Chapter 6 Microeconomics

The government promises to buy ventilators at an​ above-market price. Will ventilator production​ increase? ​A. No, the government promising to buy ventilators at an​ above-market price will have no impact on production. ​B. Yes, when prices​ rise, the quantity supplied rises as well. ​C. No, if the government pays an​ above-market price, it will result in a decrease in production.

B

Earlier in the day you found a​ $10 bill on the​ ground, which makes you feel less guilty about wasting​ $30. A. This extra money decreases the opportunity cost of​ studying, making you more likely to skip the show. B. This does not impact your decision since it is still a sunk cost. C. This extra money will make you more likely to attend the show.

B

If the firm were facing MR2​, then we know that this firm should​ __________. A. shut​ down, since it is incurring a loss that is greater than the fixed costs that must be paid if it shuts down. B. keep​ producing, even though it is incurring a loss it is less than the fixed costs that must be paid if it shuts down. C. keep​ producing, since it is making a profit at the​ profit-maximizing output. D. shut​ down, since it is incurring a loss and when a firm earns less than zero​ profit, it should shut down.

B

Under which of the following examples is it likely that the accounting profit is positive and the economic profit is​ negative? A. Opening a McDonald's franchise in a college town. B. If you open an amusement park in the middle of New York City. C. Using a store in the mall to sell clothes instead of shoes. D. Such a​ scenario, where accounting cost is positive and economic profit is​ negative, is not possible.

B

Assume that the market for chocolates is perfectly competitive. Which of the following statements would be true in this​ case? A. Jill starts to produce chocolates​ today, but the addition of her supply into the market does not decrease the market price. B. Pam wants to produce chocolates but she is unable to as Roy controls all the cocoa farms in the region. C. ​Jessica, a chocolate​ seller, sometimes sets her price lower or higher than the price at which other sellers sell their chocolates. D. Terry uses soy milk for producing his​ chocolates, while Donna uses almond milk for producing hers.

A

Via tax​ subsidies, the government reduces the cost of labor and parts. Will ventilator production​ increase? ​A. Yes, the subsidy will lower cost and encourage entry into the​ market, causing production to increase. ​B. No, the subsidy will change how many units consumers​ demand, but it will not impact production. C. No, if the government subsidizes​ production, it will incentive firms to save money and cut production.

A

Town B is considering imposing a​ $1 tax on each hamburger​ sold; the tax is to be paid by the hamburger stands in the town. Assuming that the market for hamburgers is perfectly​ competitive, which of the following are​ true? ​(Check all that apply.​) A. It would change a hamburger​ stand's short-run​ profit-maximizing choice of the number of hamburgers to produce. B. The tax would shift a hamburger​ stand's marginal cost curve. C. The tax would shift a hamburger​ stand's short-run average variable cost curve. D. The tax would shift a hamburger​ stand's short-run average fixed cost curve.

A, B, and C

If it costs a firm ​$3,000 to produce400 shirts and ​$6,500 to produce 900 ​shirts, then: A. the firm is experiencing constant returns to scale. B. the firm is experiencing diseconomies of scale. C. the firm is experiencing economies of scale. D. the firm is experiencing​ long-run efficiency problems.

C

Is it possible for accounting profit to be positive and economic profit to be​ negative? ​ A. Yes, this could occur if implicit costs were modest and explicit costs were high. ​B. No, economic profit and accounting profit will always end up being the same. ​C. No, economic profit must always be larger than accounting profit. ​D. Yes, this could occur if explicit costs were modest and implicit costs were high.

D

The​ long-run supply curve is the portion of the MC​ curve: A. above the AVC curve. B. below the ATC curve. C. below the AVC curve. D. above the ATC curve.

D

All firms in a perfectly competitive market are said to be​ __________. A. price neutral. B. price takers. C. profitable in the long run. D. price leaders.

B

How would the introduction of legal or technical barriers to entry affect the​ long-run equilibrium in a perfectly competitive​ market? A. It would make all firms in the market less​ competitive, since any artificial barrier hurts the market overall. B. It would reduce any downward pressure on prices from entry and allow economic profits in the long run. C. It would create downward pressure on​ prices, causing firms to exit the market. D. There would be no effect on the​ market, since there are no barriers to entry in perfectly competitive markets.

B

Months ago you spent​ $30 on a ticket to see your favorite musician.​ However, you start having doubts the day of the show because you do not feel prepared for an exam the following day. Which of the following bits of information should​ (according to the ideas about sunk costs discussed in the​ chapter) influence your final​ decision? You notice a mistake on your credit card​ statement! You paid​ $20 for the​ ticket, not​ $30. A. This lower cost will make you more likely to attend the show. B. This does not impact your decision since it is still a sunk cost. C. This lower cost decreases the opportunity cost of​ studying, making you more likely to skip the show.

B

Suppose one firm accounts for 55 percent of the global market share for a​ product, while 147 other firms account for the remaining 45 percent of the market. With such a large number of buyers and​ sellers, is this market likely to be​ competitive? ​A. Yes, markets are only competitive if there is at least one firm large enough to act as a price setter for all other firms. B. ​No, even though there are many firms in the​ market, there is one firm large enough to influence the market price. ​C. Yes, a competitive market is characterized by having many​ firms, regardless of size. ​D. No, even with such a large number of buyers and​ sellers, there must be barriers to entry for this market to stay competitive.

B

Suppose ventilator manufacturers are​ profit-maximizing firms with costs outlined in this chapter​ (large fixed cost and increasing marginal​ costs). These firms typically operate in a competitive​ market, though the government is considering the following policies to boost production. For each​ policy, explain whether production will in fact increase. The government gives each firm a large sum of money with no strings attached. Will ventilator production​ increase? ​A. No, the large sum of money will increase marginal​ revenue, making it profitable for firms to decrease production. ​B. No, a​ no-strings attached sum of money will not impact marginal revenue or marginal​ cost, so production will remain unchanged. ​C. Yes, the large sum of money will induce all firms to increase production.

B

Do firms 1 and 2 experience economies of​ scale? Or do they experience diseconomies of​ scale? A. Both firms are experiencing economies of scale. B. Both firms are experiencing diseconomies of scale. C. Firm 1 is experiencing economies of​ scale, while firm 2 is experiencing diseconomies of scale. D. Firm 1 is experiencing diseconomies of​ scale, while firm 2 is experiencing economies of scale.

C

If the firm were facing MR3​, then we know that this firm should​ __________. A. keep​ producing, since it is making a profit at the​ profit-maximizing output. B. shut​ down, since it is incurring a loss and when a firm earns less than zero​ profit, it should shut down. C. shut​ down, since it is incurring a loss that is greater than the fixed costs that must be paid if it shuts down. D. keep​ producing, even though it is incurring a loss it is less than the fixed costs that must be paid if it shuts down.

C

In a competitive​ market, if economic profits​ exist, then: A. the market supply curve will shift leftward and the price will decrease. B. the market supply curve will shift rightward and the price will increase. C. the market supply curve will shift rightward and the price will decrease. D. the market supply curve will shift leftward and the price will increase.

C

In the long​ run, the supply curve for a perfectly competitive firm is represented by​ __________. A. the portion of the marginal cost curve above average variable cost. B. the portion of the average variable cost curve above marginal cost. C. the portion of the marginal cost curve above average total cost. D. the portion of the average variable cost curve below marginal cost.

C

The graph on the right shows the​ short-run cost curves and three possible marginal revenue curves for a perfectly competitive firm. If the firm were facing MR1​, then we know that this firm should​ __________. A. keep​ producing, even though it is incurring a loss it is less than the fixed costs that must be paid if it shuts down. B. shut​ down, since it is incurring a loss that is greater than the fixed costs that must be paid if it shuts down. C. keep​ producing, since it is making a profit at the​ profit-maximizing output. D. shut​ down, since it is incurring a loss and when a firm earns less than zero​ profit, it should shut down

C

The long-run supply curve in a perfectly competitive market states that​ _____. A. both the long-run quantity and the equilibrium price increase B. the long-run quantity remains the same while the equilibrium price varies C. the long-run quantity can vary while the equilibrium price returns to the price at the minimum of the average total cost D. both the long-run quantity and the equilibrium price decrease

C

Therefore, the​ short-run supply curve for a perfectly competitive firm is represented by​ __________. A. the portion of the marginal cost curve above average total cost. B. the portion of the average variable cost curve above marginal cost. C. the portion of the marginal cost curve above average variable cost. D. the portion of the average variable cost curve below marginal cost.

C

What is the difference between accounting profit and economic​ profit? A. Economic profit only subtracts implicit costs from total​ revenue, while accounting profit only subtracts explicit costs. B. Accounting profit subtracts both explicit and implicit costs from total​ revenue, while economic profit only subtracts explicit costs. C. Economic profit subtracts both explicit and implicit costs from total​ revenue, while accounting profit only subtracts explicit costs. D. Accounting profit only subtracts implicit costs from total​ revenue, while economic profit only subtracts explicit costs.

C

Which of the following is true about how a firm in a competitive market decides what level of output to produce in order to maximize its​ profit? A. Produce until marginal cost is furthest below average total cost. B. Produce up to the point where price equals average total cost. C. Produce until the additional revenue from one extra unit equals the additional cost of each unit. D. All of the above.

C

You learn there will be free pizza at the​ concert; thus, you will no longer have to spend​ $10 on dinner. A. This does not impact your decision since it is still a sunk cost. B. This lowers the opportunity cost of​ studying, making you more likely to skip the show. C. This lowers the cost of attending the​ concert, making you you more likely to attend the show.

C

You thought there was no hope of reselling the​ ticket, though your roommate just offered to buy it for​ $10. A. This does not impact your decision since it is still a sunk cost. B. The ability to resell the ticket means it is no longer a sunk cost and skipping the show only brings you an additional​ $10, making you more likely to attend the show. C. The ability to resell the ticket means it is no longer a sunk cost and skipping the show brings you an additional​ $10 in​ benefit, making you more likely to skip the show.

C

Minimum efficient scale is the lowest level of output where​ long-run average total cost is minimized. Firm​ 3's minimum efficient scale occurs when the output is​ ______ unit(s). A. 1. B. 4. C. 2. D. 3.

D

Town A is considering imposing a​ lump-sum tax of​ $300 on each hamburger stand in the town. Assuming that the market for hamburgers is perfectly​ competitive, which of the following would​ occur? A. The tax would shift a hamburger​ stand's short-run average variable cost curve. B. The tax would shift a hamburger​ stand's marginal cost curve. C. It would change a hamburger​ stand's short-run​ profit-maximizing choice of the number of hamburgers to produce. D. The tax would shift a hamburger​ stand's short-run average fixed cost curve.

D

Which of the following expressions correctly describes economic​ profits? A. Marginal revenues−implicit costs−explicit costs. B. Marginal revenues−explicit costs. C. Total revenues−explicit costs. D. Total revenues−implicit costs−explicit costs.

D