Microeconomics Exam #2
On a graph, the area below a demand curve and above the price measures?
Consumer Surplus
A firm produces 400 units of output at a total cost of $1,200. If total variable costs are $1,000, average fixed cost is 50 cents. average variable cost is $2. average total cost is $2.50. average total cost is 50 cents.
a
A monopolist can sell 200 units of output for $36 per unit. Alternatively, it can sell 201 units of output for $35.80 per unit. The marginal revenue of the 201st unit of output is $-4.20. $-0.20. $4.20. $35.80.
a
Alexander lives in an apartment building and gets a $250 benefit from playing his stereo. Mary, who lives next door to Alexander and often loses sleep due to the loud music coming from Alexander's stereo, bears a $350 cost from the noise. Mary would like to offer Alexander some money to turn down the volume on his stereo. If Mary had to hire a lawyer to draw up the contract, what is the maximum amount she could pay to the lawyer to ensure that both Alexander and Mary would benefit from the agreement? a. an amount less than $100 b. an amount between $100 and $250 c. an amount between $250 and $350 d. Any amount could result in both parties benefiting from the agreement.
a
At the equilibrium price of a good, the good will be purchased by those buyers who a. value the good more than price. b. value the good less than price. c. have the money to buy the good. d. consider the good a necessity.
a
Billy's Bean Bag Emporium produced 300 bean bag chairs but sold only 275 of the units it produced. The average cost of production for each unit of output produced was $100. The price for each of the 275 units sold was $95. Total profit for Billy's Bean Bag Emporium would be -$3,875. $26,125. $28,500. $30,000.
a
Corrective taxes differ from most taxes in that corrective taxes a. enhance economic efficiency. b. do not raise revenue for the government. c. cause deadweight loss. d. cannot be divided between the buyer and seller.
a
For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $10 and a marginal cost of $7. It follows that the production of the 100th unit of output increases the firm's profit by $3. production of the 100th unit of output increases the firm's average total cost by $7. firm's profit-maximizing level of output is less than 100 units. production of the 99th unit of output must increase the firm's profit by less than $3.
a
If Darren sells 300 glasses of iced tea at $0.50 each, his total revenues are Correct Response a. $150. b. $299.50. c. $300. d. $600.
a
If a consumer is willing and able to pay $20 for a particular good and if he pays $16 for the good, then for that consumer, consumer surplus amounts to a.$4. b.$16. c.$20. d.$36.
a
Larry's Lunchcart is a small street vendor business. If Larry makes 15 pretzels in his first hour of business and incurs a total cost of $16.50, his average total cost per pretzel is $1.10. $6.50. $15.00. $16.50.
a
Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is $200. In order to maximize profits, Laura should make more than 20 wedding cakes per month. make fewer than 20 wedding cakes per month. continue to make 20 wedding cakes per month. We do not have enough information with which to answer the question.
a
Price discrimination adds to social welfare in the form of (i) increased total surplus. (ii) reduced costs of production. (iii) increased consumer surplus. (i) only (i) and (ii) only (i) and (iii) only (i), (ii), and (iii)
a
Suppose a firm has a monopoly on the sale of a computer game and faces a downward-sloping demand curve. When selling the 50th game, the firm will always receive less marginal revenue on the 50th game than it received on the 49th game. more average revenue on the 50th game than it received on the 49th game. more total revenue on the 50 game than it received on the first 49 game. Both b) and c) are correct.
a
Suppose that a firm operating in perfectly competitive market sells 300 units of output at a price of $3 each. Which of the following statements is correct? (i) Marginal revenue equals $3. (ii) Average revenue equals $100. (iii) Total revenue equals $300. (i) only (iii) only (i) and (ii) only (i), (ii), and (iii)
a
Suppose the demand for peanuts increases. What will happen to producer surplus in the market for peanuts? a. It increases. b. It decreases. c. It remains unchanged. d. It may increase, decrease, or remain unchanged.
a
The Laffer curve relates a. the tax rate to tax revenue raised by the tax. b. the tax rate to the deadweight loss of the tax. c. the price elasticity of supply to the deadweight loss of the tax. d. government welfare payments to the birth rate.
a
The laws governing patents and copyrights promote monopolies. are intended to serve private interests, not the public's interest. have costs but not benefits. eliminate the need for firms to engage in research and development.
a
Tom quit his $65,000 a year corporate lawyer job to open up his own law practice. In Tom's first year in business his total revenue equaled $150,000. Tom's explicit cost during the year totaled $85,000. What is Tom's economic profit for his first year in business? $0 $20,000 $65,000 $85,000
a
Trevor's Tire Company produced and sold 500 tires. The average cost of production per tire was $50. Each tire sold for a price of $65. Trevor's Tire Company's total profits are $7,500. $25,000. $32,500. $67,500.
a
Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. After the two firms buy or sell pollution permits from each other, we would expect that Firm A will emit a. 20 fewer tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air. b. 0 fewer tons of pollution into the air, and Firm B will emit 20 fewer tons of pollution into the air. c. 50 fewer tons of pollution into the air, and Firm B will emit 50 fewer tons of pollution into the air. d. 20 more tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air.
a
Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. It is likely that a. Firm A will buy all of Firm B's pollution permits. Each one will cost between $100 and $200. b. Firm B will buy all of Firm A's pollution permits. Each one will cost between $100 and $200. c. Both firms will use their own pollution permits. d. Firm A will buy some of Firm B's pollution permits. Each one will cost less than $100.
a
Which of the following statements best reflects a price-taking firm? If the firm were to charge more than the going price, it would sell none of its goods. The firm has an incentive to charge less than the market price to earn higher revenue. The firm can sell only a limited amount of output at the market price before the market price will fall. Price-taking firms maximize profits by charging a price above marginal cost.
a
A firm cannot price discriminate if it has perfect information about consumer demand. operates in a competitive market. faces a downward-sloping demand curve. is regulated by the government.
b
A firm produces 300 units of output at a total cost of $1,000. If fixed costs are $100, average fixed cost is $10. average variable cost is $3. average total cost is $4. average total cost is $5.
b
A monopoly's marginal cost will be less than its average fixed cost. be less than the price per unit of its product. exceed its marginal revenue. equal its average total cost.
b
Consider a good to which a per-unit tax applies. The greater the price elasticities of demand and supply for the good, the a. smaller the deadweight loss from the tax. b. greater the deadweight loss from the tax. c. more efficient is the tax. d. more equitable is the distribution of the tax burden between buyers and sellers.
b
If a consumer places a value of $15 on a particular good and if the price of the good is $17, then the a. Consumer has consumer surplus of $2 if he or she buys the good. b. Consumer does not purchase the good. c. market is not a competitive market. d. price of the good will fall due to market forces.
b
If the demand for leather decreases, producer surplus in the leather market a. increases. b. decreases. c. remains the same. d. may increase, decrease, or remain the same.
b
If the price of oak lumber increases, what happens to consumer surplus in the market for oak cabinets? a. Consumer surplus increases. b. Consumer surplus decreases. c. Consumer surplus will not change consumer surplus; only producer surplus changes. d. Consumer surplus depends on what event led to the increase in the price of oak lumber.
b
In the long run Firm A incurs total costs of $1,200 when output is 30 units and $1,600 when output is 40 units. Firm A exhibits dis-economies of scale because total cost is rising as output rises. constant returns to scale because average total cost is constant as output rises. diseconomies of scale because average total cost is rising as output rises. economies of scale because average total cost is falling as output rises.
b
In the long run Firm A incurs total costs of $900 when output is 30 units and $1,200 when output is 40 units. Firm A exhibits diseconomies of scale because total cost is rising as output rises. constant returns to scale because average total cost is constant as output rises. diseconomies of scale because average total cost is rising as output rises. economies of scale because average total cost is falling as output rises.
b
In the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 200 per month when there is no tax. Then a tax of $5 per widget is imposed. As a result, the government is able to raise $750 per month in tax revenue. We can conclude that the equilibrium quantity of widgets has fallen by a. 25 per month. b. 50 per month. c. 75 per month. d. 100 per month.
b
In the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 200 per month when there is no tax. Then a tax of $5 per widget is imposed. The price paid by buyers increases by $2 and the after-tax price received by sellers falls by $3. The government is able to raise $750 per month in revenue from the tax. The deadweight loss from the tax is a. $250. b. $125. c. $75. d.$50.
b
Katherine gives piano lessons for $20 per hour. She also grows flowers, which she arranges and sells at the local farmer's market. One day she spends 5 hours planting $50 worth of seeds in her garden. Once the seeds have grown into flowers, she can sell them for $150 at the farmer's market. Katherine's accounting profits are $100, and her economic profits are $100. $100, and her economic profits are $0. $0, and her economic profits are $100. $0, and her economic profits are $-100.
b
Let L represent the number of workers hired by a firm, and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L=6,Q=147) and (L=7,Q=174). The marginal product of the seventh worker is 25 units of output. 27 units of output. 37 units of output. 174 units of output.
b
Moving production from a high-cost producer to a low-cost producer will a. lower total surplus. b. raise total surplus. c. lower producer surplus. d. raise producer surplus but lower consumer surplus.
b
Private markets fail to account for externalities because a. the government cannot easily estimate the optimal quantity of pollution b. decision makers in the market fail to include the costs of their behavior to third parties c. Sellers include costs associated with externalities in the price of their product d. externalities don't occur in private markets
b
Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government gives a $5 per-unit subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced? a. They are equal. b. The equilibrium quantity is greater than the socially optimal quantity. c. The equilibrium quantity is less than the socially optimal quantity. d. There is not enough information to answer the question.
b
Suppose that flu shots create a positive externality equal to $12 per shot. Further suppose that the government offers a $15 per-shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced? a. They are equal. b. The equilibrium quantity is greater than the socially optimal quantity. c. The equilibrium quantity is less than the socially optimal quantity. d. There is not enough information to answer the question.
b
The Doris Dairy Farm sells milk to a dairy broker in Prairie du Chien, Wisconsin. Because the market for milk is generally considered to be competitive, the Doris Dairy Farm does not choose the quantity of milk to produce. choose the price at which it sells its milk. have any fixed costs of production. set marginal revenue equal to marginal cost to maximize profit.
b
The amount by which total cost rises when the firm produces one additional unit of output is called average cost. marginal cost. fixed cost. variable cost.
b
The deadweight loss from a tax of $5 per unit will be smallest in a market with a. inelastic supply and elastic demand. b. inelastic supply and inelastic demand. c. elastic supply and elastic demand. d. elastic supply and inelastic demand.
b
The difference between social cost and private cost is a measure of the a. loss in profit to the seller as the result of a negative externality. b. cost of an externality. c. cost reduction when the negative externality is eliminated. d. cost incurred by the government when it intervenes in the market.
b
The monopolist's profit-maximizing quantity of output is determined by the intersection of which of the following two curves? marginal cost and demand marginal cost and marginal revenue average total cost and marginal revenue average variable cost and average revenue
b
Two firms, A and B, each currently dump 50 tons of chemicals into the local river. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river. It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river, and it costs Firm B $50 for each ton of pollution that it eliminates before it reaches the river. The government gives each firm 20 pollution permits. Government officials are not sure whether to allow the firms to buy or sell the pollution permits to each other. What is the total cost of reducing pollution if firms are not allowed to buy and sell pollution permits from each other? What is the total cost of reducing pollution if the firms are allowed to buy and sell permits from each other? a. $3,000; $1,500 b. $4,500; $3,500 c. $4,500; $4,000 d. $4,500; $2,500
b
When a firm experiences continually declining average total costs, the firm is a price taker. society is better served by having one firm supply the product. the firm will earn higher profits than if average total costs are increasing. All of the above are correct.
b
A benefit to society of the patent and copyright laws is that those laws help to keep prices down. help to prevent a single firm from acquiring ownership of a key resource. encourage creative activity. discourage the production of inefficient products.
c
A monopoly firm can sell 150 units of output for $10 per unit. Alternatively, it can sell 151 units of output for $9.95 per unit. The marginal revenue of the 151st unit of output is $-2.45. $-0.05. $2.45. $9.95.
c
Additional firms often do not try to compete with a natural monopoly because they fear retaliation in the form of pricing wars from the natural monopolist. they are unsure of the size of the market in general. they know they cannot achieve the same low costs that the natural monopolist enjoys. the natural monopoly does not make a large profit.
c
Consider the market for apples. Suppose that apples are normal goods and that an economic expansion raises incomes. What happens to consumer and producer surplus in response to the economic expansion? a. Consumer and producer surplus both increase b. Consumer surplus decreases but producer surplus increases c. The change in consumer surplus is ambiguous but producer surplus increases d. Consumer surplus increases but producer surplus decreases
c
For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $10 and a marginal cost of $11. It follows that the production of the 100th unit of output increases the firm's profit by $1. production of the 100th unit of output increases the firm's average total cost by $1. firm's profit-maximizing level of output is less than 100 units. production of the 110th unit of output must increase the firm's profit but by less than $1.
c
For a firm in a competitive market, an increase in the quantity produced by the firm will result in a decrease in the product's market price. an increase in the product's market price. no change in the product's market price. either an increase or no change in the product's market price depending on the number of firms in the market.
c
If the government regulates the price that a natural monopolist can charge to be equal to the firm's marginal cost, the firm will earn zero profits. earn positive profits, causing other firms to enter the industry. earn negative profits, causing the firm to exit the industry. minimize costs in order to lower the price that it charges.
c
In the long-run equilibrium of a market with free entry and exit, marginal firms are operating at the point where average variable cost equals marginal cost. at the minimum point on their marginal cost curves. at their efficient scale. where accounting profit is zero.
c
John lives in an apartment building and gets a $700 benefit from playing his stereo. Mary, who lives next door to John and often loses sleep due to the music coming from John's stereo, bears a $1,000 cost from the noise. At which of the following offers from Mary could both Mary and John benefit from the silencing of John's stereo? a. $200 b. $600 c. $900 d. $1,100
c
Scenario 15-5 An airline knows that there are two types of travelers: business travelers and vacationers. For a particular flight, there are 100 business travelers who will pay $600 for a ticket while there are 50 vacationers who will pay $300 for a ticket. There are 150 seats available on the plane. Suppose the cost to the airline of providing the flight is $20,000, which includes the cost of the pilots, flight attendants, fuel, etc. Refer to Scenario 15-5. How much profit will the airline earn if it engages in price discrimination? -$5,000 $40,000 $55,000 $75,000
c
Scenario 15-5 An airline knows that there are two types of travelers: business travelers and vacationers. For a particular flight, there are 100 business travelers who will pay $600 for a ticket while there are 50 vacationers who will pay $300 for a ticket. There are 150 seats available on the plane. Suppose the cost to the airline of providing the flight is $20,000, which includes the cost of the pilots, flight attendants, fuel, etc. Refer to Scenario 15-5. How much profit will the airline earn if it sets the price of each ticket at $300? -$15,000 -$5,000 $25,000 $45,000
c
Scenario 15-5 An airline knows that there are two types of travelers: business travelers and vacationers. For a particular flight, there are 100 business travelers who will pay $600 for a ticket while there are 50 vacationers who will pay $300 for a ticket. There are 150 seats available on the plane. Suppose the cost to the airline of providing the flight is $20,000, which includes the cost of the pilots, flight attendants, fuel, etc. Refer to Scenario 15-5. How much profit will the airline earn if it sets the price of each ticket at $600? -$5,000 $15,000 $40,000 $60,000
c
Splitting up a monopoly is often justified on the grounds that consumers prefer dealing with small firms. small firms have lower costs. competition is inherently efficient. small firms produce higher quality products.
c
Suppose planting flowering shrubs creates a positive externality equal to $7 per shrub. Further suppose that the local government offers a $7 per-shrub subsidy to planters. The number of shrubs that are planted is then a. less than the socially optimal quantity. b. greater than the socially optimal quantity. c. equal to the socially optimal quantity. d. There is not enough information to answer the question.
c
Suppose that electricity producers create a negative externality equal to $6 per unit. Further suppose that the government imposes a $8 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced? a. They are equal. b. The after-tax equilibrium quantity is greater than the socially optimal quantity. c. The after-tax equilibrium quantity is less than the socially optimal quantity. d. There is not enough information to answer the question.
c
Suppose that flower gardens create a positive externality equal to $1 per plant. What is the relationship between the equilibrium quantity and the socially optimal quantity of plants grown? a. They are equal. b. The equilibrium quantity is greater than the socially optimal quantity. c. The equilibrium quantity is less than the socially optimal quantity. d. There is not enough information to answer the question.
c
Suppose that flu shots create a positive externality equal to $12 per shot. Further suppose that the government offers a $5 per-shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced? a. They are equal. b. The equilibrium quantity is greater than the socially optimal quantity. Correct Answer c. The equilibrium quantity is less than the socially optimal quantity. d. There is not enough information to answer the question.
c
Suppose that in a competitive market the equilibrium price is $2.50. What is marginal revenue for the last unit sold by the typical firm in this market? less than $2.50 more than $2.50 exactly $2.50 The marginal revenue cannot be determined without knowing the actual quantity sold by the typical firm.
c
The Big Box corporation produced and sold 500 units of output. The average cost of production per unit was $50. Each unit sold for a price of $65. The Big Box corporation's total revenues are a. $7,500. b. $25,000. c. $32,500. d. $67,500.
c
The deadweight loss from a $3 tax will be largest in a market with a. inelastic supply and elastic demand. b. inelastic supply and inelastic demand. c. elastic supply and elastic demand. d. elastic supply and inelastic demand.
c
The social cost of a monopoly is equal to its economic profit. fixed cost. dead weight loss. variable cost.
c
When a market is characterized by an externality, the government a. can correct the market failure only in the case of positive externalities. b. can correct the market failure only in the case of negative externalities. c. can correct the market failure in the case of both positive and negative externalities by inducing market participants to internalize the externality. d. cannot correct for externalities due to the existence of patents.
c
When the price of a good is measured in dollars, then the size of the deadweight loss that results from taxing that good is measured in a. units of the good that is being taxed. b. units of a related good that is not being taxed. c. dollars. d. percentage change.
c
When the supply of a good increases and the demand for the good remains unchanged, consumer surplus a. decreases. b. is unchanged. c. increases. d. may increase, decrease, or remain unchanged.
c
A profit-maximizing firm in a competitive market is able to sell its product for $7. At its current level of output, the firm's average total cost is $10. The firm's marginal cost curve crosses its marginal revenue curve at an output level of 9 units. The firm experiences a profit of more than $27. profit of exactly $27. loss of more than $27. loss of exactly $27.
d
Assume, for Canada, that the domestic price of tomatoes without international trade is higher than the world price of tomatoes. This suggests that, in the production of tomatoes, a. Canada has a comparative advantage over other countries and Canada will export tomatoes. b. Canada has a comparative advantage over other countries and Canada will import tomatoes. c. other countries have a comparative advantage over Canada and Canada will export tomatoes. d. other countries have a comparative advantage over Canada and Canada will import tomatoes.
d
By comparing the world price of horseradish to Cropland's domestic price of horseradish, we can determine whether Cropland a. will export horseradish (assuming trade is allowed). b. will import horseradish (assuming trade is allowed). c. has a comparative advantage in producing horseradish. d. All of the above are correct.
d
Consider the market for apples. Suppose a technological advance increase lowers the cost of production. What happens to consumer and producer surplus in response to the technological advance? a. Consumer and producer surplus both increase b. consumer surplus increases but producer surplus decreases c. The change in consumer surplus is ambiguous but producer surplus increases d. Consumer surplus increases but the change in producer surplus is ambiguous
d
Free markets maximize efficiency under particular conditions. The free market would fail to maximize efficiency if one or more of the following scenarios is relevant to the market under consideration a. Production of the good imposes an external cost b. One seller in the market has the ability to influence the market price c. Buyers and sellers have the same information about the quality of the good. d. Either a or b.
d
Generic drugs enter the pharmaceutical drug market once the ingredients to the name brand drug have been discovered. 10 years have passed. they are patented. the patent on the name brand drug expires.
d
In the long run, a firm will enter a competitive industry if total revenue exceeds total cost. the price exceeds average total cost. the firm can earn economic profits. All of the above are correct.
d
Policymakers are discussing various proposals regarding how to deal with natural monopolies. Senator Huff wants to regulate natural monopolies by equating price with average total cost. Huff contends that such a policy will ensure that monopolies make every effort to reduce costs. Senator Puff wants the government to own natural monopolies. Puff argues that government-owned monopolies usually do a better job of holding down costs than privately owned monopolies. Which senator's argument is correct? Senator Huff Senator Puff both senators neither senator
d
Suppose a tax of $0.10 per unit on a good creates a deadweight loss of $100. If the tax is increased to $0.25 per unit, the deadweight loss from the new tax would be a. $200. b. $250. c. $475. d. $625.
d
Suppose a tax of $0.50 per unit on a good creates a deadweight loss of $100. If the tax is increased to $2.50 per unit, the deadweight loss from the new tax would be a. $200. b. $250. c. $500. d.$2,500.
d
Suppose that a firm operating in perfectly competitive market sells 100 units of output. Its total revenues from the sale are $500. Which of the following statements is correct? (i) Marginal revenue equals $5. (ii) Average revenue equals $5. (iii) Price equals $5. (i) only (iii) only (i) and (ii) only (i), (ii), and (iii)
d
Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that marginal cost of the third worker hired is $40, and the average total cost when three workers are hired is $50. What is the total cost of production when three workers are hired? $50 $90 $120 $150
d
Taxes cause deadweight losses because they a. lead to losses in surplus for consumers and for producers that, when taken together, exceed tax revenue collected by the government. b. distort incentives to both buyers and sellers. c. prevent buyers and sellers from realizing some of the gains from trade. d. All of the above are correct.
d
The key issue in determining the efficiency of public versus private ownership of a monopoly is the tendency for efficient management of publicly owned enterprises. the inability of private monopolies to get rid of managers that are doing a bad job. the propensity of private monopolies to generate excessive profits. how ownership of the firm affects the cost of production.
d
Total surplus is represented by the area a. under the demand curve and above the price. b. above the supply curve and up to the price. c. under the supply curve and up to the price. d. between the demand and supply curves up to the point of equilibrium.
d
What happens to consumer surplus in the iPod market if iPods are normal goods and buyers of iPods experience an increase in income? a. Consumer surplus decreases. b. Consumer surplus remains unchanged. c. Consumer surplus increases. d. Consumer surplus may increase, decrease, or remain unchanged.
d
When a firm's only variable input is labor, then the slope of the production function measures the quantity of labor. quantity of output. total cost. marginal product of labor.
d
