Micro Final Exam

Diet Coke is a close substitute for Diet Pepsi. When Coca-Cola introduced Diet Coke in 1982, the price elasticity of demand for Diet Pepsi ______ and PepsiCo's ability to raise revenues through price increases ______. A. increased; was reduced B. increased; increased C. decreased; was reduced D. had no effect; was reduced

A

If a nation can produce more computers per year than any other nation, that nation has a(n) _______ advantage in the production of computers. A. comparative B. Absolute C. Relative D. Natural

B

The quantity that sellers wish to sell tends to ______ as price increases, and so the supply curve is _______ sloping. A. increase; downward B. decrease; downward C. increase; upward D. decrease; upward

C

According to the marginal principle, a rational individual should not undertake an economic activity if the: A. marginal benefit exceeds marginal cost B. marginal benefit is less than marginal cost. C. marginal benefit equals marginal cost D. total benefit equals total cost.

B

For outback steakhouse, seating capacity is limited in the short run. In the long run, they can add as many seats as they want. Therefore, the price elasticity of supply for meals at Outback would be ______ in the short run than in the long run. A. higher B. lower C. the same D. more variable

B

A dominant strategy exists if A. a player has a strategy that yields the highest payoff regardless of the other player's choice. B. both players have the highest payoff when they make the same choice. C. both players make the same choice. D. one strategy yields the highest possible payoff.

A

All else equal, the price elasticity of demand tends to be higher when A. a good has many substitutes B. the time horizon is relatively short C. people spend a small fraction of their budget on the good D. supply increases

A

The essential feature that differentiates imperfectly competitive firms from perfectly competitive firms is that an imperfectly competitive firm A. coordinates their output decisions with other firms B. faces downward- sloping demand curve C. produces a good with no substitutes D. faces high barriers to entry

B

If Mark has an absolute advantage over Beth in preparing meals, then A. it takes Mark more time to prepare a meal than Beth. B. the problem of scarcity applies to Beth and not to Mark. C. Mark's opportunity cost of preparing a meal is lower than is Beth's. D. Mark can prepare more meals in a given time than Beth

D.

According to the Cost-Benefit Principle, you should go see the latest Fast and Furious movie with your friends this weekend if A. the extra benefits of seeing the movie are greater than the extra costs of seeing the movie. B. you really like action movies. C. you can afford to go to the movies. D. the average benefit you get from going to the movies is greater than the average cost of the ticket.

A

f the demand curve facing a monopolist shift, then the monopolist's A. marginal revenue curve and profit-maximizing level of output will change. B. marginal revenue curve will not change, but its profit-maximizing level of output will. C. total cost curve will change, but its variable cost curve will not. D. marginal revenue curve will change, but its profit-maximizing level of output will not.

A

When plotting marginal and average cost curves, the ______ cost curve always crosses the ______ cost curve at its ______. A. average fixed; marginal; minimum B. marginal; average total; minimum C. marginal; average variable; maximum D. average variable; marginal; maximum

B

Which of the following is a defining characteristic of all perfectly competitive markets? A. Each firm in the market faces a perfectly inelastic demand curve. B. The market demand curve is perfectly elastic. C. All firms sell the same standardized product. D. Consumers display strong brand loyalty.

C

Which of the following statements is true? A. Absolute advantage implies comparative advantage. B. Comparative advantage does not require absolute advantage C. Absolute advantage requires comparative advantage D. Comparative advantage requires absolute advantage

C.

Flour is a basic ingredient in all bread making. If the price of flour increases: A. the demand for bread increases B. the demand for bread decreases C. the supply of bread increases D. the supply of bread decreases

D.

If a monopolist's marginal revenue exceeds its marginal cost at its current level of output, then to maximize its profit the monopolist should A. increase output until revenue equals marginal cost B. increase output until price equals marginal cost C. decrease output until marginal revenue equals marginal cost D. decrease output in order to increase the gap between marginal revenue and marginal cost

A

If a perfectly competitive firm produces an output level at which price is less than marginal cost, then the firm should A. reduce output to earn greater profits or smaller loses B. expand output to earn greater profits or smaller loses C. leave its output level unchanged provided it is covering its variable cost D. raise its price until price equal to marginal cost

A

If the percentage change in the price of a good is less than the resulting percentage change in the quantity demanded of that good, then the demand for that good is A. elastic B. inelastic C. unit elastic D. perfectly inelastic

A

Merck is the producer of the patented cholesterol-lowering drug Zeira (this is a monopoly). Suppose the patent is valid for 20 years. After 20 years, there is a free entry into the industry. That is, the market for Zetia becomes perfect competitive. The market equilibrium price for Zetia will _____ and equilibrium quanityt for Zetia will ______. A. decrease; increase B. decrease; decrease C. increase; increase D. increase; decrease

A

Once a firm has determined the quantity of output it wishes to sell, the maximum price it can change for each unit is determined by A. the demand curve facing the firm B. the firm's marginal revenue curve C. the average cost of making the product D. the marginal cost of making the product

A

Suppose a firm's total revenue is $100 when it sells 10 units, and $110 when it sells 11 units. The firm therefore is a(n) A. perfect competitor B. monopolistic competitor C. pure monopolist D. oligopolist

A

The price elasticity of demand is a measure of A. the change in quantity of a good that results from a change in its price. B. the change in price of a good that results from a change in its quantity demanded C. the demand for a good D. how consumers respond to excess demand

A

The profit maximizing rule MR = MC applies to A. all firms. B. monopolists only. C. perfectly competitive firms only. D. imperfectly competitive firms only.

A

The profit maximizing rule P = MC applies to A. perfectly competitive firms only B. monopolists only C. both perfectly competitive firms and imperfectly competitive firms D. all firms

A

When Joe's Gas raises its price for regular unleaded gasoline, total revenue from regular unleaded gas falls to zero. It must be the case that A. the demand for Joe's regular unleaded gasoline is perfectly elastic B. the demand for Joe's regular unleaded is inelastic C. there are not many good substitutes for Joe's regular unleaded gasoline. D. consumers are switching to premium grades of gasoline

A

When a market is not in equilibrium A. the economic motives of sellers and buyers will move the market to its equilibrium B. government intervention is required to achieve equilibrium C. there is neither excess supply not excess demand D. a change in either supply or demand is required to reestablish equilibrium

A

Which of the following events will cause an increase in the market demand for Guinness? A. An increase in the price of Heineken (substitute) B. An increase in the price of Planters peanuts (complementary) C. An increase in income, if Guinness is an inferior good D. None of the above will cause an increase in demand

A

Which of the following is the most likely to be a fixed factor of production? A. the land on which the farm is located B. The number of workers hired to harvest the crops C. the amount of fertilizer used each week D. The amount of water used each day

A

Which of the following would cause an increase in quantity of wheat supplied? A. The price farmers receive for their wheat rises B. The price of fertilizer farmers use in their fields falls C. the price firms pay for liability insurance falls. D. New, better technology for farming is introduced

A

If a firm faces a downward-sloping demand curve, then A. the firm could be either a perfectly competitive firm or an imperfectly competitive firm. B. the firm's marginal revenue from selling an additional unit of output is less than price. C. it is a perfectly competitive firm. D. the firm's production process exhibits economies of scale.

B

If a perfectly competitive firm produces an output level at which price is less than marginal costs, then the firm should A. expand output to earn profits or smaller loses B. reduce output to earn greater profits or smaller loses C. leave its output level unchanged provided it is covering variable cost D. raise its price

B

If demand is____ with respect to price, a price increase will ______ total revenue. A. elastic; increase B. inelastic; increase C. unit elastic; decrease D. inelastic; decrease

B

If the price of rubber (an input to the production of tires) increases A. the supply of the tires will increase B. the supply of tires will decrease C. the demand for tires will increase D. the demand for tires will decrease

B

If your income elasticity of demand for hot dogs is negative, then A. your demand curve for hot dogs is not downward sloping B. hot dogs are an inferior good for you C. hot dogs have no close substitutes for you D. you must not enjoy eating hot dogs

B

Jodi and Amy both attend the same college and have the same expenses for tuition, books, and supplies. However, Jodi is a famous actress who could earn $10 million per year if she were not attending college, while Amy could earn $15,000 a year serving hamburgers if she were not attending college. It follows that: A. The opportunity cost of attending college is the same for both Jodi than Amy B. The opportunity cost of attending college is greater for Jodi than Amy. C. The opportunity cost of the attending college is greater for Amy than Jodi D. The opportunity cost of attending college for Jodi and Amy cannot be compared.

B

Suppose a perfectly competitive firm and a monopolist are both charging $5 for their respective products. From this, one can infer that A. the marginal benefit from selling an additional unit of output is $5 for both firms B. the marginal benefit from selling an additional unit of output is $5 for the competitive firms and less than $5 for the monopolist C. the marginal benefit from selling an addition unit of output is less than $5 for both firms D. the competitive firm is charging too much, and the monopolist is charging too little

B

Suppose that when a perfectly competitive firm produces 500 units of output a day, it earns an economic loss. If the price of each unit of output is $1.50, then, in the short run, it is clear that this firm A. should shut down. B. should not shut down if its total variable cost is less than $750. C. is not maximizing its profit. D. should produce more than 500 units a day.

B

Suppose you have one hour to catch a flight to Miami for spring break, and it takes 45 minutes to drive to the airport. Your car is almost out of gas and the price of gas at the closest gas station is higher than at other gas stations that are much farther away. To you, the price elasticity of demand for gas is likely to be ______ than it would be if you had several hours before the flight. A. higher B. lower C. more variable D. no different

B

The law of demand implies that, other things remaining the same, A. as the demand for cheeseburgers increases, the price of a cheeseburger will fall B. as the price of a cheeseburger rises the quantity of cheeseburgers demanded will decrease C. as income increases, the quantity of cheeseburgers demanded will increase D. as the price of a cheeseburger rises the quantity of cheeseburgers demanded will increase

B

The owner of a pizza shop observes that when she raises the price of a large pizza, her total revenue decreases, and when she lowers the price of a large pizza, her total revenue increases. This suggests that A. pizza lovers act irrationally B. the demand for her large pizzas is elastic with respect to price C. there are few good substitutes for a large pizza D. the demand for her large pizzas is inelastic with respect to price

B

The three elements of a game are A. the firm, the consumers, and the profit. B. the players, the strategies, and the payoffs. C. the model, the graph, and the costs. D. the costs, the revenue, and the profit.

B

When the price of a perfectly competitive firm firm's output rises A. the firm will produce less B. the firm will produce more C. the firm's marginal cost curve will shift to the right D. the firm's marginal cost curve will shift to the left

B

Which of the following is the most likely to be a fixed factor of production at a pizza restaurant? A. The number of waiters B. The size of the seating area C. The amount of pizza dough D. The amount of electricity

B

Which of the following will shift the supply curve for good X leftward? A. a situation in which quantity demanded exceeds quantity supplied B. an increase in the cost of the material used to produce X C. a decrease in the wages of workers employed to produce X D. a technological improvement in the production of X

B

Which of the following would not shift the demand curve for beef? A. a widely publicized study which indicated beef increases one's cholesterol B. a reduction in the price of cattle feed C. an effective advertising campaign by pork producers D. a change in the incomes of beef consumers

B

Consider the market for coffee. If the price of coffee beans increases, and scientists reveal that consumption of coffee decreases the risk of heart diseases the new equilibrium price of coffee will be A. lower B. Higher C. uncertain And the new equilibrium quantity of coffee will be A. lower B. higher C. uncertain

B, C

A perfectly price discriminating monopolist's profit is ______ the profit of a monopolist who charges the same price to all of its customers. A. the same as B. less than C. higher than D. sometimes less than and sometimes greater than.

C

A prisoner's dilemma is a game in which: A. neither player has a dominant strategy. B. one player has a dominant strategy, and the other does not. C. the players' payoffs are smaller when both play their dominant strategy compared to when both play a dominated strategy. D. the players' payoffs are larger when both play their dominant strategy compared to when both play a dominated strategy.

C

A single-priced, profit-maximizing monopolist: A. Causes excess demand, or shortages, by selling too few units of a good or service. B. Chooses the output level at which marginal revenue begins to increase. C. Always charges a price above the marginal cost of production. D. Also maximizes marginal revenue.

C

Both a perfectly competitive firm and a monopolist find that A. price and marginal revenue are the same. B. they can sell as many units of output as they want at the market price. C. it is best to expand production until the benefit and the cost of the last unit produced are equal. D. price is less than marginal revenue.

C

Economies of scale exist when A. firms become larger. B. input prices are falling. C. the average cost of production falls as output rises. D. doubling all the inputs leads to less than double the output.

C

Given the demand curve it faces, if an imperfectly competitive firm wants to sell another unit of output, it must A. increase its advertising. B. increase the value of its product. C. lower its price. D. lower its quality.

C

If a firm spends $400 to produce 20 units of output and spends $800 to produce 40 units, then between 20 and 40 units of output, the marginal cost of production is: A. $20 B. $22 C. $24 D. $480

C

If a perfectly competitive firm produces an output level at which price is greater than marginal cost, then the firm should A. employ more fixed factors of production. B. reduce output to earn greater profits or smaller losses. C. expand output to earn greater profits or smaller losses. D. leave its output decision unchanged because it is earning a profit.

C

If demand for farm crops is inelastic, a good harvest will cause farm revenues to: A. increase because of the increase in the quantity that farmers can sell B. increase because of a downward movement along the supply curve, encouraging an increase in demand C. decrease, because of a percentage fall in price greater than the percentage increase in quantity sold D. remain unchanged, because the increase in quantity that can be sold will be matched by an equal decrease in price.

C

If the income elasticity for a particular good is negative, then A. the good is a normal good B. as income increases, consumers will tend to purchase more of the good C. as income increases, consumers will tend to purchase less of the good D. the good is a luxury good

C

In a market in which the government has a set price ceiling below the equilibrium price A. the quantity demanded will equal quantity supplied B. there will be excess supply C. a black market might develop D. quantity supplied will exceed quantity demanded

C

One implication of the shape of the demand curve facing a perfectly competitive firm is that A. if the firm increases its price above the market price, it will earn higher revenue. B. if the firm decreases its price below the market price, it will earn higher revenue. C. if the firm increases its price above the market price, it will earn zero revenue. D. the market would be unable to reach a new equilibrium if demand changed.

C

Relative to a monopoly charging a single price to all consumers, perfect price discrimination ______ producer surplus and ______ consumer surplus. A. decreases; decrease B. decreases; increases C. increases; decreases D. increases; increases

C

Suppose a perfectly competitive firm is producing 37 units output, and the marginal cost of the 37th unit is $3. If the firm can sell each unit of output for $5 and the firm's revenue is sufficient to cover its variable cost, the firm should A. lower its price. B. decrease production. C. increase production. D. raise its price.

C

Suppose an increase in the price of hamburger from $3 to $4 leads to an increase in quantity supplied from 100 units to 150 units. At the original price, the price elasticity of supply for hamburgers is ______ so supply is _______. A. 2/3; elastic B. 2/3; inelastic C. 3/2; elastic D. 3/2; inelastic

C

The demand curve for a perfectly competitive firm is _____, while the demand curve for a monopolist is ____. A. perfectly elastic; perfectly inelastic B. perfectly inelastic; perfectly elastic C. perfectly elastic, downward-sloping D. vertical; downward-sloping

C

The law of supply states that: A. firms supply more of a product as consumer income rises B. firms supply more of a product as consumer income falls C. firms supply more of a product as the price of the product rises D. firms supply more of a product as the price of the product falls

C

The most important challenge facing a firm in a perfectly competitive market is deciding A. what price to charge B. whether to advertise C. how much to produce D. whether to maximize its profits

C

The price elasticity of demand for a good, measures the responsiveness of A. demand to a 1 percent change in price of that good B. price to a 1 percent change in the demand for that good C. quantity demanded to a 1 percent in price of that good D. price to a 1 percent change in the quantity demanded of that good

C

To sell an extra unit of output, a perfectly competitive firm _____, and an imperfectly competitive firm ____. A. need lower its price; need not alter its price B. must lower its price; must lower its price C. need not alter its price; must lower its price D. must hope the market price falls; must lower its price

C

Under perfect competition _______, while under monopoly ______. A. P= MR; P=MR B. P = MC; P<MC C. P=MC; P> MC D. P<MR; P=MR

C

A decrease in the price a firm receives for its output will lead the firm to A. expand output. B. cut its payments to its factors of production. C. leave output unchanged. D. reduce output.

D

A monopolistically competitive firm is one A. that produces a good with no close substitutes B. that behaves like a monopolist C. of many firms that sell the exact same product D. of many firms that sell products that are close but not substitutes.

D

A natural monopoly is a monopoly that arises from A. having an exclusive right to operate in a national park. B. having exclusive control over the natural resources used to produce a good. C. a firm's natural desire to maximize its profit. D. economies of scale.

D

A profit-maximizing firm will only produce a positive amount of output if A. its total revenue is greater than its total cost. B. its total revenue is greater than its fixed cost. C. its total revenue equals its total cost. D. its total revenue is greater than or equal to its variable cost.

D

Advertising will shift the firm's demand curve to the _______ and make it more _______. A. left; elastic B. left; inelastic C. right; elastic D. right; inelastic

D

An imperfectly competitive firm faces a demand curve that is A. perfectly elastic. B. more than perfectly elastic. C. perfectly inelastic. D. downward-sloping.

D

Because monopolists charge a price in excess of marginal cost, it must be the case that monopolists A. earn a positive economic profit. B. earn a negative economic profit. C. produce more than the socially optimal level of output. D. produce less than the socially optimal level of output.

D

Chris has a one-hour break between classes every Wednesday. Chris can either stay at the library and study or go to the gym and work out. The decision Chris must make is A. not an economic problem because neither activity costs money. B. not an economic problem because it's an hour that Chris no matter what he does. C. an economic problem because the tuition Chris pays covers the cost of both the gym and the library D. an economic problem because Chris has only one hour and engaging in one activity means giving up the other.

D

Denise sells lemonade in front of her house in the summer. Several other kids in Denise's neighborhood also run lemonade stands in the summer. If the lemonade market is perfectly competitive, and Denise is charging the equilibrium price, then Denise can increase her revenue if she A. decreases the price of her lemonade and doesn't change her output. B. increases the price of her lemonade and decreases her output. C. increases the price of her lemonade and doesn't change her output. D. keeps the price of her lemonade the same and increases the output.

D

If a production process exhibits diminishing returns, then as output rises A. total fixed cost will eventually increase B. total revenue will eventually decrease C. average total cost will eventually decrease D. marginal cost will eventually increase

D

If the price elasticity of demand for chicken is 2, then a 20 percent decrease in the price of chicken will lead to a A. 10 percent decrease in the quantity demanded of chicken B. 10 percent increase in the quantity demanded of chicken C. 40 percent decrease in the quantity demanded of chicken D. 40 percent increase in the quantity demanded of chicken

D

If two products are substitutes, then the A. income elasticity of demand for both will be high B. price elasticity of demand for both will be positive C. cross-price elasticity of demand between them will be negative D. cross- price elasticity of demand between them will be positive

D

In general, when the price of a variable factor of production increases A. total cost falls. B. the profit maximizing level of output rises. C. the profit-maximizing price falls. D. marginal cost rises.

D

Price discrimination means charging: A. higher prices to women and minorities. B. different prices for different products because production costs are different. C. the same price to all buyers even if production costs are different. D. different prices to different buyers for essentially the same good or service.

D

Relative to a monopolist charging a single price to all consumers, price discrimination ______ total economic surplus. A. has no effect on B. sometimes increases and sometimes decreases C. decreases D. increases

D

Suppose Monique is willing to pay up to $15,000 for a used Ford pick-up truck. If she buys one for $12,000, her economic _________ would be ________. A. benefit; $12,000 B. cost; $15,000 C. surplus; $12,000 D. surplus; $3,000

D

Suppose that a firm's profit-maximizing level of output, its total revenue is $1,250, the total cost of its variable factors of production is $1,000, and its total fixed cost is $500. This firm will _______ in the short run, and it will _____ in the long run. A. earn a loss; earn a profit B. earn a profit; earn a loss C. shut down; reopen for business D. not shut down; exit the industry

D

Suppose that the price for fully electric vehicle made by Toyota increase. The quantity of fully electric cars sold in the market will: A. increase, because Toyota would be willing to sell more fully electric vehicles. B. decrease, because Toyota believes that to maintain the higher prices, it must sell a smaller quantity. C. increase, because other auto manufacturers would want to enter the market and also sell fully electric vehicles D. Both A and C are correct.

D

Which of the following is not true of a demand curve? A. It has negative slope. B. It shows the amount consumer want to buy at various prices. C. It relates the price of an item to the quantity demanded of that item. D. It reflects sellers' reservations prices.

D

Which of the following is not true of a perfectly competitive firm? A. it always charges a price above the marginal cost of production B. it sells only a small fraction of the total quantity exchanged in the market C. it faces a perfectly elastic demand curve D. It is unable to influence the price of the good it sells

D

Which of the following statements about opportunity cost is true? I. Opportunity cost is equal to implicit costs plus explicit costs II. Opportunity cost only measures direct monetary costs III. To calculate accurately the opportunity cost of an action we need to first identify the next best alternative to that action A. I, II, and III B. III only C. I and II D. I and III

D

Why is the market supply curve positively sloped? A. At a higher price, more firms enter the market willing to sell the product or service. B. At a higher price fewer firms enter the market willing to sell the product or service. C. At a higher price, the firms already in the market and are willing to sell a larger quantity of the product or service. D. Both A and C are correct

D