale.

c

Shortcomings of the kinked-demand model include a. the allowance for price leadership. b. a lack of explanation for how the final price is set. c. a lack of explanation for how the initial price is set. d. the allowance for collusion.

c

The distinction between insurable and uninsurable risks is significant for the theory of profit because a. an uninsurable risk can be avoided. b. the rate identified as the "poor" lending rate will fall. c. an insurable risk does not fatally affect the profit and loss of a firm. d. an uninsurable risk does not fatally affect the profit and loss of a firm.

c

The equality of P and MC means the firm is achieving a) market efficiency, because price equals average cost. b) allocative efficiency, since the industry is producing the amount of product at a price that covers its costs. c) allocative efficiency, since the industry is producing the amount of product that equates society's valuation of that product and the price of the product. d) productive efficiency, since the industry is producing the amount of product that equates society's valuation of that product and the price of the product.

c

The explicit costs of going to college include: a) the tuition costs, where implicit costs include the fees paid to the college. b) forgone income, where implicit costs include tuition costs and the cost of books. c) tuition costs and the cost of books, where implicit costs include forgone income. d) the fees paid to the college, where implicit costs include the tuition costs.

c

The factors determining resource demand differ from those determining product demand because the demand for products a. is a derived demand, but the demand for resources depends on income and tastes. b. cannot be measured in the same units as the demand for resources. c. depends on income and tastes, but the demand for resources is a derived demand. d. is determined in markets, but the demand for resources is controlled by firms.

c

The general level of wages is higher in the United States and other industrially advanced countries because a. of the high supply of labor in relation to demand. b. labor productivity is measured differently in the United States. c. of the high demand for labor in relation to supply. d. technology is exported from the United States.

c

The kinked-demand curve explains price rigidity in oligopoly because a. the firm's revenue will fall as the price falls. b. firms agree to a given price. c. firms expect any change in price will lower revenue and profits. d. firms will not agree to a given price.

c

The most common reason that oligopolies exist is a. diminishing marginal returns. b. there are a large number of firms. c. economies of scale. d. regulation.

c

The socially optimal price (P = MC) is socially optimal because: a. It minimizes ATC. b. It yields a normal profit. c. It achieves allocative efficiency. d. It reduces the monopolist's profit.

c

There will be a greater incidence of an excise tax on consumers a. the less elastic the supply. b. when supply is perfectly elastic. c. the more elastic the supply. d. for higher-priced goods.

c

Which of the following are products or services of oligopolists that you regularly purchase or own? a. Ovens, refrigerators, and hair salon services b. Refrigerators, bakery goods, and courier services c. Automobiles, personal computers, and gasoline d. Clothing stores, office supplies, and personal computers

c

A coal-fired power plant can produce electricity at an operating cost of $0.04 per kilowatt-hour when running at its full capacity of 30 megawatts per hour, $0.16 per kilowatt-hour when running at 20 megawatts per hour, and $0.24 per kilowatt-hour when running at 10 megawatts per hour. A gas-fired power plant can produce electricity at a variable cost of $0.12 per kilowatt-hour at any capacity from 1 megawatt per hour to its full capacity of 5 megawatts per hour. The cost of constructing a coal-fired plant is $50 million, but it costs only $10 million to build a gas-fired plant. Instructions: In part b, enter your answer as a whole number. In parts c and d, round your answers to 2 decimal places. 1. Consider a city that has a peak afternoon demand of 80 megawatts of electricity. If it wants all plants to operate at full capacity, what combination of coal-fired plants and gas-fired plants would minimize construction costs? a. One coal-fired plant plus ten gas-fired plants b. Sixteen gas-fired plants c. Two coal-fired plants plus four gas-fired plants 2. How much will the city spend on building that combination of plants? __ million 3. What will the average variable cost per kilowatt-hour be if you average over all 80 megawatts that are produced by that combination of plants? (Hint: A kilowatt is one thousand watts, while a megawatt is one million watts.) __ per KW hour 4. What would the average variable cost per kilowatt-hour be if the city had instead built three coal-fired plants? __ per KW hour

c, 140, .06, .07

1. In 2009 General Motors (GM) announced that it would reduce employment by 21,000 workers. What does this decision reveal about how GM viewed its marginal revenue product (MRP) and marginal resource cost (MRC)? This decision indicates that for those 21,000 workers a. the MRC was less than the MRP. b. the MRC was negative. c. the MRC was greater than the MRP. d. the MRP was negative. 2. GM didn't reduce employment by more than 21,000 workers because a. it wanted to set the labor level where MRC equaled MRP to maximize profit. b. it wanted to set the labor level where MRC equaled MRP to maximize revenue. c. this was what the board voted to do. d. that lowered the cost enough to make some profit.

c, a

A 4 percent state general sales tax is a. average, and the incident is on the consumer. b. proportional, and the incident is on the consumer. c. progressive, and the incident is on the taxpayer. d. regressive, and the incident is on the consumer.

d

A federal excise tax on automobile tires is a. progressive, and the incident is on the taxpayer. b. proportional, and the incident is on the consumer. c. average, and the incident is on the consumer. d. regressive, and the incident is on the consumer

d

According to the ability-to-pay principle of taxation, a. everyone should pay for government services. b. those who make use of government services should pay for them. c. the lower one's income, the lower the tax, and the higher the percentage of one's income paid in tax. d. the higher one's income, the higher the tax, and the higher the percentage of one's income paid in tax.

d

Consider: "Though rent need not be paid by society to make land available, rental payments are very useful in guiding land into the most productive uses." This statement recognizes that a. not all land is fixed in supply. b. more expensive land will lower profits. c. rent serves an incentive function. d. it makes sense to pay more for land that has a more profitable use.

d

Demographers have been surprised that total fertility rates have fallen below 2.0, especially because most people in most countries tell pollsters that they would like to have at least two children. What factors could be causing women in so many countries to average fewer than two children per lifetime? a. War and famine b. Greater participation by women in the unpaid labor force c. International travel rates d. Greater participation by women in the paid labor force

d

Hospital administrators sometimes complain about a "shortage" of nurses. The shortage is the result of a. low wages that occur in the competitive market and could be eliminated if nurses earn wages closer to their MRC. b. higher wages that occur in the competitive market and could be eliminated if nurses earn wages closer to their MRC. c. higher wages that occur in the monopsonized market and could be eliminated if nurses earn wages closer to their MRP. d. low wages that occur in the monopsonized market and could be eliminated if nurses earn wages closer to their MRP

d

In long-run equilibrium, P = minimum ATC = MC. The equality of P and minimum ATC means the firm is achieving a) market efficiency. b) allocative efficiency. c) consumption efficiency. d) productive efficiency.

d

Suppose that competing firms form an employers' association that hires labor as a monopsonist would. This will cause a a. convergence of the marginal resource cost and the supply curve, which will result in more workers hired at a higher wage rate. b. convergence of the marginal revenue product and the supply curve, which will result in fewer workers hired at a higher wage rate. c. divergence of the marginal revenue product and the supply curve, which will result in more workers hired at a lower wage rate. d. divergence of the marginal resource cost and the supply curve, which will result in fewer workers hired at a lower wage rate.

d

The costs of a purely competitive firm and a monopoly may be different because a. pure monopolists will try to buy their competitors. b. monopolists can charge any price they want to. c. competitive firms have a lower price. d. monopolies might experience economies of scale not available to competitive firms.

d

The federal personal income tax is a. average, and the incident is on the consumer. b. proportional, and the incident is on the taxpayer. c. regressive, and the incident is on the taxpayer. d. progressive, and the incident is on the taxpayer.

d

The kinked-demand curve for oligopolists assumes that rivals will a. neither match price cuts nor price increases. b. match price increases, but ignore price cuts. c. match price cuts and price increases. d. match price cuts, but ignore price increases.

d

The long-run downward trend in commodity prices is consistent with the idea that: a. resource demands have been increasing faster than resource supplies. b. birthrates will soon increase due to the falling cost of living. c. we are quickly running out of resources. d. resource supplies have increased faster than resource demands.

d

The major functions of profit include a. identifying dynamic and uncertain environments. b. establishing markets to purchase a good or service. c. providing an incentive for individuals to save money. d. providing an incentive for entrepreneurial initiative in combining resources to produce a good or service.

d

The supply of loanable funds is upsloping because a. higher interest rates make it more costly to borrow. b. investors need more money available at high interest rates. c. savers will make more funds available at lower interest rates. c. savers will make more funds available at higher interest rates

d

The type of tax represented by the portion of the payroll tax levied on employers is a. regressive, if the incidence is on employees. b. proportional, if the incidence is on employers. c. progressive, if the incidence is on employers. d. difficult to determine without knowing the relative labor supply and demand elasticities.

d

There will be a greater incidence of an excise tax on consumers a. for lower-priced goods. b. the more elastic the demand. c. when demand is perfectly elastic. d. the less elastic the demand.

d

You are considering whether to drive your car or fly 1,000 miles to Florida for spring break. In making your decision you should consider a) the depreciation of the vehicle, the price of airfare, and the need for hotel space in Florida. b) the depreciation of the vehicle, the price of airfare, and the need for transportation in Florida. c) the fixed costs of the trip, the opportunity cost of your time, and the need for transportation in Florida. d) the variable costs of the trip, the opportunity cost of your time, and the need for transportation in Florida.

d

Workers are compensated by firms with "benefits" in addition to wages and salaries. The most prominent benefit offered by many firms is health insurance. Suppose that in 2000, workers at one steel plant were paid $20 per hour and in addition received health benefits at the rate of $4 per hour. Also suppose that by 2010 workers at that plant were paid $21 per hour but received $18 in health insurance benefits. 1. By what percentage did total compensation (wages plus benefits) change at this plant from 2000 to 2010? 2. Total compensation (increased/decreased) by 3. What was the approximate average annual percentage change in total compensation? 4. By what percentage did wages change at this plant from 2000 to 2010? 5. Wages (increased/decreased), by: 6. What was the approximate average annual percentage change in wages? 7. If workers value a dollar of health benefits as much as they value a dollar of wages, by what total percentage will they feel that their incomes have risen over this time period? 8. What if they only consider wages when calculating their incomes? 9. Incomes (rise/decline) by: 10. Is it possible for workers to feel as though their wages are stagnating even if total compensation is rising? (yes/no)

increased, 62.5%, 6.25%, increased, 5%, .5%, 62.5%, rise, 5%, yes`

You are a newspaper publisher. You are in the middle of a one-year rental contract for your factory that requires you to pay $500,000 per month, and you have contractual labor obligations of $1,250,000 per month that you can't get out of. You also have a marginal printing cost of $0.35 per paper as well as a marginal delivery cost of $0.10 per paper. If sales fall by 20 percent from 1,000,000 papers per month to 800,000 papers per month what happens to the minimum amount you must charge to break even? It __ (increases/decreases) from __ per paper to ___ per paper

increases, $2.20, $2.64

Eric and Kyle are fishermen with different equipment and, as a result, different costs for catching fish. Eric's costs for catching fish are $1,000 per ton for the first five tons and then $2,500 per ton for any additional tons. Kyle can harvest fish at a cost of $3,000 per ton for the first 15 tons and then $1,400 for any additional tons. 1. If society wants 30 tons of fish and for some reason will only allow one of the two guys to do all the fishing, which one should society choose if it wants to minimize the cost of catching those 30 tons of fish? (kyle/eric) 2. How much will the total cost of catching the fish be? 3. What will the average cost per ton be for the 30 tons? 4.. If society wants 30 tons of fish and wants them for the least cost regardless of who catches them, how much should Eric and Kyle each catch? eric= kyle= 5. How much will the total cost of catching 30 tons be? 6. What will the average cost per ton be for the 30 tons? 7. Suppose that Eric and Kyle can both sell whatever amount of fish they catch for $3,000 per ton. Also suppose that Eric is initially given ITQs for 30 tons of fish, while Kyle is given ITQs for zero tons of fish. Suppose that Kyle is willing to pay Eric $550 per ton for as many tons of ITQs as Eric is willing to sell to Kyle. How much profit would Eric make if he used all the ITQs himself? 8. What if Eric sold 25 tons' worth of his ITQs to Kyle while using the other 5 tons of ITQs to fish for himself? 9.. What price per ton can Kyle offer to pay Eric for his 25 tons of ITQs such that Eric would make exactly as much money from that deal (in which he sells 25 tons' worth of ITQs to Kyle while using the rest to fish for himself) as he would by using all 30 tons of ITQs for himself? (__ per ton of ITQs)

kyle, 66000, 2200, 5, 25, 64000, 2133.33, 22500, 23750, 500

Suppose you have been tasked with regulating a single monopoly firm that sells 50-pound bags of concrete. The firm has fixed costs of $10 million per year and a variable cost of $1 per bag no matter how many bags are produced. Instructions: Enter your answers as whole numbers. In part e, round your answer to 2 decimal places. a. If this firm kept on increasing its output level, would ATC per bag ever increase? yes/no Is this a decreasing-cost industry? yes/no b. If you wished to regulate this monopoly by charging the socially optimal price, what price would you charge? At that price, what would be the size of the firm's profit or loss? Would the firm want to exit the industry? Yes/no c. You find out that if you set the price at $2 per bag, consumers will demand 10 million bags. How big will the firm's profit or loss be at that price? d. If consumers instead demanded 20 million bags at a price of $2 per bag, how big would the firm's profit or loss be? e. Suppose that demand is perfectly inelastic at 20 million bags, so that consumers demand 20 million bags no matter what the price is. What price should you charge if you want the firm to earn only a fair rate of return? Assume as always that TC includes a normal profit.

no, yes, $1, loss of 10 million, yes, 0, profit of 10 million, $1.50

Under which of these market classifications does each of the following most accurately fit? i. A supermarket in your hometown . ii. The steel industry iii. A Kansas wheat farm iv. The commercial bank in which you or your family has an account v. The automobile industry

oligopoly, oligopoly, pure competition, monopolistic competition, oligopoly

You are a newspaper publisher. You are in the middle of a one-year rental contract for your factory that requires you to pay $500,000 per month, and you have contractual labor obligations of $1,250,000 per month that you can't get out of. You also have a marginal printing cost of $0.35 per paper as well as a marginal delivery cost of $0.10 per paper. If sales falls by 20 percent from 1,000,00 papers/month to 800,000 what happens to AFC per paper? It ____ (rises/falls) from __ per paper to __ per paper

rises, $1.75, $2.19

Suppose that purely competitive firms producing cashews discover that P exceeds MC. 1. Is their combined output of cashews too little, too much, or just right to achieve allocative efficiency? (Too much/too little/just right) 2. In the long run, what will happen to the supply of cashews and the price of cashews? a) The supply of cashews will increase, and the price of cashews will decrease. b) The supply of cashews will decrease, and the price of cashews will increase. c) The supply of cashews will increase, and the price of cashews will increase. d) The supply of cashews will decrease, and the price of cashews will decrease.

too little, a

A purely competitive firm finds that the market price for its product is $30.00. It has a fixed cost of $100.00 and a variable cost of $17.50 per unit for the first 50 units and then $35.00 per unit for all successive units. a. Does price equal or exceed average variable cost for the first 50 units? b. What is the average variable cost for the first 50 units? c. Does price equal or exceed average variable cost for the first 100 units? d. What is the average variable cost for the first 100 units? e. What is the marginal cost per unit for the first 50 units? f. What is the marginal cost for units 51 and higher? g. For each of the first 50 units, does MR exceed MC? h. What about for units 51 and higher? i. What output level will yield the largest possible profit for this purely competitive firm?

yes. $17.50. yes. $26.25. $17.50. $35.00. yes. no. 50