Micro-Economics Final Practice Questions
Suppose that each of the two firms in a duopoly has the independent choice of advertising or not advertising. If neither advertises, each gets $10 million in profit; if both advertise, their profits will be $5 million each; and if one advertises while the other does not, the advertiser gets profit of $15 million and the other gets profit of $2 million. According to game theory, the Nash equilibrium is that: A. one will advertise and the other will not. B. both will advertise. C. both may or may not advertise. D. neither will advertise.
both will advertise.
An externality is said to exist when: A. individuals impose costs or benefits on others but have no incentive to take these costs and benefits into account. B. individuals impose costs or benefits on others, and the market provides incentives to take these costs and benefits into account. C. individual actions are affected by government policies (such as taxes) that are externally imposed on the market. D. individual actions are affected by external forces like the loss of U.S. jobs because of competition from abroad.
individuals impose costs or benefits on others but have no incentive to take these costs and benefits into account.
An industry with production that generates external costs produces a quantity of output that is: A. larger than the socially optimal quantity. B. socially optimal. C. smaller than the socially optimal quantity. D. socially optimal if a specific subsidy is given to buyers.
larger than the socially optimal quantity.
The demand curve faced by a single perfectly competitive firm is: A. downward sloping. B. perfectly inelastic. C. relatively but not perfectly elastic. D. perfectly elastic.
perfectly elastic.
If the price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will: A. produce at a profit. B. produce more than the profit-maximizing quantity. C. shut down production. D. produce at a loss.
produce at a profit.
In the short run, if AVC < P < ATC, a perfectly competitive firm: A. produces output and earns an economic profit. B. does not produce output and earns zero economic profit. C. produces output and incurs an economic loss. D. does not produce output and earns an economic profit.
produces output and incurs an economic loss.
To calculate the Herfindahl-Hirschman index (HHI), one must _____ market share(s) of _____ in the industry. A. sum the; all of the firms B. sum the; the four largest firms C. divide the; the largest firm by the sum of the four largest firms D. sum the squared; all of the firms
sum the squared; all of the firms
Tradable pollution permits are a: A. system of exchangeable licenses that enable the holder to pollute up to a specified amount during a given period. B. tax system for internalizing pollution costs to the market. C. system of voluntary negotiations between polluters and damaged parties. D. subsidy system for charging consumers for the use of common property resources.
system of exchangeable licenses that enable the holder to pollute up to a specified amount during a given period.
When innovations by one firm are quickly emulated and improved on by rival firms in the same industry or in other industries, it is: A. technology takeover. B. illegal under most patents. C. industrial espionage. D. technology spillover.
technology spillover.
With tradable emissions permits, the price of the permit is determined by: A. the government. B. the World Trade Organization. C. environmental protection organizations. D. the supply of and demand for permits.
the supply of and demand for permits.
When a cherry orchard in Oregon adds a worker, the total cost of production increases by $24,000. Adding the worker increases total cherry output by 600 pounds. Therefore, the marginal cost of the last pound of cherries produced is: A. $40. B. $19. C. $24,000. D. $4,000.
$40
Austin's total fixed cost is $3,600 a month for making 100,000 cupcakes at his cupcake bakery. Austin employs 20 workers and pays each worker $600 a month. If labor is his only variable cost, what is Austin's total cost per month for making 100,000 cupcakes? A. $3,600 B. $1,200 C. $15,600 D. $12,000
$15,600
If a stock analyst believes there is a 10% probability that the stock price of Dymonatis will be $30 at the end of the year, a 50% probability that it will be $40, and a 40% probability that it will be $50, then the expected value of the stock at the end of the year is: A. $38. B. $40. C. $32. D. $43.
43
Which activity generates a negative externality? A. Your next-door neighbor mows the lawn at 6 A.M. B. After Jane buys health insurance, she begins racing motorcycles on the weekends. C. The only two coffee shops in town conspire to raise prices. D. You buy a new car, then discover it needs a new transmission.
Your next-door neighbor mows the lawn at 6 A.M.
Food stamps are an example of: A. a monetary benefit. B. unemployment insurance. C. a negative income tax. D. an in-kind benefit.
an in-kind benefit.
If a good has a marginal cost of production of zero and an inefficiently low level of consumption, the good must be a(n): A. private good. B. common resource. C. public good. D. artificially scarce good.
artificially scarce good.
Tankao makes earbuds for mobile devices. When Tankao produces 20 sets of earbuds, its average variable cost is $5 per set and its average total cost is $8 per set. Tankao's: A. average fixed cost is $3 per set. B. marginal cost is equal to its average fixed cost. C. marginal cost is less than $3 per set. D. marginal cost is $3 per set.
average fixed cost is $3 per set
If a firm hires labor such that W > VMPL, then profit: A. can be increased by decreasing the price of the output. B. is maximized. C. can be increased by hiring more labor. D. can be increased by hiring less labor.
can be increased by hiring less labor.
A monopolist generally _____ than does a perfectly competitive industry with the same market demand. : A. produces a larger quantity B. charges a higher price C. charges a lower price D. earns less profit in the long run
charges a higher price
The pricing in monopoly prevents some mutually beneficial trades. The value of these unrealized mutually beneficial trades is called: A. opportunity costs. B. deadweight loss. C. sunk costs. D. inequity
deadweight loss.
Benny employs people to sell candy bars at intersections. Assume that Benny can obtain candy bars to sell for no cost. The marginal product of the last worker Benny hired is 20 candy bars per hour. Benny pays $7 per worker per hour and sells the candy bars for $1 each. If the price of candy bars rises to $2, then the: A. demand for labor decreases. B. quantity demanded of labor decreases, but the demand for labor curve does not shift. C. quantity demanded of labor increases, but the demand for labor curve does not shift. D. demand for labor increases.
demand for labor increases
The marginal utility of income for a risk-averse individual will be: A. diminishing. B. unknown; the answer depends on the value of income. C. constant. D. increasing.
diminishing
Which good BEST fits the characteristics of a private good? A. clean water B. police protection C. a pizza D. national defense
a pizza
Which good is MOST likely a common resource? A. the fire department B. a pair of pants C. the Super Bowl D. a public park
a public park
Monopolistic competition is similar to perfect competition because firms in both market structures: A. are price takers. B. do not face any barriers to entry to the industry in the long run. C. find it beneficial to advertise. D. produce goods that are perfect substitutes.
do not face any barriers to entry to the industry in the long run.
The demand curve for a firm operating in a monopolistically competitive industry is: A. downward sloping. B. upward sloping. C. U-shaped. D. vertical.
downward sloping.
In a perfectly competitive industry, the market demand curve is usually: A. downward-sloping. B. relatively elastic. C. perfectly inelastic. D. perfectly elastic.
downward-sloping
If monopolistically competitive firms are earning positive economic profits in the short run, then in the long run: A. economic profits will increase. B. economic profits will be reduced to zero. C. firms will leave the industry. D. the demand curves faced by existing firms will move to the right.
economic profits will be reduced to zero.
Buffalo Aircraft doubles the amount of all of the inputs it uses—the factory doubles in size and twice as many workers are hired. After this expansion, the number of aircraft produced triples. If the price of inputs is unchanged, this means that Buffalo Aircraft is operating with: A. economies of scale. B. decreasing average variable cost. C. increasing marginal cost. D. increasing average total cost.
economies of scale
It is common in large breweries for the long-run average total cost to decline as output increases. This indicates that many breweries operate with: A. diseconomies of scale. B. economies of scale. C. diminishing marginal returns. D. constant returns to scale.
economies of scale
Which factor is NOT associated with production at a college? Selected Answer: Incorrect [None Given] Answers: A. classroom buildings B. electricity C. the computer labs D. the faculty
electricity
A perfectly competitive firm will incur an economic loss but will continue to produce a positive quantity of output in the short run if the price is: A. less than marginal cost. B. greater than average total cost. C. greater than average variable cost and less than average total cost. D. less than average variable cost.
greater than average variable cost and less than average total cost.
A natural monopoly is one that: A. is based on control of something occurring in nature (such as diamonds). B. has increasing returns to scale over the entire relevant range of output. C. monopolizes a natural resource such as a mineral spring. D. typically has low fixed costs, making it easy and "natural" for it to shut out competitors
has increasing returns to scale over the entire relevant range of output.
An advantage of employment-based insurance is that it: A. reduces moral hazard. B. helps reduce the problem of adverse selection. C. increases government tax revenues. D. guarantees better care than is provided by government insurance such as Medicare.
helps reduce the problem of adverse selection.
We would consider a tornado and a CEO scandal that hit a construction company on the same day as _____ events. A. independent B. dependent C. probable D. premium
independent
In contrast with perfect competition, a monopolist: A. produces where MR > MC, and a perfectly competitively firm produces where P = MC. B. produces more at a lower price. C. earns zero economic profits in the long run. D. may have economic profits in the long run.
may have economic profits in the long run.
If, at the current amount of pollution, its marginal social benefit is greater than its marginal social cost: A. there is too little pollution. B. the externality is minimized. C. there is too much pollution. D. society is achieving the optimal amount of pollution.
there is too little pollution.
Assuming that all other factors of production are held constant, marginal product is the change in _____ output resulting from a one-unit change in _____. A. total; a fixed input B. total; a variable input C. per unit; a fixed input D. total; total product
total; a variable input
Many people smoke and continue poor eating habits because they have health insurance. This example illustrates: A. moral hazard. B. reputation. C. adverse selection. D. signaling.
moral hazard
When labor is hired in a competitive market, the value of the marginal product of labor is computed by: A. multiplying the wage paid to labor by the marginal product of labor. B. multiplying the price of the output by the marginal product of labor. C. multiplying the price of the output by the wage paid to labor. D. dividing the marginal product of labor by the price of the output.
multiplying the price of the output by the marginal product of labor.
Which example is considered a public good? A. a flu shot B. school attendance C. national defense D. cigarettes
national defense
An individual is MOST likely to be a free rider when a good is: A. private. B. nonrival. C. nonexcludable. D. artificially scarce.
nonexcludable
If there are two gas stations in a very small town, then the gas station business there is probably BEST characterized as: A oligopolistic. B. perfectly competitive. C. monopolistic. D. monopolistically competitive.
oligopolistic
Damage to the environment occurs because: A. pollution reduces the social cost of production. B. pollution results from production of goods and services. C. no one involved in markets cares about the environment. D. a nonzero amount of pollution is never socially optimal.
pollution results from production of goods and services.
A(n) _____ is nonexcludable and nonrival in consumption. A. public good B. artificially scarce good C. common resource D. private good
public good
Many customers will walk right past a diner that serves coffee and go to Starbucks, where they pay more for a cup of java. For these customers, coffee is differentiated by: A. type. B. location. C. style. D. quality.
quality
Louis has invested $1,000 in the stock market. At the end of one year, there is a 30% chance that his stock will be worth only $800 and a 70% chance that it will be worth $1,200. The expected value of his stock at the end of one year is: A. $1,200. B. $1,000. C. $1,160. D. $1,080.
1,080
A monopoly will have a Herfindahl-Hirschman index equal to: A. 100. B. 10,000. C. 1. D. 1,000.
10,000.
Which Herfindahl-Hirschman index is MOST likely to indicate a perfectly competitive market? A. 100 B. 1,800 C. 100,000 D. 10,000
100
Amanda recently graduated from college, and she has a job offer with uncertain income: there is a 70% probability that she will make $10,000 and a 30% probability that she will make $70,000. The expected value of Amanda's income is: A. $21,000. B. $40,000. C. $28,000. D. $10,000.
28,000
Suppose that when a coal-mining firm hires one, two, three, four, or five workers, the corresponding total outputs are 10, 15, 19, 22, or 24 tons of coal, respectively. The marginal product of the third worker is _____ tons of coal. A. 15 B. 19 C. 4 D. 3
4
In the United States in 2015, approximately _____% of total income in the economy took the form of compensation of employees. A. 40 B. 70 C. 9 D. 90
70
An example of a social insurance program is: A. the food stamp program. B. purchasing a new city police car. C. Social Security payments to the disabled. D. expenditure on national defense.
Social Security payments to the disabled
Suppose the labor market for plumbers is in equilibrium. Which occurrence might DECREASE the wage for plumbers? A. Unemployed manufacturing workers attend technical schools to learn the plumbing trade. B. The plumbers union establishes a rigorous certification test that is difficult for aspiring plumbers to pass. C. A minimum wage is imposed in the market for plumbers. D. An economic boom increases the demand for new homes.
Unemployed manufacturing workers attend technical schools to learn the plumbing trade.
Which formula is CORRECT? A. VMPL = MC × P. B. MPL = VMPL × P. C. VMPL = MPL × P. D. VMPL / MC = TR.
VMPL = MPL × P
The profit-maximizing rule MC = MR is followed by firms operating in: A. monopolistic competition but not perfect competition. B. both monopolistic competition and perfect competition. C. perfect competition but not monopolistic competition. D. either monopolistic competition or perfect competition, depending on the costs of production.
both monopolistic competition and perfect competition.
In the classic prisoners' dilemma with two accomplices in crime, the Nash equilibrium is for: A. neither to confess. B. both to confess. C. This game does not have a Nash equilibrium. D. one to confess and the other not to confess.
both to confess.
In a monopoly in the long run: A. economic profits will be eliminated by the entry of rival firms. B. entry by other firms will not occur. C. the price will be the same as if the market were perfectly competitive. D. economic profits will be reduced but not eliminated by the entry of rival firms.
entry by other firms will not occur.
An e-book is similar to a published book in that it is _____, but it is also similar to national defense in that it is _____. : A. nonrival in consumption; excludable B. nonexcludable; rival in consumption C. excludable; nonrival in consumption D. rival in consumption; nonexcludable
excludable; nonrival in consumption
If the market produces an efficient level of a good, then we know that the good must be _____ and _____ in consumption. A. excludable; rival B. excludable; nonrival C. nonexcludable; rival D. nonexcludable; nonrival
excludable; rival
National defense and clean air are similar in that both are _____, but they differ in that clean air is _____, while national defense is not. A. nonrival in consumption; excludable B. rival in consumption; excludable C. excludable; rival in consumption D. nonexcludable; rival in consumption
excludable; rival in consumption
Which factor is an input in the production of croissants? A. ovens B. pastry chefs C. flour D. dough mixers
flour
Asymmetric, or private, information: A. is protected by patents or copyrights. B. refers to personal information (e.g., regarding gender or ethnicity) that a person is not obligated to reveal on a job application. C. is an important explanation of the variation (or asymmetric performance) of individuals on standardized tests. D. is relevant for an economic transaction and is known only by some of the people involved in the transaction.
is relevant for an economic transaction and is known only by some of the people involved in the transaction.
Human capital: A. consists of man-made resources such as buildings and machines. B. is the improvement in labor produced by education, which has become less important because of the progress in technology. C. is the improvement in labor produced by education and knowledge that is embodied in the workforce. D. has become less important because of the progress in technology.
is the improvement in labor produced by education and knowledge that is embodied in the workforce.
The short-run supply curve for a perfectly competitive firm is its: A. demand curve above its marginal revenue curve. B. average total cost curve below its marginal cost curve. C. marginal revenue curve to the right of its marginal cost curve. D. marginal cost curve above its average variable cost curve.
marginal cost curve above its average variable cost curve.
The GoSports Company is a profit-maximizing firm with a monopoly in the production of school team pennants. The firm sells its pennants for $10 each. We can conclude that GoSports is producing a level of output at which: A. average total cost equals $10. B. marginal cost equals marginal revenue. C. average total cost is greater than $10. D. marginal revenue equals $10.
marginal cost equals marginal revenue.
Insurance companies deal with the problems of moral hazard by: A. requiring a deductible to provide an incentive for insured individuals to take reasonable precautions to avoid losses. B. charging extra in cases of adverse selection. C. always insuring buildings for their full replacement value. D. refusing to insure commercial properties against losses caused by fire.
requiring a deductible to provide an incentive for insured individuals to take reasonable precautions to avoid losses.
A life insurance company will often require an applicant to submit to a brief physical exam to assess that person's basic level of health. This practice is a form of _____ to lessen the problem of _____. A. reputation; adverse selection B. diversification; moral hazard C. screening; adverse selection D. signaling; deductibles
screening; adverse selection
Which expression BEST describes the value of the marginal product? nge in marginal cost generated by a unit change in the quantity of a factor B. the change in total output generated by a unit change in the quantity of a factor C. the ratio of total revenue to the quantity of a factor employed D. the change in total revenue generated by a unit change in the quantity of a factor
the change in total revenue generated by a unit change in the quantity of a factor
Investors in agricultural corporations face many correlated financial risks. Which example does NOT illustrate correlated risks for the agricultural industry? A. political events that can lead to fewer crop subsidies and fewer milk supports B. the spread of genetically modified crops and the presence of locusts C. losses due to drought and changes in the exchange rate with the euro D. recessions and changes in availability of credit
the spread of genetically modified crops and the presence of locusts
All perfectly competitive fast-food firms are hiring the profit-maximizing quantity of labor and are paying their workers $7 per hour. If the government raises the minimum wage to $8 per hour: A. firms will have to exit the industry since the value of the marginal product is always less than the wage. B. the value of the marginal product will be less than the wage, and firms will lay off some workers. C. firms will increase their prices to keep the value of the marginal product equal to the wage. D. the value of the marginal product will exceed the wage, and firms will hire more workers.
the value of the marginal product will be less than the wage, and firms will lay off some workers
Suppose the dry-cleaning market is monopolistically competitive and economically profitable this year. In the long run, the demand for any one firm's dry-cleaning services will _____ as more firms enter the industry, causing economic profits to _____. A. not change; fall B. decrease; fall to zero C. increase; increase D. decrease; become economic losses
decrease; fall to zero
Ashley Bakery expects its marginal cost curve will eventually slope upward because, as with most production processes, baking has: A. constant opportunity costs. B. a maximum output. C. decreasing opportunity costs. D. diminishing marginal returns.
diminishing marginal returns.
During the past 25 years, the degree of income inequality in the United States has been rising. Which factor is NOT a possible reason for this phenomenon? A. increased immigration B. higher divorce rates C. increased imports of labor-intensive products D. technological progress that has increased the demand for high-skilled workers relative to the demand for low-skilled workers
higher divorce rates
José, a corn farmer operating in a perfectly competitive market, pays his workers $8 an hour. At his current level of labor use, the marginal product of an additional hour of labor is three bushels of corn. The market price of corn is $2.75. To maximize his profits, Jose should: A. hire more labor. B. hire less labor. C. not change the amount of labor. D. This question cannot be answered without knowing the average product of labor.
hire more labor.
A(n) _____ is excludable and rival in consumption. A. common resource B. public good C. private good D. artificially scarce good
private good
Firms in monopolistic competition can acquire some market power by: A. producing where MR > MC. B. engaging in tacit collusion. C. increasing their output to the perfectly competitive level. D. product differentiation.
product differentiation.
Some of the major causes of poverty are lack of education, bad luck, lack of proficiency in English, and: A. geographic region. B. government restrictions. C. racial and gender discrimination. D. differences in religious preference.
racial and gender discrimination.
A familiar example of a negative externality is traffic congestion. In principle, it should be possible to internalize this externality by permitting drivers to negotiate rights to drive during particular times. The most likely reason that these negotiations do NOT happen is that: A. the transaction costs associated with identifying and establishing communication among the many interested parties would be prohibitive. B. agreements arising from such negotiations could not be enforced since the Constitution guarantees all individuals freedom of access to all public roads. C. lawyers would find a way to prohibit such negotiations unless they were actively involved, thus making transaction costs prohibitive. D. most individuals are unfamiliar with the Coase theorem.
the transaction costs associated with identifying and establishing communication among the many interested parties would be prohibitive.
A familiar example of a negative externality is loud music on a college campus. In principle, it should be possible to internalize this externality by permitting students to negotiate rights to play music during particular times. The most likely reason that these negotiations do NOT happen is that: A. the transaction costs associated with identifying and establishing communication with students would be high. B. some students don't view loud music as a negative externality. C. music is an experience, not a good. D. most students are unfamiliar with the Coase theorem.
the transaction costs associated with identifying and establishing communication with students would be high.
Most Americans receive their health insurance through: A. Medicare. B. their employer. C. Medicaid. D. direct purchase.
their employer
Micah is considering turning pro before his senior year basketball season. If he turns pro, Micah expects a pro contract worth $2 million in present value. If he does not turn pro, there is a 50% chance an injury will prevent him from playing professionally and a 50% chance he will get a pro contract worth $4 million in present value. What is the expected present value of Micah's pro contract if he stays in college for his senior year? A. $5 million B. $0 C. $2 million D. $3.5 million
$2 million
If a perfectly competitive firm sells 10 units of output at $30 per unit, its marginal revenue is: A. more than $30. B. $300. C. $30. D. $10.
$30
Which statement is CORRECT? A. If an emissions tax and environmental standards lead to the same total reduction in pollution, then they will also lead to the same reduction in pollution by individual polluters. B. An environmental standard is a more efficient way to reduce pollution than is an emissions tax because an environmental standard can be structured to equalize the reduction in pollution from all sources. C. It is easy to set emissions taxes at the "correct" level since the relationship between emissions taxes and the reduction in emissions that they induce has been extensively studied and is well known. D. An emissions tax is a more efficient way to reduce pollution than is an environmental standard because an emissions tax equalizes the marginal benefit of pollution from all sources.
An emissions tax is a more efficient way to reduce pollution than is an environmental standard because an emissions tax equalizes the marginal benefit of pollution from all sources.
Which program provides in-kind transfers? A. Temporary Assistance for Needy Families B. the Earned Income Tax Credit C. Medicaid D. Social Security
Medicaid
The U.S. government health insurance program for people aged 65 years and older is: A. the Veterans Administration. B. Medicare. C. health savings accounts. D. Medicaid.
Medicare.
The BEST example of a good that is excludable in consumption is: A. national defense. B. an ocean. C. a bicycle. D. a park.
a bicycle.
Barry's Brewpub is considering hiring more brewmasters. The market wage for a brewmaster is $120 per day. The average brewmaster produces 40 pints of beer per day, but Barry expects the next brewmaster to produce only 20 pints per day. Assuming the market for beer is perfectly competitive, Barry's Brewpub will hire another brewmaster only if: A. a pint of brew sells for $2. B. a pint of brew sells for $6 or more. C. the new brewmaster can produce 40 pints. D. a pint of brew sells for $3.
a pint of brew sells for $6 or more.
The market for breakfast cereal contains hundreds of similar products, such as Froot Loops, cornflakes, and Rice Krispies, that are considered to be different products by different buyers. This situation violates the perfect competition assumption of: A. a standardized product. B. many buyers and sellers. C. ease of entry. D. ease of exit.
a standardized product.
Which example BEST describes tradable emissions permits? A. a system of voluntary negotiations between polluters and damaged parties B. a system of licenses that can be bought and sold and that enable the holder to pollute up to a specified amount during a given period C. a tax system for internalizing emission costs to the market D. a subsidy system for encouraging production of goods with positive externalities
a system of licenses that can be bought and sold and that enable the holder to pollute up to a specified amount during a given period
In perfectly competitive long-run equilibrium: A. all firms produce at the minimum point of their average total cost curves. B. all firms face the same price, but the value of marginal cost will vary directly with firm size. C. the industry supply curve must be upward-sloping. D. all firms make positive economic profits.
all firms produce at the minimum point of their average total cost curves.
Many economists believe that there are more efficient ways to deal with pollution than with environmental standards because these standards do NOT : A. allow reductions in pollution to be achieved at minimum cost. B. reduce pollution enough. C. specify the behavior that needs to be changed. D. target behaviors in a way that can be enforced.
allow reductions in pollution to be achieved at minimum cost.
Josh has an iPhone, and he frequently downloads songs from iTunes. He pays a small price for each download, but downloading a song does not remove it from the iTunes inventory, which is available for other buyers. The iTunes service is BEST described as a(n): A. common resource. B. private good. C. artificially scarce good. D. public good.
artificially scarce good.
Suppose that each of two prisoners has the independent choice of confessing to a crime or not confessing to a crime they were both alleged to commit. If neither confesses, both spend two years in prison; if both confess, both spend three years in prison. If one confesses and the other does not, the confessor gets off with one year but the other gets six years. According to game theory, the MOST likely strategy of the prisoners is that: A. both may or may not confess. B. both will confess. C. one will confess and the other will not. D. neither will confess
both will confess.
In the long run, monopolistically competitive firms: A. produce at the level that minimizes average total cost. B. cannot earn an economic profit. C. produce such that marginal cost equals price. D. set marginal revenue equal to price.
cannot earn an economic profit.
An extreme case of oligopoly in which firms collude to raise joint profits is known as a: A. cartel. B. dominant producer. C. price war. D. duopoly.
cartel
If a good is subject to the free-rider problem and an inefficiently high level of consumption, the good must be a(n): A. private good. B. public good. C. common resource. D. artificially scarce good.
common resource.
A decrease in the demand for pastry chefs may come about because of an increase in the: A. concern for healthy living. B. supply of other factors that pastry chefs use. C. productivity of pastry chefs. D. market wage rate for pastry chefs.
concern for healthy living.
For nonrival goods like pay-per-view television programs, the private market will lead to _____ from a social perspective. A. consumption of too much of the good B. outsourcing its production C. production of too much of the good D. consumption of too little of the good
consumption of too little of the good
Zoe, the owner of Zoe's Bakery, determines that, at her optimal level of production in the short run, P < ATC and P > AVC. In the short run, Zoe should: A. continue to operate, even though she is taking an economic loss. B. raise the price until she has maximized her profits. C. continue to operate, as she is making an economic profit. D. shut down immediately, as she is taking an economic loss.
continue to operate, even though she is taking an economic loss.
If your farm had the only known source of a rare cocoa bean needed to make chocolate-covered peanuts, your monopoly would result from: A. technological superiority. B. government-set barriers. C. increasing returns to scale. D. control of a scarce resource or input.
control of a scarce resource or input.
If the government allowed only one airline to serve the entire U.S. market, there would be a _____ loss associated with _____ output in the airline industry. A. total; increased B. deadweight; reduced C. deadweight; increased D. marginal; reduced
deadweight; reduced
The idea of diminishing returns to an input in production suggests that, if a local college adds more custodians, the marginal product of labor for the custodial staff will: A. increase at an increasing rate. B. increase at a decreasing rate. C. not change. D. decrease.
decrease
The wedding dress industry is monopolistically competitive. As a result: A. it has freedom of entry but not exit. B. thousands of dress suppliers all sell identical products. C. dresses tend to be differentiated among the many sellers serving this market. D. prices tend to be lower than if the dress industry approximated perfect competition.
dresses tend to be differentiated among the many sellers serving this market.
Suppose that the market for haircuts in a community is a perfectly competitive constant-cost industry and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the long run, firms will _____ the market, driving the price of haircuts _____ and the profits of individual firms _____. A. enter; down; back to zero B. leave; up; back to zero C. leave; up; up D. enter; up; back to zero
enter; down; back to zero
Laws that require vehicles to have catalytic converters or that restrict or prohibit leaf burning are: A. internalization of externalities. B. environmental standards. C. Pigouvian taxes. D. transaction costs.
environmental standards
If a monopolistically competitive firm is in long-run equilibrium, price: A. equals average total cost. B. is greater than average total cost. C. equals marginal cost. D. equals marginal revenue.
equals average total cost.
Marginal revenue: A. is the slope of the average revenue curve. B. is the price divided by the change in quantity. C. equals the market price in perfect competition. D. is the change in quantity divided by the change in total revenue.
equals the market price in perfect competition.
Bob owns a trout farm with monopoly power in North Carolina. Bob's optimal output occurs where marginal revenue _____ marginal cost. Because of monopoly power, Bob's supply curve _____. A. equals; does not exist B. exceeds; is perfectly inelastic C. equals; is upward sloping D. exceeds; does not exist
equals; does not exist
Monopolistic competition is different from monopoly because firms: A. face some competition. B. have a downward-sloping marginal revenue curve. C. have a downward-sloping demand curve. D. have some power to set prices.
face some competition.
Which good is MOST likely a public good? A. the Internet B. fire protection from the fire department in a town C. an amusement park D. a pair of pants
fire protection from the fire department in a town
In monopolistic competition: A. when some firms exit, the demand curve for the firms that remain in the industry shifts to the left. B. entry of new firms shifts the demand curve for existing firms to the right. C. firms may advertise to increase demand for their product. D. firms earn large economic profits in the long run.
firms may advertise to increase demand for their product.
One government policy for dealing with natural monopoly is to: A. impose fines on the monopolist. B. impose a price ceiling to reduce economic profit. C. break it up into smaller firms. D. impose a price floor to eliminate the deadweight loss.
impose a price ceiling to reduce economic profit.
General Snacks is a typical firm in a market characterized by the model of monopolistic competition. Initially, the market is initially in long-run equilibrium, and then there is an increase in the market demand for snacks. We expect that: A. there will be a short-run increase in the number of firms, but in the long run, the number of firms will return to the original level. B. in the long run, new firms will enter the market. C. firms will leave the market in the long run. D. firms will shut down, but they will not leave the industry in the long run.
in the long run, new firms will enter the market.
Which example is a good or market activity that is associated with a positive externality? A. listening to a new CD with earbuds B. smoking cigarettes C. innovation in the semiconductor industry D. an indoor classical music concert with tickets that cost $50
innovation in the semiconductor industry
A good is MOST likely to be artificially scarce if: A. the seller is a monopolist. B. it is nonexcludable but rival. C. it is nonexcludable and nonrival. D. it is excludable but nonrival.
it is excludable but nonrival
In an industry characterized by extensive economies of scale: A. large companies are more profitable than are small companies. B. small companies will drive out large companies. C. small companies are more profitable than are large companies. D. small and large companies are equally profitable.
large companies are more profitable than are small companies.
A monopolistically competitive industry is characterized by a _____ number of firms producing _____ products with _____ entry. A. small; similar; relatively easy B. large; identical; relatively easy C. large; similar; relatively easy D. small; identical; barriers to
large; similar; relatively easy
Which factor is an environmental standard? A. legal limits on sulfur dioxide emissions B. taxes on the level of pollution C. production subsidies D. tradable pollution permits
legal limits on sulfur dioxide emissions
A perfectly competitive firm will maximize profits when the: A. marginal revenue is lower than average variable cost. B. marginal revenue equals marginal cost. C. price is lower than marginal cost. D. price is higher than marginal cost.
marginal revenue equals marginal cost.
If a monopolistically competitive firm is producing the profit-maximizing level of output and is earning an economic profit in the short run: A. price is less than average total costs. B. marginal revenue is less than marginal cost. C. price is less than marginal cost. D. marginal revenue equals marginal cost.
marginal revenue equals marginal cost.
Suppose Susan owns a business that operates in a market characterized by monopolistic competition. Susan's profit-maximizing price is $12, her profit-maximizing output is 900 units per week, and her profits are $1,800 per week. Susan decides that she needs more profits and therefore raises her price to $15. At the new price of $15: A. marginal revenue will be less than marginal cost. B. profits will increase. C. profits will remain at $1,800. D. marginal revenue will be greater than marginal cost.
marginal revenue will be greater than marginal cost.
Because most communities have a large number of similar but not identical substitutes, the market for chiropractors is BEST considered to be: A. monopolistically competitive. B. perfect competition. C. a monopoly. D. an oligopoly.
monopolistically competitive.
Television programs are nonrival because: A. the market suffers from inefficiently low consumption. B. individuals ignore the effect of their use on the amount of the resource remaining for others. C. more than one person can consume the same unit of the good at the same time. D. the supplier cannot prevent consumption by people who do not pay for it.
more than one person can consume the same unit of the good at the same time.
At the current level of output, Becca Furniture's marginal cost curve is above the average total cost curve. This means Becca Furniture's average total cost curve: A. must be rising. B. must be flat. C. must be falling. D. may be rising, falling, or flat depending on other things.
must be rising.
Microsoft and its operating system are often cited as an example of a company that grew into a monopolist through: A. network externalities. B. large economies of scale. C. ownership of a resource. D. patents.
network externalities.
If firms are making positive economic profits in the short run, then in the long run: A. new firms will enter the industry. B. industry output will rise and the price will rise. C. firms will leave the industry. D. the short-run industry supply curve will shift leftward.
new firms will enter the industry.
For the Colorado beef industry to be classified as perfectly competitive, ranchers in Colorado must have _____ on prices and beef must be a _____ product. A. a huge effect; differentiated B. no noticeable effect; differentiated C. no noticeable effect; standardized D. a huge effect; standardized
no noticeable effect; standardized
If an activity generates external costs, the decision makers generating the activity will: A. not be faced with its full costs. B. be faced with no costs. C. be faced with excessive costs. D. be faced with its full costs.
not be faced with its full costs.
A common resource is a good or service for which exclusion is _____ and that is _____ in consumption. A. possible; nonrival B. not possible; nonrival C. not possible; rival D. possible; rival
not possible; rival
The market for soft drinks, which is dominated by Coca Cola and Pepsi, is BEST considered to be an example of: A. oligopoly. B. perfect competition. C. monopoly. D. monopolistic competition.
oligopoly
A firm that has economies of scale: A. at any particular level of output is a natural monopoly. B. at low output and diseconomies of scale at high output is a natural monopoly. C. over the entire range of output demanded is a natural monopoly. D. has a continually rising long-run average cost curve.
over the entire range of output demanded is a natural monopoly.
Solutions to moral hazard include: A. offering salespeople in stores a straight salary rather than a commission on sales. B. .setting up many stores and restaurants that are part of a national chain as franchises, with the owner undertaking quite a lot of risk C. allowing property owners to over insure their buildings. D. diversification.
setting up many stores and restaurants that are part of a national chain as franchises, with the owner undertaking quite a lot of risk
Used-car dealers will often advertise how long they have been in business as a means of _____ their long-term _____. A. revealing; moral hazard B. signaling; reputation C. screening; customers D. insuring; capital at risk
signaling; reputation
The largest _____ program in the United States is _____. A. means-tested; Social Security payments to retired persons B. social insurance; Social Security payments to retired persons C. social insurance; Medicaid D. means-tested; farmers' aid
social insurance; Social Security payments to retired persons
You own a deli. Which input of production is MOST likely fixed at your deli? A. the tomato sauce used to make soups B. the bread used to make sandwiches C. the dining room D. the employees
the dining room
Lenoia runs a natural monopoly producing electricity for a small mountain village. The barrier preventing other firms from competing with her is: A. a government-set barrier. B. her technological superiority. C. her control of scarce natural resources. D. the existence of economies of scale.
the existence of economies of scale.
If government officials set an emissions tax too high: A. pollution will be unabated. B. there will be too much pollution. C. the marginal social cost of pollution will exceed the marginal social benefit of pollution. D. there will be too little pollution.
there will be too little pollution.
An advantage of tradable emissions permits is that: A. nondegradable pollutants can be more easily controlled than can degradable pollutants. B. the value that future generations place on pollution damages can be determined. C. they provide incentives for firms to develop technologies that are less polluting. D. pollution costs are easier to measure than are emissions taxes.
they provide incentives for firms to develop technologies that are less polluting.
A copper mining operation discharges waste products into a river and causes higher costs and discomfort to downstream users of the water for which they are not compensated. In this case: A. there is an external benefit to society from copper production. B. too little of society's resources is being used to produce copper. C. too much of society's resources is being used to produce copper. D. the optimal amount of society's resources is being used to produce copper.
too much of society's resources is being used to produce copper.
A market economy will produce _____ without any government regulation. A. too much pollution B. the socially optimal amount of pollution C. too little pollution D. the amount of pollution that maximizes total surplus
too much pollution
An externality is said to be internalized: A. when individuals take external costs and benefits into account in their decision making. B. when individuals successfully petition the government to ban or restrict activities that generate negative externalities. C. when individuals learn to adapt to negative externalities through introspection or internal acceptance of what are viewed as unchangeable facts of life. D. when the Coase theorem is irrelevant or cannot be applied.
when individuals take external costs and benefits into account in their decision making.
A fixed input is one: A. that can never produce more or less in any period. B. that can be used for one thing only. C. that only exists in nature, and there is only so much of it. D. whose quantity cannot be changed in the short run.
whose quantity cannot be changed in the short run.
Buford Bus Manufacturing installs a new assembly line. As a result, the output per worker increases. The marginal cost of output at Buford: A. will be unchanged. B. will increase (the MC curve will shift up). C. is at its maximum. D. will decrease (the MC curve will shift down).
will decrease (the MC curve will shift down).
If two firms are identical in all respects except that one has more of the fixed input capital than another, the total product curve for the firm with more capital: A. will show no diminishing marginal returns. B. will lie above the total product curve for the firm with less capital. C. must equal the total product curve for the firm with less capital. D. will lie below the total product curve for the firm with less capital.
will lie above the total product curve for the firm with less capital.
