beco test #2
A difference between explicit and implicit costs is that a. implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do. b. explicit costs do not require a direct monetary outlay by the firm, whereas implicit costs do. c. implicit costs must be greater than explicit costs. d. explicit costs must be greater than implicit costs.
A
A positive externality occurs when a. Jack receives a benefit from John's consumption of a certain good. b. Jack receives personal benefits from his own consumption of a certain good. c. Jack's benefit exceeds John's benefit when they each consume the same good. d. Jack's receives a loss from John's consumption of a certain good.
A
A total-cost curve shows the relationship between the a. quantity of output produced and the total cost of production. b. total cost of production and total revenue. c. quantity of an input used and the total cost of production. d. total cost of production and profit.
A
As the number of firms in an oligopoly market a. increases, the market approaches the competitive market outcome. b. decreases, the market approaches the competitive market outcome. c. decreases, the price charged by firms likely decreases. d. increases, the market approaches the monopoly outcome.
A
Brady Industries has average variable costs of $1 and average total costs of $3 when it produces 500 units of output. The firm's total fixed costs equal a. $1,000. b. $2,000. c. $2. d. $4.
A
Comparing marginal revenue to marginal cost (i) reveals the contribution of the last unit of production to total profit. (ii) is helpful in making profit-maximizing production decisions. (iii) tells a firm whether its fixed costs are too high. a. (i) and (ii) only b. (i) only c. (i) and (iii) only d. (ii) and (iii) only
A
Competitive markets are characterized by a. free entry and exit by firms. b. a small number of buyers and sellers. c. the interdependence of firms. d. unique products.
A
Explicit costs a. require an outlay of money by the firm. b. include all of the firm's opportunity costs. c. include the value of the business owner's time. d. Both b and c are correct.
A
For a profit-maximizing monopolist, a. P > MR = MC. b. MR < MC < P. c. P = MR = MC. d. P > MR > MC.
A
Free entry means that a. no legal barriers prevent a firm from entering an industry. b. the government pays any entry costs for individual firms. c. a firm's marginal cost is zero. d. a firm has no fixed costs in the short run.
A
How is the burden of a tax divided? (i) When the tax is levied on the sellers, the sellers bear a higher proportion of the tax burden. (ii) When the tax is levied on the buyers, the buyers bear a higher proportion of the tax burden. (iii) Regardless of whether the tax is levied on the buyers or the sellers, the buyers and sellers bear an equal proportion of the tax burden. (iv) Regardless of whether the tax is levied on the buyers or the sellers, the buyers and sellers bear some proportion of the tax burden. a. (iv) only b. (i), (ii), and (iii) only c. (i) and (ii) only d. (i), (ii), and (iv) only
A
If a monopolist's marginal costs increase by $1 for all levels of output, then the monopoly price will a. rise by less than $1. b. rise by $1. c. not change, but profits will decrease. d. rise by more than $1.
A
In a competitive market with identical firms, a. free entry and exit into the market requires that firms earn zero economic profit in the long run even though they may be able to earn positive economic profit in the short run. b. firms can earn positive economic profit in the long run if the long-run market supply curve is upward sloping. c. firms cannot earn positive economic profit in either the short run or long run. d. an increase in demand in the short run will result in a new price above the minimum of average total cost, allowing firms to earn a positive economic profit in both the short run and the long run.
A
One key difference between an oligopoly market and a competitive market is that oligopolistic firms a. can affect the profit of other firms in the market by the choices they make while firms in competitive markets do not affect each other by the choices they make. b. are price takers while competitive firms are not. c. sell completely unrelated products while competitive firms do not. d. sell their product at a price equal to marginal cost while competitive firms do not.
A
Predatory pricing refers to a. a monopoly firm reducing its price in an attempt to maintain its monopoly. b. All of the above are examples of predatory pricing. c. a firm selling certain products together rather than separately. d. firms colluding to set prices.
A
Rent-control laws dictate a. a maximum rent that landlords may charge tenants. b. a minimum rent that landlords may charge tenants. c. both a minimum rent and a maximum rent that landlords may charge tenants. d. the exact rent that landlords must charge tenants.
A
Suppose a firm in each of the two markets listed below were to increase its price by 20 percent. In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed would not? a. spiral notebooks and college textbooks b. gasoline and restaurants c. corn and soybeans d. water and cable television
A
Suppose that in a particular market, the supply curve is highly elastic and the demand curve is highly inelastic. If a tax is imposed in this market, then the a. buyers will bear a greater burden of the tax than the sellers. b. sellers will bear a greater burden of the tax than the buyers. c. buyers and sellers are likely to share the burden of the tax equally. d. buyers and sellers will not share the burden equally, but it is impossible to determine who will bear the greater burden of the tax without more information.
A
Suppose that large-scale pork production has the potential to create ground water pollution. Why might this type of pollution be considered an externality? a. The pollution has the potential for creating a health risk for water users in the region surrounding the pork production facility. b. The groundwater pollution reduces the cost of large-scale pork production. c. The economic impact of a large-scale pork production facility is localized in a small geographic area. d. Consumers will not reap the benefits of lower production cost from large-scale pork production.
A
The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $125,000. Because of this information, in the short run, the Brookside Racquet Club should a. shut down because staying open would be more expensive. b. stay open because the firm is making an economic profit. c. stay open because shutting down would be more expensive. d. lower their prices to increase their profits.
A
The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average a. total cost. b. revenue. c. fixed cost. d. variable cost.
A
The competitive firm's short-run supply curve is its a. marginal cost curve, but only the portion above the minimum of average variable cost. b. marginal cost curve, but only the portion above the minimum of average total cost. c. marginal revenue curve, but only the portion where marginal revenue exceeds marginal cost. d. marginal cost curve.
A
The long-run supply curve for a competitive industry a. may be upward-sloping if higher-cost firms enter the industry. b. will be horizontal if there is free entry into the industry. c. may be horizontal if entry into the industry lowers average total cost. d. will be upward-sloping if there are barriers to entry into the industry.
A
The marginal product of labor can be defined as the change in a. output divided by the change in labor. b. labor divided by the change in total cost. c. profit divided by the change in labor. d. labor divided by the change in output.
A
The market demand curve for a monopolist is typically a. downward sloping. b. unit price elastic. c. vertical. d. horizontal.
A
The market for novels is a. monopolistically competitive. b. an oligopoly. c. perfectly competitive. d. a monopoly.
A
The practice of tying is used to a. package products to sell at a combined price closer to a buyer's total willingness to pay. b. enhance the enforcement of antitrust laws. c. encourage the enforcement of collusive agreements. d. control the retail price of a collection of related products.
A
The term tax incidence refers to a. the distribution of the tax burden between buyers and sellers. 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. whether buyers or sellers of a good are required to send tax payments to the government.
A
Thirsty Thelma owns and operates a small lemonade stand. When Thelma is producing a low quantity of lemonade she has few workers and her equipment is not being fully utilized. Because she can easily put her idle resources to use, a. the marginal cost of one more glass of lemonade is smaller than if output were high. b. her lemonade stand is likely to be crowded with workers. c. the marginal cost of an extra worker is large. d. the marginal product of an extra worker is small.
A
Tony is a wheat farmer, but he also spends part of his day teaching guitar lessons. Due to the popularity of his local country western band, Farmer Tony has more students requesting lessons than he has time for if he is to also maintain his farming business. Farmer Tony charges $25 an hour for his guitar lessons. One spring day, he spends 10 hours in his fields planting $130 worth of seeds on his farm. He expects that the seeds he planted will yield $300 worth of wheat. Refer to Scenario 13-6. Tony's accounting profit equals a. $170. b. $130. c. $260. d. $-80.
A
Total cost can be divided into two types of costs: a. fixed costs and variable costs. b. average costs and marginal costs. c. fixed costs and marginal costs. d. variable costs and marginal costs.
A
When a profit-maximizing firm's fixed costs are considered sunk in the short run, then the firm a. can safely ignore fixed costs when deciding how much output to produce. b. can set price above marginal cost. c. must set price below average total cost. d. will never show losses.
A
Which of the following can be added to profit to obtain total revenue? a. total cost b. capital profit c. operational profit d. net profit
A
Which of the following conditions is characteristic of a monopolistically competitive firm in both the short-run and the long run? a. P > MC b. MC = ATC c. P < MR d. All of the above are correct.
A
Which of the following is not a property of a firm's cost curves? a. Average total cost will cross marginal cost at the minimum of marginal cost. b. Marginal cost must eventually rise as a result of diminishing marginal product. c. Economies of scale will exist when average total cost falls as output rises. d. Average total cost is U-shaped.
A
Which of the following represents the firm's short-run condition for shutting down? a. shut down if TR < VC b. shut down if TR < TC c. shut down if P < ATC d. shut down if TR < FC
A
Which of the following would not be considered a negative externality? a. You have an adverse reaction to a medication your doctor prescribed for you. b. Smelter, Inc. creates steel and pollution. c. Your friend buys a new puppy that barks every night. d. Your neighbor plays loud music that you dislike through stereo speakers set up on his deck.
A
A competitive firm's short-run supply curve is part of which of the following curves? a. average variable cost b. marginal cost c. average total cost d. marginal revenue
B
A monopolistically competitive firm a. charges a price that is equal to marginal cost. b. experiences a zero profit in the long run. c. produces at the efficient scale in the long run. d. All of the above are correct.
B
A production function is a relationship between inputs and a. revenue. b. quantity of output. c. profit. d. costs.
B
A tax on the buyers of personal computer external hard drives encourages a. sellers to supply a smaller quantity at every price. b. buyers to demand a smaller quantity at every price. c. buyers to demand a larger quantity at every price. d. Both a) and b) are correct.
B
Antitrust laws may a. enhance the ability of firms to reduce economic losses. b. restrict the ability of firms to merge. c. enhance the ability of firms to capture profits from a concentration of market power. d. restrict the ability of firms to operate at the socially efficient level of production.
B
At the profit-maximizing level of output, a. marginal revenue equals average total cost. b. marginal revenue equals marginal cost. c. marginal revenue equals average variable cost. d. average revenue equals average total cost.
B
Average total cost is equal to a. average variable cost + total fixed cost. b. total cost/output. c. total cost - total quantity of output. d. output/total cost.
B
Because many good substitutes exist for a competitive firm's product, the demand curve that it faces is a. perfectly inelastic. b. perfectly elastic. c. inelastic only over a certain region. d. unit-elastic.
B
If a monopolist can sell 7 units when the price is $4 and 8 units when the price is $3, then marginal revenue of selling the eighth unit is equal to a. $4. b. -$4. c. $3. d. $24.
B
If firms in a particular market similar or sell identical products, then the market is (i) perfectly competitive. (ii) monopolistically competitive. (iii) an oligopoly. a. (ii) or (iii) only b. (i) or (iii) only c. (i) only d. (i) or (ii) only
B
If the government levies a $1,000 tax per boat on sellers of boats, then the price paid by buyers of boats would a. increase by exactly $1,000. b. increase by less than $1,000. c. decrease by an indeterminate amount. d. increase by more than $1,000.
B
In a competitive market free of government regulation, a. price adjusts until quantity demanded is greater than quantity supplied. b. price adjusts until quantity demanded equals quantity supplied. c. price adjusts until quantity demanded is less than quantity supplied. d. supply adjusts to meet demand at every price.
B
In a market with 1,000 identical firms, the short-run market supply is the a. quantity supplied by the typical firm in the market at each price. b. sum of the quantities supplied by each of the 1,000 individual firms at each price. c. marginal cost curve above average variable cost for a typical firm in the market. d. sum of the prices charged by each of the 1,000 individual firms at each quantity.
B
In the long run, assuming that the owner of a firm in a competitive industry has positive opportunity costs, she a. should exit the industry unless her economic profits are positive. b. will earn zero economic profits but positive accounting profits. c. should ignore opportunity costs because they are a type of sunk cost that disappears in the long run. d. will earn zero accounting profits but positive economic profits.
B
In the long-run equilibrium of a market with free entry and exit, marginal firms are operating a. at the point where average variable cost equals marginal cost. b. at their efficient scale. c. at the minimum point on their marginal cost curves. d. where accounting profit is zero.
B
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 $300. In order to maximize profits, Laura should a. make more than 20 wedding cakes per month. b. make fewer than 20 wedding cakes per month. c. continue to make 20 wedding cakes per month. d. We do not have enough information with which to answer the question.
B
Max sells maps. The map industry is competitive. Max hires a business consultant to analyze his company's financial records. The consultant recommends that Max increase his production. The consultant must have concluded that Max's a. total revenues exceed his total accounting costs. b. marginal revenue exceeds his marginal cost. c. marginal cost exceeds his marginal revenue. d. marginal revenue exceeds his total cost.
B
Negative externalities occur when one person's actions a. cause his or her employer to lose business. b. adversely affect the well-being of a bystander who is not a party to the action. c. cause another person to lose money in a stock market transaction. d. reveal his or her preference for foreign-produced goods.
B
Price controls are usually enacted a. as a means of raising revenue for public purposes. b. when policymakers believe that the market price of a good or service is unfair to buyers or sellers. c. when policymakers detect inefficiencies in a market. d. All of the above are correct.
B
Suppose buyers of vodka are required to send $1.00 to the government for every bottle of vodka they buy. Further, suppose this tax causes the effective price received by sellers of vodka to fall by $0.60 per bottle. Which of the following statements is correct? a. This tax causes the supply curve for vodka to shift upward by $1.00 at each quantity of vodka. b. The price paid by buyers is $0.40 per bottle more than it was before the tax. c. Sixty percent of the burden of the tax falls on buyers. d. All of the above are correct.
B
Suppose that a "doggie day care" firm uses only two inputs: hourly workers (labor) and a building (capital). In the short run, the firm most likely considers a. both labor and capital to be fixed. b. labor to be variable and capital to be fixed. c. capital to be variable and labor to be fixed. d. both labor and capital to be variable.
B
Suppose that a firm in a competitive market is currently maximizing its short-run profit at an output of 50 units. If the current price is $9, the marginal cost of the 50th unit is $9, and the average total cost of producing 50 units is $4, what is the firm's profit? a. $0 b. $250 c. $450 d. $200
B
The first major piece of antitrust legislation was the a. Clinton-Gore Act. b. Sherman Act. c. Reagan-Bush Act. d. Clayton Act.
B
The free entry and exit of firms in a monopolistically competitive market guarantees that a. economic profits, but not economic losses, can persist in the long run. b. both economic profits and economic losses disappear in the long run. c. economic losses, but not economic profits, can persist in the long run. d. both economic profits and economic losses can persist in the long run.
B
The two types of imperfectly competitive markets are a. markets with differentiated products and oligopoly. b. monopolistic competition and oligopoly. c. markets with differentiated products and monopoly. d. oligopoly and monopoly.
B
To maximize its profit, a monopolistically competitive firm a. chooses its quantity and price, just as a competitive firm does. b. chooses its quantity and price, just as a monopoly does. c. takes the price as given and chooses its quantity, just as a colluding oligopolist does. d. takes the price as given and chooses its quantity, just as a competitive firm does.
B
Tony is a wheat farmer, but he also spends part of his day teaching guitar lessons. Due to the popularity of his local country western band, Farmer Tony has more students requesting lessons than he has time for if he is to also maintain his farming business. Farmer Tony charges $25 an hour for his guitar lessons. One spring day, he spends 10 hours in his fields planting $130 worth of seeds on his farm. He expects that the seeds he planted will yield $300 worth of wheat. Refer to Scenario 13-6. Tony's accountant would calculate the total cost of his farming to equal a. $25. b. $130. c. $300. d. $380.
B
Tony is a wheat farmer, but he also spends part of his day teaching guitar lessons. Due to the popularity of his local country western band, Farmer Tony has more students requesting lessons than he has time for if he is to also maintain his farming business. Farmer Tony charges $25 an hour for his guitar lessons. One spring day, he spends 10 hours in his fields planting $130 worth of seeds on his farm. He expects that the seeds he planted will yield $300 worth of wheat. Refer to Scenario 13-6. Tony's economic profit equals a. $170. b. $-80. c. $-130. d. $130.
B
What is the shape of the monopolist's marginal revenue curve? a. a downward-sloping line that is identical to the demand curve b. a downward-sloping line that lies below the demand curve c. a horizontal line that is identical to the demand curve d. a horizontal line that lies below the demand curve
B
When adding another unit of labor leads to an increase in output that is smaller than the increases in output that resulted from adding previous units of labor, the firm is experiencing a. negative marginal product. b. diminishing marginal product. c. diminishing output. d. diminishing labor.
B
Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue a. decreases. b. does not change. c. increases. d. increases if MR < ATC and decreases if MR > ATC.
B
Which of the following is a characteristic of a monopoly? a. free entry and exit b. barriers to entry c. low fixed costs as a portion of total costs d. declining marginal cost
B
Which of the following is a characteristic of a natural monopoly? a. Fixed costs are typically a small portion of total costs. b. Average total cost declines over large regions of output. c. The product sold is a natural resource such as diamonds or water. d. All of the above are correct.
B
Which of the following is an example of an implicit cost? a. interest on money borrowed to finance equipment purchases b. foregone rent on office space owned and used by the firm c. cash payments for raw materials d. salaries paid to owners who work for the firm
B
Which of the following is not an example of a public policy? a. rent-control laws b. equilibrium laws c. taxes d. minimum-wage laws
B
Which of these assumptions is often realistic for a firm in the short run? a. The firm can vary neither the size of its factory nor the number of workers it employs. b. The firm can vary the number of workers it employs but not the size of its factory. c. The firm can vary the size of its factory but not the number of workers it employs. d. The firm can vary both the size of its factory and the number of workers it employs.
B
You purchase a $30, nonrefundable ticket to a play at a local theater. Ten minutes into the show you realize that it is not a very good show and place only a $10 value on seeing the remainder of the show. Alternatively you could leave the theater and go home and watch TV or read a book. You place an $8 value on watching TV and a $6 value on reading a book. a. You should leave the theater since the net benefit from seeing the remainder of the show is -$20, while going home will earn you at least $8 of satisfaction. b. You should stay and watch the remainder of the show. c. You should go home and read a book. d. You should go home and watch TV.
B
You receive a paycheck from your employer, and your pay stub indicates that $400 was deducted to pay the FICA (Social Security/Medicare) tax. Which of the following statements is correct? a. This type of tax is an example of a payback tax. b. Your employer is required by law to pay $400 to match the $400 deducted from your check. c. The $400 that you paid is the true burden of the tax that falls on you, the employee. d. All of the above are correct.
B
A distinguishing feature of an oligopolistic industry is the tension between a. short-run decisions and long-run decisions. b. producing a small amount of output and charging a price above marginal cost. c. cooperation and self interest. d. profit maximization and cost minimization.
C
A firm that practices resale price maintenance a. has no incentive to reduce competition between its retailers. Resale price maintenance cannot lead to more service. b. has incentive to reduce competition between its retailers. Resale price maintenance can lead to more service. c. has no incentive to reduce competition between its retailers. Resale price maintenance can lead to more service. d. has incentive to reduce competition between its retailers. Resale price maintenance cannot lead to more service.
C
A monopolistically competitive firm chooses the quantity to produce where a. price equals marginal cost. b. demand equals marginal cost. c. marginal revenue equals marginal cost. d. Both a and c are correct.
C
The amount of money that a firm pays to buy inputs is called a. marginal cost. b. variable cost. c. total cost. d. fixed cost.
C
Accounting profit is equal to a. total revenue minus the opportunity cost of producing goods and services. b. average revenue minus the average cost of producing the last unit of a good or service. c. total revenue minus the explicit cost of producing goods and services. d. marginal revenue minus marginal cost.
C
An agreement among firms in a market about quantities to produce or prices to charge is called a. a strategic situation. b. excess capacity. c. collusion. d. tying.
C
As a group, oligopolists would always be better off if they would act collectively a. as if they were each seeking to maximize their own individual profits. b. as a single perfectly competitive firm. c. as a single monopolist. d. in a manner that would prohibit collusive agreements.
C
Bev is opening her own court-reporting business. She financed the business by withdrawing money from her personal savings account. When she closed the account, the bank representative mentioned that she would have earned $300 in interest next year. If Bev hadn't opened her own business, she would have earned a salary of $25,000. In her first year, Bev's revenues were $30,000. Which of the following statements is correct? a. Bev's total explicit costs are $25,300. b. Bev's accounting profits exceed her economic profits by $300. c. Bev's economic profit is $4,700. d. Bev's total implicit costs are $300.
C
Carol owns a running shoe store that operates in a perfectly competitive market. If running shoes sell for $120 per pair and the average total cost per pair of shoes is $125 at the profit-maximizing output level, then in the long run a. more firms will enter the market. b. the equilibrium price per pair of shoes will fall. c. some firms will exit from the market. d. average total costs will fall.
C
Cody builds mailboxes. If he charges $20 for each mailbox, his total revenue will be a. $1,000 if he sells 100 mailboxes. b. $20 regardless of how many mailboxes he sells. c. $500 if he sells 25 mailboxes. d. $200 if he sells 5 mailboxes.
C
Constant returns to scale occur when a firm's a. long-run average total costs are increasing as output increases. b. long-run average total costs are decreasing as output increases. c. long-run average total costs do not vary as output increases. d. marginal costs are constant as output increases.
C
For a firm operating in a competitive industry, which of the following statements is not correct? a. Price equals marginal revenue. b. Marginal revenue is constant. c. Total revenue is constant. d. Price equals average revenue.
C
For a monopoly firm, which of the following equalities is always true? a. price = total revenue b. price = marginal revenue c. price = average revenue d. marginal revenue = marginal cost
C
If all existing firms and all potential firms have the same cost curves, there are no inputs in limited quantities, and the market is characterized by free entry and exit, then the long-run market supply curve a. must slope downward. b. must slope upward. c. is horizontal and equal to the minimum of long-run average cost for each firm. d. is horizontal and equal to the minimum of long-run marginal cost for each firm.
C
In a competitive market, a firm's supply curve dictates the amount it will supply. In a monopoly market the a. supply curve will have limited predictive capacity. b. same is true. c. decision about how much to supply is impossible to separate from the demand curve it faces. d. supply curve conceptually makes sense, but in practice is never used.
C
In a market that is characterized by imperfect competition, a. there are always a large number of firms. b. firms are price takers. c. there are at least a few firms that compete with one another. d. the actions of one firm in the market never have any impact on the other firms' profits.
C
In a perfectly competitive market, the process of entry and exit will end when (i)accounting profits are zero. (ii)economic profits are zero. (iii)price equals minimum marginal cost. (iv)price equals minimum average total cost. a. (i) and (ii) only b. (ii) and (iii) only c. (ii) and (iv) only d. (i), (ii), (iii), and (iv)
C
In an oligopoly, each firm knows that its profits a. depend only on how much output it produces. b. depend only on how much output its rival firms produce. c. depend on both how much output it produces and how much output its rival firms produce. d. will be zero in the long run because of free entry.
C
In the long run the market supply a. could be upward sloping if technological improvements lower the cost of producing in the market. b. must always be horizontal. c. could be upward sloping if the cost of production rises as new firms enter the market. d. could be upward sloping if the cost of production falls as new firms enter the market.
C
In the short run, a firm in a monopolistically competitive market operates much like a a. firm in an oligopoly. b. firm in a perfectly competitive market. c. monopolist. d. monopsonist.
C
In the short run, a firm operating in a competitive industry will produce the quantity of output where price equals marginal cost as long as the a. price is less than average total cost. b. price is greater than average fixed cost but less than average variable cost. c. price is greater than average variable cost. d. marginal revenue exceeds the marginal cost.
C
Jane was a partner at a law firm earning $223,000 per year. She left the firm to open her own law practice. In the first year of business she generated revenues of $347,000 and incurred explicit costs of $163,000. Jane's economic profit from her first year in her own practice is a. $184,000. b. $124,000. c. -$39,000. d. $163,000.
C
Minimum-wage laws dictate a. the exact wage that firms must pay workers. b. a maximum wage that firms may pay workers. c. a minimum wage that firms may pay workers. d. both a minimum wage and a maximum wage that firms may pay workers.
C
Mrs. Smith operates a business in a competitive market. The current market price is $8.50. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should a. shut down her business in the short run but continue to operate in the long run. b. continue to operate in the short run but shut down in the long run. c. continue to operate in both the short run and long run. d. shut down in both the short run and long run.
C
The task of economic regulation is to a. increase competition within the market. b. protect monopoly profits. c. approximate the results of the competitive market. d. replace competition with government ownership.
C
Tony is a wheat farmer, but he also spends part of his day teaching guitar lessons. Due to the popularity of his local country western band, Farmer Tony has more students requesting lessons than he has time for if he is to also maintain his farming business. Farmer Tony charges $25 an hour for his guitar lessons. One spring day, he spends 10 hours in his fields planting $130 worth of seeds on his farm. He expects that the seeds he planted will yield $300 worth of wheat. Refer to Scenario 13-6. An economist would calculate Tony's total cost to equal a. $130. b. $300. c. $380. d. $250.
C
Wanda owns a lemonade stand. She produces lemonade using five inputs: water, sugar, lemons, paper cups, and labor. Her costs per glass are as follows: $0.01 for water, $0.02 for sugar, $0.03 for lemons, $0.02 for cups, and $0.10 for the opportunity cost of her labor. She can sell 300 glasses for $0.50 each. Refer to Scenario 13-7. What are Wanda's implicit costs per glass? a. $0.18 b. $0.08 c. $0.10 d. $0.02
C
Wanda owns a lemonade stand. She produces lemonade using five inputs: water, sugar, lemons, paper cups, and labor. Her costs per glass are as follows: $0.01 for water, $0.02 for sugar, $0.03 for lemons, $0.02 for cups, and $0.10 for the opportunity cost of her labor. She can sell 300 glasses for $0.50 each. Refer to Scenario 13-7. What are Wanda's total economic profits? a. $126 b. $150 c. $96 d. $54
C
When firms are said to be price takers, it implies that if a firm raises its price, a. competitors will also raise their prices. b. firms in the industry will exercise market power. c. buyers will go elsewhere. d. buyers will pay the higher price in the short run.
C
Which of the following illustrates the concept of a negative externality? a. A college professor plays a vigorous game of racquet ball with the racquet he recently purchased. b. A janitor eats a hamburger during his lunch break. c. A college student plays loud music on his new stereo system at 2:00 a.m. d. A flood wipes out a farmer's corn crop.
C
Which of the following is NOT an example of a negative externality? a. an illness caused by secondhand cigarette smoke. b. air pollution from a manufacturing plant. c. a decrease in your property value from neglecting your lawn and garden. d. disrupted sleep from a neighbor's loud music.
C
Which of the following is not correct? a. A tax places a wedge between the price that buyers pay and the price that sellers receive. b. In the new after-tax equilibrium, buyers and sellers share the burden of the tax. c. Taxes levied on sellers and taxes levied on buyers are not equivalent. d. The wedge between the buyers' price and the sellers' price is the same, regardless of whether the tax is levied on buyers or sellers.
C
Which of the following statements regarding a competitive firm is correct? a. If a firm raises its price, the firm may be able to increase its total revenue even though it will sell fewer units. b. By lowering its price below the market price, the firm will benefit from selling more units at the lower price than it could have sold by charging the market price. c. For all firms, average revenue equals the price of the good. d. Because demand is downward sloping, if a firm increases its level of output, the firm will have to charge a lower price to sell the additional output.
C
A firm that has little ability to influence market prices operates in a a. power market. b. thin market. c. strategic market. d. competitive market.
D
A negative externality arises when a person engages in an activity that has a. a beneficial effect on a bystander who pays the person who causes the effect. b. a beneficial effect on a bystander who does not pay the person who causes the effect. c. an adverse effect on a bystander who is compensated by the person who causes the effect. d. an adverse effect on a bystander who is not compensated by the person who causes the effect.
D
A positive externality arises when a person engages in an activity that has a. a beneficial effect on a bystander who pays the person who causes the effect. b. an adverse effect on a bystander who is compensated by the person who causes the effect. c. an adverse effect on a bystander who is not compensated by the person who causes the effect. d. a beneficial effect on a bystander who does not pay the person who causes the effect.
D
A price floor is a. a legal minimum on the price at which a good can be sold. b. often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price floor. c. a source of inefficiency in a market. d. All of the above are correct.
D
A profit-maximizing firm in a monopolistically competitive market differs from a firm in a perfectly competitive market because the firm in the monopolistically competitive market a. faces a horizontal demand curve at the market clearing price. b. has no barriers to entry. c. is characterized by market-share maximization. d. faces a downward-sloping demand curve for its product.
D
A seller in a competitive market a. can sell all he wants at the going price, so he has little reason to charge less. b. will lose all his customers to other sellers if he raises his price. c. considers the market price to be a "take it or leave it" price. d. All of the above are correct.
D
A tax levied on the sellers of blueberries a. increases sellers' costs, reduces profits, and shifts the supply curve down. b. decreases sellers' costs, increases profits, and shifts the supply curve down. c. decreases sellers' costs, increases profits, and shifts the supply curve up. d. increases sellers' costs, reduces profits, and shifts the supply curve up.
D
At low levels of production, the firm a. benefits from increased size because it can take advantage of greater specialization. b. has the potential for economies of scale. c. is unlikely to experiences acute problems with coordination. d. All of the above are correct.
D
Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly is often a. not in the best interest of society. b. one that fails to maximize total economic well-being. c. inefficient. d. All of the above are correct.
D
Consider the market for watermelons. Buyers a. would lobby for a price floor, whereas sellers would lobby for a price ceiling. b. and sellers would lobby for a price ceiling. c. and sellers would lobby for a price floor. d. would lobby for a price ceiling, whereas sellers would lobby for a price floor.
D
Dioxin emission that results from the production of paper is a good example of a negative externality because a. toxic emissions are the best example of an externality. b. self-interested paper firms are generally unaware of environmental regulations. c. There are fines for producing too much dioxin. d. self-interested paper producers will not consider the full cost of the dioxin pollution they create.
D
Diseconomies of scale occur when a firm's a. marginal costs are equal to average total costs for all levels of output. b. marginal costs are constant as output increases. c. long-run average total costs are decreasing as output increases. d. long-run average total costs are increasing as output increases.
D
Economists assume that the typical person who starts her own business does so with the intention of a. donating the profits from her business to charity. b. minimizing costs. c. capturing the highest number of sales in her industry. d. maximizing profits.
D
Fixed costs can be defined as costs that a. vary inversely with production. b. vary in proportion with production. c. are incurred only when production is large enough. d. are incurred even if nothing is produced.
D
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 a. production of the 99th unit of output must increase the firm's profit by less than $3. b. firm's profit-maximizing level of output is less than 100 units. c. production of the 100th unit of output increases the firm's average total cost by $7. d. production of the 100th unit of output increases the firm's profit by $3.
D
If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then a. a one-unit increase in output will increase the firm's profit. b. total cost exceeds total revenue. c. total revenue exceeds total cost. d. a one-unit decrease in output will increase the firm's profit.
D
If a sawmill 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 allocate resources efficiently. c. a sense of social responsibility will cause owners of the mill to reduce noise levels. d. the government can raise economic well-being through noise-control regulations.
D
If a tax is imposed on a market with inelastic demand and elastic supply, then a. sellers will bear most of the burden of the tax. b. the burden of the tax will be shared equally between buyers and sellers. c. it is impossible to determine how the burden of the tax will be shared. d. buyers will bear most of the burden of the tax.
D
If there are many firms participating in a market, the market is either a. an oligopoly or perfectly competitive. b. an oligopoly or monopolistically competitive. c. an oligopoly or a cartel. d. perfectly competitive or monopolistically competitive.
D
In general, game theory is the study of a. oligopolistic markets. b. how people behave when the possible actions of other people are irrelevant. c. all types of markets, including competitive markets, monopolistic markets, and oligopolistic markets. d. how people behave in strategic situations.
D
In order to be successful, a cartel must a. agree on the total level of production for the cartel, but they need not agree on the amount produced by each member. b. find a way to encourage members to produce more than they would otherwise produce. c. agree on the prices charged by each member, but they need not agree on amounts produced. d. agree on the total level of production and on the amount produced by each member.
D
In the long run, a firm will enter a competitive industry if a. total revenue exceeds total cost. b. the price exceeds average total cost. c. the firm can earn economic profits. d. All of the above are correct.
D
Joy sells 200 glasses of iced tea at $0.50 each. Her total costs are $25. Her profits are a. $25. b. $175. c. $100. d. $75.
D
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 a. $100, and her economic profits are $100. b. $0, and her economic profits are $100. c. $0, and her economic profits are $-100. d. $100, and her economic profits are $0.
D
Patent and copyright laws encourage a. creative activity. b. research and development. c. competition among firms. d. Both a and b are correct.
D
Suppose Jan started up a small lemonade stand business last month. Variable costs for Jan's lemonade stand now include the cost of a. lemons and sugar. b. paper cups. c. the wages paid to her hourly workers. d. All of the above are correct.
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. a. (iii) only b. (i) and (ii) only c. (i) only d. (i), (ii), and (iii)
D
The firm's efficient scale is the quantity of output that minimizes a. average fixed cost. b. average variable cost. c. marginal cost. d. average total cost.
D
The minimum wage, if it is binding, lowers the incomes of a. no workers. b. all workers. c. only those workers who have jobs. d. only those workers who become unemployed.
D
The simplest way for a monopoly to arise is for a single firm to a. decrease production to increase demand for its product. b. make pricing decisions jointly with other firms. c. decrease its price below its competitors' prices. d. own a key resource.
D
Tony is a wheat farmer, but he also spends part of his day teaching guitar lessons. Due to the popularity of his local country western band, Farmer Tony has more students requesting lessons than he has time for if he is to also maintain his farming business. Farmer Tony charges $25 an hour for his guitar lessons. One spring day, he spends 10 hours in his fields planting $130 worth of seeds on his farm. He expects that the seeds he planted will yield $300 worth of wheat. Refer to Scenario 13-6. What is the total opportunity cost of the day that Farmer Tony spent in the field planting wheat? a. $250 b. $130 c. $300 d. $380
D
Wanda owns a lemonade stand. She produces lemonade using five inputs: water, sugar, lemons, paper cups, and labor. Her costs per glass are as follows: $0.01 for water, $0.02 for sugar, $0.03 for lemons, $0.02 for cups, and $0.10 for the opportunity cost of her labor. She can sell 300 glasses for $0.50 each. Refer to Scenario 13-7. What are Wanda's explicit costs per glass? a. $0.02 b. $0.10 c. $0.18 d. $0.08
D
Wanda owns a lemonade stand. She produces lemonade using five inputs: water, sugar, lemons, paper cups, and labor. Her costs per glass are as follows: $0.01 for water, $0.02 for sugar, $0.03 for lemons, $0.02 for cups, and $0.10 for the opportunity cost of her labor. She can sell 300 glasses for $0.50 each. Refer to Scenario 13-7. What are Wanda's total accounting profits? a. $150 b. $96 c. $24 d. $126
D
Wanda owns a lemonade stand. She produces lemonade using five inputs: water, sugar, lemons, paper cups, and labor. Her costs per glass are as follows: $0.01 for water, $0.02 for sugar, $0.03 for lemons, $0.02 for cups, and $0.10 for the opportunity cost of her labor. She can sell 300 glasses for $0.50 each. Refer to Scenario 13-7. What are Wanda's total economic costs per glass? a. $0.08 b. $0.02 c. $0.10 d. $0.18
D
When a monopolist increases the number of units it sells, there are two effects on revenue. They are the a. competitive effect and the monopoly effect. b. competition effect and the cost effect. c. demand effect and the supply effect. d. output effect and the price effect.
D
When fixed costs are ignored because they are irrelevant to a business's production decision, they are called a. opportunity costs. b. explicit costs. c. implicit costs. d. sunk costs.
D
When marginal cost exceeds average total cost, a. average fixed cost must be rising. b. marginal cost must be falling. c. average total cost must be falling. d. average total cost must be rising.
D
Which of the following is an example of an externality? a. cigarette smoke that permeates an entire restaurant b. a flu shot that prevents a student from transmitting the virus to her roommate c. a beautiful flower garden outside of the local post office d. All of the above are correct.
D
Which of the following is not an example of a barrier to entry? a. A pharmaceutical company obtains a patent for a specific high blood pressure medication. b. Mighty Mitch's Mining Company owns a unique plot of land in Tanzania, under which lies the only large deposit of Tanzanite in the world. c. A musician obtains a copyright for her original song. d. An entrepreneur opens a popular new restaurant.
D
Which of the following is the most likely explanation for the imposition of a price floor on the market for corn? a. Buyers and sellers of corn have agreed that the price floor is good for both of them and have therefore pressured policy makers into imposing the price floor. b. Policymakers have studied the effects of the price floor carefully, and they recognize that the price floor is advantageous for society as a whole. c. Buyers of corn, recognizing that the price floor is good for them, have pressured policymakers into imposing the price floor. d. Sellers of corn, recognizing that the price floor is good for them, have pressured policymakers into imposing the price floor.
D
Which of the following statements best expresses a firm's profit-maximizing decision rule? a. If marginal revenue is greater than marginal cost, the firm should increase its output. b. If marginal revenue is less than marginal cost, the firm should decrease its output. c. If marginal revenue equals marginal cost, the firm should continue producing its current level of output. d. All of the above are correct.
D
Which of the following statements is correct? a. When a monopolist produces where price equals the minimum of average total cost, it earns a positive economic profit. b. If the monopolist is earning a positive economic profit, it must be producing where MR = MC. c. If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling fewer units at a higher price per unit. d. If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling more units at a lower price per unit.
D
Which of the following is not a characteristic of a competitive market? a. Buyers and sellers are price takers. b. Each firm sells a virtually identical product. c. Each firm chooses an output level that maximizes profits. d. Entry is limited.
E
implicit costs
are input costs that do not require an outlay of money by the firm, i.e., the opportunity cost of the owner's time.
explicit costs
are input costs that require an outlay of money by the firm, i.e., paying wages.
marginal revenue
is the change in total revenue from an additional unit sold.
marginal product
the increase in output arising from an additional unit of that input, holding all other inputs constant.
