AJ AND COPPY
The average variable cost of producing 240 units is $0.13 $0.19 $0.32 $0.80
$0.19
. The average total cost of producing 240 units is $0.13. $0.19. $0.32. $0.80.
$0.32
What is the average revenue when 6 units are sold? $20 $465 $120 $78
$120
Korie wants to start her own business making custom furniture. She can purchase a factory that costs $400,000. Korie currently has $500,000 in the bank earning 3 percent interest per year. Refer to Scenario 13-1. Suppose Korie purchases the factory using $200,000 of her own money and $200,000 borrowed from a bank at an interest rate of 6 percent. What is Korie's annual opportunity cost of purchasing the factory? $3,000 $6,000 $15,000 $18,000
$18,000
What is the average fixed cost of producing 5 units of output? $4 $5 $40 $44
$4
What is the marginal cost of producing the fifth unit of output? $4 $40 $50 $70
$70
Suppose that when the price of good X increases from $730 to $880, the quantity demanded of good Y decreases from 60 to -20. Using the midpoint method, the cross-price elasticity of demand is about 21.47, and X and Y are substitutes. -0.05, and X and Y are complements. 0.05, and X and Y are substitutes. -21.47, and X and Y are complements.
-21.47, and X and Y are complements.
At which number of workers does diminishing marginal product begin? 1 2 3 4
2
A firm in a competitive market has the following cost structure. If the firm's fixed cost of production is $3, and the market price is $10, how many units should the firm produce to maximize profit? 1 unit 2 units 3 units 4 units
3 units
The firm should not produce an output level beyond 4 units. 5 units. 6 units. 7 units.
5 units
In order to maximize profits, the firm will produce 1 unit of output because marginal cost is minimized. 4 units of output because marginal revenue exceeds marginal cost. 5 units of output because marginal revenue equals marginal cost. 7 units of output because total revenue is maximized.
5 units of output because marginal revenue equals marginal cost.
The marginal product of the second worker is 90 units. 85 units. 80 units. 20 units.
80 Units
Which of the following changes would not shift the demand curve for a good or service? A change in income. A change in the price of a good or service. A change in expectations about the future price of the good or service. A change in the price of a related good or service.
A change in the price of the good or service.
Which of the following firms is the closest to being a perfectly competitive firm? A grain farmer in Illinois Microsoft Corporation Ford Motor Company An aerospace company
A grain farmer in Illinois
Cost is a measure of the A. seller's willingness to sell. B. producer shortage. C. seller's producer surplus. D. seller's willingness to buy.
A. seller's willingness to sell.
A legal maximum on the price at which a good can be sold is called a A. tax. B. price ceiling. C. price subsidy. D. price floor.
B. Ceiling
Price ceilings and price floors that are binding A. are desirable because they make markets more efficient and more fair. B. cause surpluses and shortages to persist because price cannot adjust to the market equilibrium price. C. are imposed because they can make the poor in the economy better off without causing adverse effects. D. can have the effect of restoring a market to equilibrium.
B. cause surpluses and shortages to persist because price cannot adjust to the market equilibrium price
When a tax is imposed on a good, the A. amount of the good that buyers are willing to buy at each price always remains unchanged. B. supply curve for the good always shifts. C. equilibrium quantity of the good always decreases. D. demand curve for the good always shifts.
C. equilibrium quantity of the good always decreases.
If a construction site creates too much noise for local residents, A. noise restrictions will force residents to move out of the area. B. the government should avoid intervening because the market will always allocate resources efficiently. C. the government can raise economic well-being through noise-control regulations. D. a sense of social responsibility will cause owners of the mill to reduce noise levels.
C. the government can raise economic well-being through noise-control regulations
What is the fundamental basis for trade among nations? A. Absolute advantage B. Shortages or surpluses in nations that do not trade C. Misguided economic policies D. Comparative advantage
D. Comparative advantage
Which of the following is correct? Question options: A. Rent control and the minimum wage are both examples of price ceilings. B. Rent control is an example of a price floor, and the minimum wage is an example of a price ceiling. C. Rent control and the minimum wage are both examples of price floors. D. Rent control is an example of a price ceiling, and the minimum wage is an example of a price floor.
D. Rent control is an example of a price ceiling, and the minimum wage is an example of a price floor.
In the 1970s, long lines at gas stations in the United States were primarily a result of the fact that A. U.S. gasoline producers raised the price of gasoline. B. Americans typically commuted long distances. C. OPEC raised the price of crude oil in world markets. D. the U.S. government maintained a price ceiling on gasoline.
D. the U.S. government maintained a price ceiling on gasoline
The term tax incidence refers to A. whether buyers or sellers of a good are required to send tax payments to the government. B. widespread view that taxes (and death) are the only certainties in life. C. whether the demand curve or the supply curve shifts when the tax is imposed. D. the distribution of the tax burden between buyers and sellers.
D. the distribution of the tax burden between buyers and sellers.
Which of the following is not a characteristic of a competitive market? Buyers and sellers are price takers. Entry is limited. Each firm sells a virtually identical product. Each firm chooses an output level that maximizes profits.
Entry is limited.
The goal of rent control is to A. facilitate controlled economic experiments in urban areas. B. help the poor by making housing more affordable. C. help the poor by assuring them an adequate supply of apartments. D. help landlords by assuring them a low vacancy rate for their apartments.
Not C
In the circular-flow diagram, which of the following is not a factor of production? Labor Land Capital Output
Output
Which of the following industries is most likely to exhibit the characteristic of free entry? Electricity Satellite radio Tennis shoes Mineral mining
Tennis Shoes
a. Explain the "invisible hand". b. What causes a movement along a demand curve? What causes a shift in the demand curve?
The invisible hand is household and firms guiding prices by making the choices to maximize the societys wellbeing. Movement along the demand curve occur when there is a decrease in price and an increase in quantity.Shifts in the demand curve occur when things that determine buyers demand for a good, other than the goods price - number of buyers - income -prices of related goods -tastes -expectations
Is the price elasticity of demand the same as we move along a linear demand curve? Why or why not?
The price elastiticty of demand is not the same as move along a linear demand curve because the absolute value of the price elasititcy of demand will fall as we move down the curve.
An economy can produce at any point on or inside its production possibilities frontier, but it cannot produce at points outside its production possibilities frontier.
True
The information below applies to a competitive firm that sells its output for $45 per unit. • When the firm produces and sells 100 units of output, its average total cost is $24.5. • When the firm produces and sells 101 units of output, its average total cost is $24.65. Suppose the firm is currently producing and selling 100 units of output. Should the firm increase its output to 101 units? Yes, because the marginal revenue exceeds the marginal cost. Yes, because the marginal revenue exceeds the average total cost. No, because the marginal cost exceeds the marginal revenue. No, because the average total cost exceeds the marginal revenue.
Yes, because the marginal revenue exceeds the marginal cost.
The firm will earn a positive economic profit in the short run if the market price is
above $6.5.
The average fixed cost curve always declines with increased levels of output. always rises with increased levels of output. declines as long as it is above marginal cost. declines as long as it is below marginal cost.
always declines with increased levels of output.
Bobby pays all his workers the same wage, and labor is his only variable cost. From this information we can conclude that Bobby's average variable cost decreases *as output rises from 0 to 10, but rises after that. *as output rises from 0 to 26, but rises after that. *as output rises from 0 to 33, but increases after that. *continually as output rises.
as output rises from 0 to 26, but rises after that.
For an individual firm operating in a competitive market, marginal revenue equals average revenue and the price for all levels of output. average revenue, which is greater than the price for all levels of output. average revenue, the price, and marginal cost for all levels of output. marginal cost, which is greater than average revenue for all levels of output.
average revenue and the price for all levels of output.
Marginal cost is equal to average total cost when average variable cost is falling average fixed cost is rising marginal cost is at its minimum average total cost is at its minimum.
average total cost is at its minimum
If a seller in a competitive market chooses to charge more than the going price, then the sellers' profits must increase. the owners of the raw materials used in production would raise the prices for the raw materials. other sellers would also raise their prices. buyers will make purchases from other sellers.
buyers will make purchases from other sellers.
Suppose that the price falls from P2 to P1. Area C represents the additional consumer surplus to initial consumers when the price falls. decrease in producer surplus in the market when the price increases from P1 to P2. consumer surplus to new consumers who enter the market. decrease in producer surplus that results from a downward-sloping demand curve
consumer surplus to new consumers who enter the market.
If a firm in a competitive market doubles its number of units sold, total revenue for the firm will more than double. increase but by less than double. double. may increase or decrease depending on the price elasticity of demand.
double
Large or persistent inflation is almost always caused by excessive government spending. excessive growth in the quantity of money. foreign competition. higher-than-normal levels of productivity.
excessive growth in the quantity of money.
Instead of conducting laboratory experiments to generate data to test their theories, economists often ask winners of the Nobel Prize in Economics to evaluate their theories. do without data. gather data from historical episodes of economic change. substitute assumptions for data when data are unavailable.
gather data from historical episodes of economic change.
The firm will produce a quantity greater than three because at 3 units of output, marginal cost is greater than marginal revenue. equals marginal revenue. is less than marginal revenue. is minimized.
is less than marginal revenue.
If marginal cost is rising average variable cost must be falling. average fixed cost must be rising. marginal product must be falling. marginal product must be rising.
marginal product must be falling.
When profit-maximizing firms in competitive markets are earning profits, market demand must exceed market supply at the market equilibrium price. market supply must exceed market demand at the market equilibrium price. new firms will enter the market. the most inefficient firms will be encouraged to leave the market.
new firms will enter the market.
The graph illustrates a typical total-cost curve production function production possibilities frontier marginal product of labor curve
production function.
What term refers to the idea that society has limited resources and therefore cannot produce all the goods and services people wish to have? inefficiency inequality scarcity market failure
scarcity
In a market economy, economic activity is guided by the government. public-interest groups. central planners. self-interest and prices.
self-interest and prices.
The short-run supply curve for a firm in a perfectly competitive market is horizontal. likely to slope downward. determined by forces external to the firm. the portion of its marginal cost curve that lies above its average variable cost.
the portion of its marginal cost curve that lies above its average variable cost.
If marijuana were legalized, it is likely that there would be an increase in the demand for marijuana. If demand for marijuana is inelastic and the supply of marijuana is perfectly elastic, this will result in higher prices and higher total revenue from marijuana sales. higher prices but lower total revenue from marijuana sales. the same price and higher total revenue from marijuana sales. the same price but lower total revenue from marijuana sales.
the same price and higher total revenue from marijuana sales.
What is the opportunity cost of increasing the production of corn from 500 bushels to 1000 bushels? 400 bushels of rye 300 bushels of rye 500 bushels of rye 600 bushels of rye
300 bushels of rye
True or False: Taxation is a source of market distortion and always creates market inefficiency
False
Which of the following demonstrates the law of demand? After Qyatt got a raise at work, he bought more pretzels at $1.50 per pretzel than he did before his raise. Sanjay buys fewer pastries at $0.75 per pastry than at $1 per pastry, other things equal. Haidy buys more donuts at $0.25 per donut than at $0.50 per donut, other things equal. Ellie buys fewer Mounds at $0.60 per candy bar after the price of Skittles falls to $0.50 per bag.
Haidy buys more donuts at $0.25 per donut than at $0.50 per donut, other things equal.
Eldin is a house painter. He can paint three houses per week. He is considering hiring his friend Murphy. Murphy can paint five houses per week. What is the maximum total output possible if Eldin hires Murphy? 2 houses 3 houses 5 houses 8 houses
8 houses
Which of the curves is most likely to characterize the short-run average total cost curve of the smallest factory?
ATCA ATCB ATCD ATCC
Which of the following causes the price paid by buyers to be different than the price received by sellers? A. Tax on the good B. Binding price ceiling C. Nonbinding price control D. Binding price floor
A. Tax on the good
Zaria and Hannah are roommates. Zaria assigns a $30 value to smoking cigarettes. Hannah values smoke-free air at $15. Which of the following scenarios is a successful example of the Coase theorem? A. Zaria pays Hannah $20 so that Zaria can smoke. B. Hannah offers Zaria $20 not to smoke. Zaria accepts and does not smoke. C. Zaria pays Hannah $12 so that Zaria can smoke. D. Hannah offers Zaria $15 not to smoke. Zaria accepts and does not smoke.
A. Zaria pays Hannah $20 so that Zaria can smoke.
ACTIVITY 12
AFC=FC/Q AVC=VC/Q ATC=TC/Q= AFC+AVC MC= change TC/change Q
Which of the following is not a characteristic of pollution permits? A. Firms for whom pollution reduction is very expensive are willing to pay more for permits than firms for whom pollution reduction is less expensive. B. Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial allocation. C. Real-world markets for pollution permits include sulfur dioxide and carbon. D. Prices are set by supply and demand.
Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial allocation
Curve C represents which type of cost curve? Marginal cost Total cost Average variable cost Average fixed cost
Average fixed cost
Which of the following statements is correct? Question options: A. Government policies cannot improve upon private market outcomes. B. A patent is a way for the government to encourage the production of a good with technology spillovers. C. A subsidy is a way for the government to reduce the production of a good with a negative externality. D. A subsidy that accurately reflects external costs produces the socially optimal outcome.
B. A patent is a way for the government to encourage the production of a good with technology spillovers.
Which of the following statements is not correct? A. Both corrective taxes and tradable pollution permits reduce the cost of environmental protection and thus should increase the public's demand for a clean environment. B. Corrective taxes set the maximum quantity of pollution, whereas tradable pollution permits fix the price of pollution. C. Both corrective taxes and tradable pollution permits provide market-based incentives for firms to reduce pollution. D. Tradable pollution permits have an advantage over corrective taxes if the government is uncertain as to the optimal size of the tax necessary to reduce pollution to a specific level.
B. Corrective taxes set the maximum quantity of pollution, whereas tradable pollution permits fix the price of pollution
The distinction between efficiency and equality can be described as follows: A. Efficiency refers to maximizing the number of trades among buyers and sellers; equality refers to maximizing the gains from trade among buyers and sellers. B. Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society. C. Efficiency refers to maximizing the size of the pie; equality refers to producing a pie of a given size at the least possible cost. D. Efficiency refers to minimizing the price paid by buyers; equality refers to maximizing the gains from trade among buyers and sellers.
B. Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society
When a country is on the upward-sloping side of the Laffer curves, a cut in the tax rate will A. increase tax revenue and increase the deadweight loss. B. increase tax revenue and decrease the deadweight loss. C. decrease tax revenue and increase the deadweight loss. D. decrease tax revenue and decrease the deadweight loss.
B. increase tax revenue and decrease the deadweight loss.
An externality is the uncompensated impact of Question options: A. society's decisions on the poorest person in the society. B. society's decisions on the well-being of society. C. one person's actions on the well-being of a bystander. D. a person's actions on that person's well-being.
D. a person's actions on that person's well-being.
If the size of a tax increases, tax revenue A. decreases. B. increases. C. remains the same. D. may increase, decrease, or remain the same.
D. may increase, decrease, or remain the same
When a tax is levied on a good, the buyers and sellers of the good share the burden, A. provided the tax is levied on the sellers. B. provided the tax is levied on the buyers. C. provided a portion of the tax is levied on the buyers, with the remaining portion levied on the sellers. D. regardless of how the tax is levied.
D. regardless of how the tax is levied.
Along which of these segments of the supply curve is supply most elastic? FE DC FD BA
FE
A circular-flow diagram is a model that incorporates all aspects of the real economy. Question options:TrueFalse
False
Some countries win in international trade, while other countries lose.
False
A hair stylist currently cuts and colors hair for 100 clients per week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand? Yes, because cutting hair is profitable. No, because he may not be able to sell more services. It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients. It depends on the average cost of serving more clients and the average revenue he will earn from serving more clients.
It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients.
Which of the following statements is correct? For all firms, marginal revenue equals the price of the good. Only for competitive firms does average revenue equal the price of the good. Marginal revenue can be calculated as total revenue divided by the quantity sold. Only for competitive firms does average revenue equal marginal revenue.
Only for competitive firms does average revenue equal marginal revenue.
ACTIVITY 14
P x Q - the fixed cost
Which of the following is not held constant in a demand schedule? Income Tastes Price Expectations
Price
When buyers in a competitive market take the selling price as given, they are said to be price takers. market entrants. monopolists. free riders.
Price takers
Which of the following is an example of a positive, as opposed to normative, statement? If welfare payments increase, the world will be a better place. The income tax rate should be increased to offset the budget deficit. Prices rise when the government prints too much money. Antitrust laws should be used to prevent further concentration in the wireless telephone service market.
Prices rise when the government prints too much money.
Raiman's Shoe Repair produces custom-made shoes. When Mr. Raiman produces 12 pairs per week, the marginal cost of the 12th pair is $84, and the marginal revenue of the 12th pair is $70. What would you advise Mr. Raiman to do? Shut down the business Produce more custom-made shoes Decrease the price Produce fewer custom-made shoes
Produce fewer custom-made shoes
ACTIVITY 13
Q -> MR=MC TR= PxQ =3.30 =$90
Suppose this economy is producing at point B. Which of the following statements would best explain this situation? The economy has insufficient resources to produce at a more desirable point. The economy's available technology prevents it from producing at a more desirable point. There is widespread unemployment in the economy. The economy is experiencing economic growth.
There is widespread unemployment in the economy.
For the firm whose production function and costs are specified in the table, its average-total-cost curve is constant. decreasing. increasing. U-shaped.
U-Shaped
Under what conditions might government intervention in a market economy improve the economy's performance? Why?
When there a market failure such as a monoply the government would intervene in the market encoonmy to improve the economic performance and to create more competition for the good.
A group of buyers and sellers of a particular good or service is called a coalition. an economy. a market. a competition.
a market
In the long run a company that produces and sells popcorn incurs total costs of $1,150 when output is 70 canisters and $1,000 when output is 100 canisters. The popcorn company exhibits
economies of scale because average total cost is falling as output rises.
If long-run average total cost decreases as the quantity of output increases, the firm is experiencing *economies of scale. *diseconomies of scale. *coordination problems arising from the large size of the firm. *fixed costs greatly exceeding variable costs.
economies of scale.
The basic principles of economics suggest that markets are seldom, if ever, a good way to organize economic activity. government should become involved in markets when trade between countries is involved. government should become involved in markets when those markets fail to produce efficient or fair outcomes. government should never become involved in markets.
government should become involved in markets when those markets fail to produce efficient or fair outcomes.
Consider the production possibilities frontier for an economy that produces only computers and televisions. The opportunity cost of each computer is the slope of the production possibilities frontier, or of a television. the reciprocal of the slope of the production possibilities frontier, or 2 televisions. the reciprocal of the slope of the production possibilities frontier, or of a television. the slope of the production possibilities frontier, or 2 televisions.
he slope of the production possibilities frontier, or 2 televisions.
Microeconomics is the study of how money affects the economy. how individual households and firms make decisions. how government affects the economy. how the economy as a whole works.
how individual households and firms make decisions.
When her income increased from $10,000 to $20,000, Heather's consumption of macaroni decreased from 10 pounds to 5 pounds and her consumption of soy-burgers increased from 2 pounds to 4 pounds. Using the midpoint method, we can conclude that for Heather, macaroni and soy-burgers are both normal goods with income elasticities equal to 1. is an inferior good and soy-burgers are normal goods; both have income elasticities of 1. is an inferior good with an income elasticity of -1 and soy-burgers are normal goods with an income elasticity of 1. and soy-burgers are both inferior goods with income elasticities equal to -1.
is an inferior good with an income elasticity of -1 and soy-burgers are normal goods with an income elasticity of 1
A farmer has the ability to grow either corn or cotton or some combination of the two. Given no other information, it follows that the farmer's opportunity cost of a bushel of corn multiplied by his opportunity cost of a bushel of cotton is equal to 0. is between 0 and 1. is equal to 1. is greater than 1.
is equal to 1.
Suppose the government taxes the wealthy at a higher rate than it taxes the poor and then develops programs to redistribute the tax revenue from the wealthy to the poor. This redistribution of wealth is more efficient and more equal for society. is more efficient but less equal for society. is more equal but less efficient for society. is less equal and less efficient for society.
is more equal but less efficient for society.
Firms may experience diseconomies of scale when *they are too small to take advantage of specialization. *large management structures are bureaucratic and inefficient. *there are too few employees, and managers do not have enough to do. *average fixed costs begin to rise again.
large management structures are bureaucratic and inefficient.
The firm should shut down if the market price is above $6.5. above $3 but less than $6.5. above $6.5 but less than $10. less than $3.
less than $3.
As the number of workers increases, *marginal product decreases. *total output decreases. *marginal product increases but at a decreasing rate. *total output increases at an increasing rate.
marginal product decreases.
A monopoly is a market with one seller, and that seller is a price taker. seller, and that seller sets the price. buyer, and that buyer is a price taker. buyer, and that buyer sets the price
seller, and that seller sets the price.
The price elasticity of demand measures how much the quantity demanded responds to changes in input prices. the quantity demanded responds to changes in the price of the good. the price of the good responds to changes in demand. sellers respond to changes in technology.
the quantity demanded responds to changes in the price of the good
