Micro Exam 2

What are "economies of scale"?

A proportionate saving in costs gained by an increased level of production

How does a competitive firm determine the quantity that maximizes profits?

MR=P

Refer to Table 13-3. At which number of workers does diminishing marginal product begin? a. 1 b. 2 c. 3 d. 4

b. 2

Refer to Table 14-14. At what quantity will Bob maximize his profit? a. 5 units b. 6 units c. 7 units d. 8 units

b. 6 units

Refer to Table 14-14. When Bob produces and sells the profit-maximizing quantity, how much profit does he earn? a. $0.25 b. $2.75 c. $4.00 d. $5.25

c. $4.00

What is a perfectly competitive market?

(i) there are many buyers and sellers, so each buyer or seller is a price taker, (ii) all sellers supply the same, identical product.

What determines how much of a good a country will import and export?

A low domestic price indicates that the country has a comparative advantage in producing the good and that the country will become an exporter. A high domestic price indicates that the rest of the world has a comparative advantage in producing the good and that the country will become an importer.

What is a production function? What is marginal product? How are they related?

A production function shows the relationship between the quantity of inputs used to produce a good, and the quantity of output of that good. The marginal product of any input is the increase in output arising from an additional unit of that input, holding all other inputs constant.

How does a tax affect consumer surplus, producer surplus, and total surplus?

A tax reduces producer and consumer surplus, so total surplus also reduces. They cause buyers to buys less and sellers to sell less.

How does tax revenue depend on the size of the tax?

As a tax gets larger, it distorts incentives more, and its deadweight loss grows larger. Because a tax reduces the size of a market, tax revenue does not continually increase. It first rises with the size of a tax, but if a tax gets large enough, tax revenue starts to fall.

What are the various costs, and how are they related to each other and to output?

Average total cost, average variable cost, average fixed cost, and marginal cost

What is consumer surplus? How is it related to the demand curve?

Consumer surplus is the difference between the maximum price a consumer is willing to pay and the actual price they do pay

What is the deadweight loss of a tax?

Deadweight loss is the fall in total surplus that results when a tax distorts market outcome.

If policy-makers restrict imports, who benefits? Who is harmed? Do the gains from restricting imports outweigh the losses?

Domestic sellers are better off and domestic buyers are worse off. Although domestic producers are better off, the losses to consumers exceed these gains.

What factors determine the size of the deadweight loss?

Elasticity of supply and demand determine deadweight loss. When supply is relatively inelastic, the deadweight loss of a tax is small. When supply is relatively elastic, the deadweight loss of a tax is large. When demand is relatively inelastic, the deadweight loss of a tax is small. When demand is relatively elastic, the deadweight loss of a tax is large.

What is the largest source of tax revenue?

Federal income tax

How can we evaluate the equity of a tax system?

How fair the tax burden is spread throughout

Use a graph to demonstrate the circumstances that would prevail in a competitive market where firms are earning economic profits. Can this scenario be maintained in the long run? Explain your answer.

In a competitive market where firms are earning economic profits, new firms will have an incentive to enter the market. This entry will expand the number of firms, increase the quantity of the good supplied, and drive down prices and profits. Entry will cease once firms are producing the output level where price equals the minimum of the average total cost curve, meaning that each firm earns zero economic profits in the long run. (Graph on answer sheet 14)

What is marginal revenue? How is it related to total and average revenue?

Marginal revenue (MR) is the addition to total revenue as a result of a small increase in the sale of a firm. Total revenue is the total sale proceeds of a firm by selling a commodity at a given price. Average Revenue (AR) is the average receipts from the sale of certain units of the commodity.

What is producer surplus? How is it related to the supply curve?

Producer surplus is the difference between the amount producers get for selling a good and the amount they want to accept for that good

What does the market supply curve look like in the short run? In the long run?

SR and LR

When might a competitive firm shut down in the short run? Exit the market in the long run?

Short run- TR<VC or P<AVC Long run- TR<TC or P<ATC

How are costs different in the short run vs. the long run?

Short run= some inputs are fixed Long run=all inputs are variable

What are some common arguments for restricting trade? Do they have merit?

The Jobs Argument- Trade with other countries destroys domestic jobs. But, free trade creates jobs at the same time it destroys them. The National-Security Argument- When an industry is threatened with competition from other countries opponents of free trade argue that the industry is vital for national security. But, this argument is used to quickly by producers eager to gain at consumers' expense. The Infant-Industry Argument- Temporary trade restrictions can help new industries get started. But, it is hard to determine which industries will eventually be profitable and whether the benefits of establishing these industries exceed the costs of this protection to consumers. The Unfair-Competition Argument- Free trade is only desirable if all countries play by the same rules. But, the gains of the consumers are higher than the losses for producers. The Production-as-a-Bargaining-Chip Argument- Trade restrictions can be useful when we bargain with our trading partners. But, the threat may not work.

Do markets produce a desirable allocation of resources? Or could market outcome be improved upon?

The forces of supply and demand allocate resources efficiently. They are led together by an invisible hand to an equilibrium that maximizes total benefits to buyers and sellers. Under perfect competition the market outcome is efficient. Altering it would reduce total surplus. Markets do not allocate resources efficiently in the presence of market failure and externalities.

What are the efficiency costs of taxes?

The tax payment itself, deadweight losses, and administrative burden

Who benefits from trade? Who does trade harm? Do the gains outweigh the losses?

When a country allows trade and becomes an importer of a good, domestic consumers are better off and domestic producers are worse off. Trade raises the economic well-being of a nation in the sense that the gains of the winners exceed the losses of the losers.

Refer to Figure 8-4. The price that buyers effectively pay after the tax is imposed is a. $12. b. between $8 and $12. c. between $5 and $8. d. $5.

a. $12.

Refer to Figure 8-4. The amount of tax revenue received by the government is equal to a. $245. b. $350. c. $490. d. $700.

a. $245.

Refer to Table 13-3. The marginal product of the fourth worker is a. 10 units. b. 60 units. c. 230 units. d. 240 units.

a. 10 units.

Refer to Figure 7-10. Which area represents producer surplus when the price is P1? a. BCG b. ACH c. ABGD d. DGH

a. BCG

Refer to Figure 14-13. If the price is $4.50 in the short run, what will happen in the long run? a. Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry. b. Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry. c. Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry. d. Because the price is below the firm's average variable costs, the firms will shut down.

a. Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry.

When a firm is making a profit-maximizing production decision, which of the following principles of economics is likely to be most important to the firm's decision? a. The cost of something is what you give up to get it. b. A country's standard of living depends on its ability to produce goods and services. c. Prices rise when the government prints too much money. d. Governments can sometimes improve market outcomes.

a. The cost of something is what you give up to get it.

Scenario 14-4 The information below applies to a competitive firm that sells its output for $40 per unit. • When the firm produces and sells 150 units of output, its average total cost is $24.50. • When the firm produces and sells 151 units of output, its average total cost is $24.55. Refer to Scenario 14-4. Suppose the firm is currently producing and selling 150 units of output. Should the firm increase its output to 151 units? a. Yes, because the marginal revenue exceeds the marginal cost. b. Yes, because the marginal revenue exceeds the average total cost. c. No, because the marginal cost exceeds the marginal revenue. d. No, because the average total cost exceeds the marginal revenue.

a. Yes, because the marginal revenue exceeds the marginal cost.

The price elasticities of supply and demand affect a. both the size of the deadweight loss from a tax and the tax incidence. b. the size of the deadweight loss from a tax but not the tax incidence. c. the tax incidence but not the size of the deadweight loss from a tax. d. neither the size of the deadweight loss from a tax nor the tax incidence.

a. both the size of the deadweight loss from a tax and the tax incidence.

When a tax on a good is enacted, a. buyers and sellers share the burden of the tax regardless of whether the tax is levied on buyers or on sellers. b. buyers always bear the full burden of the tax. c. sellers always bear the full burden of the tax. d. sellers bear the full burden of the tax if the tax is levied on them; buyers bear the full burden of the tax if the tax is levied on them.

a. buyers and sellers share the burden of the tax regardless of whether the tax is levied on buyers or on sellers.

Corn chips and potato chips are substitutes. Good weather that sharply increases the corn harvest would a. increase consumer surplus in the market for corn chips and decrease producer surplus in the market for potato chips. b. increase consumer surplus in the market for corn chips and increase producer surplus in the market for potato chips. c. decrease consumer surplus in the market for corn chips and increase producer surplus in the market for potato chips. d. decrease consumer surplus in the market for corn chips and decrease producer surplus in the market for potato chips.

a. increase consumer surplus in the market for corn chips and decrease producer surplus in the market for potato chips.

The cost of producing an additional unit of output is the firm's a. marginal cost. b. productivity offset. c. variable cost. d. average variable cost.

a. marginal cost.

Shrimp Galore, a shrimp harvesting business in the Pacific Northwest, has a 30-year loan on its shrimp harvesting boat. The annual loan payment is $25,000 and the boat has a market (salvage) value that exceeds its outstanding loan balance. Prior to the 2010 shrimp harvesting season, Shrimp Galore's accountant predicted that at expected market prices for shrimp, Shrimp Galore would have a net loss of $75,000 dollars after paying all 2010 expenses (including the annual loan payment). In this case, Shrimp Galore should a. produce nothing and experience a loss of $25,000. b. produce nothing and experience a loss of $75,000. c. continue to operate because expected profits will rise in the future. d. continue to operate even though it predicts a loss of $75,000.

a. produce nothing and experience a loss of $25,000.

Deadweight losses are associated with a. taxes that distort the incentives that people face. b. taxes that target expenditures on survivor's benefits for Social Security. c. taxes that have no efficiency losses. d. lump-sum taxes.

a. taxes that distort the incentives that people face.

If a country allows trade and, for a certain good, the domestic price without trade is lower than the world price, a. the country will be an exporter of the good. b. the country will be an importer of the good. c. the country will be neither an exporter nor an importer of the good. d. Additional information is needed about demand to determine whether the country will be an exporter of the good, an importer of the good, or neither.

a. the country will be an exporter of the good.

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 tax rate to tax revenue raised by the tax.

Refer to Table 14-14. Suppose that due to a decrease in the market demand for bread the market price of bread drops to $2.75. At this new price, if Bob produces and sells the profit-maximizing quantity, how much profit will he earn? a. $0.25 b. $1.25 c. $2.25 d. The firm will lose $6.25.

b. $1.25

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. $100, and her economic profits are $0. c. $0, and her economic profits are $100. d. $0, and her economic profits are $-100.

b. $100, and her economic profits are $0.

Refer to Figure 7-14. If the government imposes a price ceiling of $50 in this market, then the new producer surplus will be a. $200. b. $100. c. $125. d. $250.

b. $100.

Scenario 13-11 Walter builds birdhouses. He spends $5 on the materials for each birdhouse. He can build one in 30 minutes. He is semi-retired but earns $8 per hour at the local hardware store. He can sell a birdhouse for $20 each. 5. Refer to Scenario 13-11. An economist would calculate the total profit for one birdhouse to be a. $7. b. $11. c. $12. d. $15.

b. $11.

Scenario 14-4 The information below applies to a competitive firm that sells its output for $40 per unit. • When the firm produces and sells 150 units of output, its average total cost is $24.50. • When the firm produces and sells 151 units of output, its average total cost is $24.55. Refer to Scenario 14-4. When the firm produces 150 units of output, its profit is a. $2,150.00. b. $2,325.00. c. $3,100.75. d. $3,675.00.

b. $2,325.00.

Refer to Table 7-10. If the market price is $1,000, the producer surplus in the market is a. $1000. b. $300. c. $1,700. d. $700.

b. $300.

Refer to Figure 8-4. The equilibrium price before the tax is imposed is a. $12, and the equilibrium quantity is 35. b. $8, and the equilibrium quantity is 50. c. $5, and the equilibrium quantity is 35. d. $5, and the equilibrium quantity is 50.

b. $8, and the equilibrium quantity is 50.

Refer to Table 13-3. If the firm can sell its output for $1 per unit, what is the profit-maximizing level of output? a. 240 units b. 230 units c. 190 units d. 170 units

b. 230 units

Suppose there is an early freeze in California that reduces the size of the lemon crop. What happens to consumer surplus in the market for lemons? a. Consumer surplus increases. b. Consumer surplus decreases. c. Consumer surplus is not affected by this change in market forces. d. We would have to know whether the demand for lemons is elastic or inelastic to make this determination.

b. Consumer surplus decreases.

Refer to Figure 14-13. If the price is $6 in the short run, what will happen in the long run? a. Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry. b. Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry. c. Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry. d. Because the price is below the firm's average variable costs, the firms will shut down.

b. Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry.

Table 7-7 Buyer Willingness to Pay Michael $500 Earvin $400 Larry $350 Charles $300 Refer to Table 7-7. You have an extra ticket to the Midwest Regional Sweet 16 game in the men's NCAA basketball tournament. The table shows the willingness to pay of the four potential buyers in the market for a ticket to the game. You hold an auction to sell the ticket. Who makes the winning bid, and what does he offer to pay for the ticket? a. Michael; $501 b. Michael; more than $400 but less than or equal to $500 c. Earvin; $400 d. Earvin; more than $350 but less than or equal to $400

b. Michael; more than $400 but less than or equal to $500

Which of the following is a tax on labor? a. Medicare tax b. Social Security tax c. federal income tax d. All of the above are labor taxes.

b. Social Security tax

At present, the United States uses a system of quotas to limit the amount of sugar imported into the country. Which of the following statements is most likely true? a. The quotas are probably the result of lobbying from U.S. consumers of sugar. The quotas increase consumer surplus for the United States, reduce producer surplus for the United States, and harm foreign sugar producers. b. The quotas are probably the result of lobbying from U.S. producers of sugar. The quotas increase producer surplus for the United States, reduce consumer surplus for the United States, and harm foreign sugar producers. c. The quotas are probably the result of lobbying from foreign producers of sugar. The quotas reduce producer surplus for the United States, increase consumer surplus for the United States, and benefit foreign sugar producers. d. U.S. lawmakers did not need to be lobbied to impose the quotas because total surplus for the United States is higher with the quotas than without them.

b. The quotas are probably the result of lobbying from U.S. producers of sugar. The quotas increase producer surplus for the United States, reduce consumer surplus for the United States, and harm foreign sugar producers.

Refer to Figure 14-14. Assume that the market starts in equilibrium at point W in panel (b). An increase in demand from D0 to D1 will result in a. a new market equilibrium at point X. b. an eventual increase in the number of firms in the market and a new long-run equilibrium at point Z. c. rising prices and falling profits for existing firms in the market. d. falling prices and falling profits for existing firms in the market.

b. an eventual increase in the number of firms in the market and a new long-run equilibrium at point Z.

A country has a comparative advantage in a product if the world price is a. lower than that country's domestic price without trade. b. higher than that country's domestic price without trade. c. equal to that country's domestic price without trade. d. not subject to manipulation by organizations that govern international trade.

b. higher than that country's domestic price without trade.

If a tax takes a smaller fraction of income as income rises, it is a. proportional. b. regressive. c. progressive. d. based on the ability-to-pay principle.

b. regressive.

A seller is willing to sell a product only if the seller receives a price that is at least as great as the a. seller's producer surplus. b. seller's cost of production. c. seller's profit. d. average willingness to pay of buyers of the product.

b. seller's cost of production.

Many economists believe that the U.S. tax system would be made more efficient if the basis of taxation were changed so that people paid taxes, more so than they do now, based on their a. saving rather than their income. b. spending rather than their income. c. income rather than their wealth. d. wealth rather than their spending.

b. spending rather than their income.

A consumption tax is a tax on a. goods but not on services. b. the amount of income that people spend. c. the amount of income that people earn. d. the amount of income that people save.

b. the amount of income that people spend.

Refer to Figure 7-19. At the equilibrium price, total surplus is a. $125. b. $450. c. $250. d. $500.

c. $250.

Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000. What are the tax liability and the marginal tax rate for a person whose income is $30,000? a. both are 10 percent b. 10 percent and $2,000, respectively c. $3,000 and 10 percent, respectively d. $3,000 and 20 percent, respectively

c. $3,000 and 10 percent, respectively

Scenario 14-4 The information below applies to a competitive firm that sells its output for $40 per unit. • When the firm produces and sells 150 units of output, its average total cost is $24.50. • When the firm produces and sells 151 units of output, its average total cost is $24.55. 8. Refer to Scenario 14-4. When the firm produces 150 units of output, its total cost is a. $3,450.00. b. $3,525.75. c. $3,675.00. d. $3,850.25.

c. $3,675.00.

Refer to Figure 8-4. The amount of deadweight loss as a result of the tax is a. $35.00. b. $45.25. c. $52.50. d. $105.00.

c. $52.50.

Refer to Table 13-6. Each worker at the Wooden Chair Factory costs $12 per hour. The cost of each machine is $20 per day regardless of the number of chairs produced. What is the total daily cost of producing at a rate of 55 chairs per hour if the factory operates 8 hours per day? a. $480 b. $576 c. $520 d. $616

c. $520

Scenario 14-4 Victor is the recipient of $1 million from a lawsuit. Victor decides to use the money to purchase a small business in Florida. His business operates in a perfectly competitive industry. If Victor would have invested the $1 million in a risk-free bond fund, he could have earned $100,000 each year. After he bought the small business, Victor quit his job as a market analyst with Research, Inc., where he used to earn $75,000 per year. Refer to Scenario 14-4. At the end of the first year of operating his new business, Victor's accountant reported an accounting profit of $150,000. What was Victor's economic profit? a. -$150,000 b. -$50,000 c. -$25,000 d. $25,000

c. -$25,000

Refer to Figure 7-3. When the price is P1, consumer surplus is... a. A b. A+B c. A+B+C d. A+B+D

c. A+B+C

In the long run, a firm will exit a competitive industry if a. total revenue exceeds total cost. b. the price exceeds average total cost. c. average total cost exceeds the price. d. Both a and b are correct.

c. average total cost exceeds the price.

If a government sells debt to help meet its expenditures, then the government has a a. budget surplus. Other things the same, the surplus rises if government expenditures rise. b. budget surplus. Other things the same, the surplus rises if government expenditures fall. c. budget deficit. Other things the same, the deficit rises if government expenditures rise. d. budget deficit. Other things the same the deficit rises if government expenditures fall

c. budget deficit. Other things the same, the deficit rises if government expenditures rise.

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then a. average revenue exceeds marginal cost. b. the firm is earning a positive profit. c. decreasing output would increase the firm's profit. d. All of the above are correct.

c. decreasing output would increase the firm's profit.

When a country allows trade and becomes an importer of a good, a. both domestic producers and domestic consumers become better off. b. domestic producers become better off, and domestic consumers become worse off. c. domestic producers become worse off, and domestic consumers become better off. d. both domestic producers and domestic consumers become worse off.

c. domestic producers become worse off, and domestic consumers become better off.

In a competitive market, the actions of any single buyer or seller will a. discourage entry by competitors. b. influence the profits of other firms in the market. c. have a negligible impact on the market price. d. None of the above is correct.

c. have a negligible impact on the market price.

Bubba is a shrimp fisherman who could earn $5,000 as a fishing tour guide. Instead, he is a full-time shrimp fisherman. In calculating the economic profit of his shrimp business, the $5,000 that Bubba gave up is counted as part of the shrimp business's a. total revenue. b. explicit costs. c. implicit costs. d. marginal costs.

c. implicit costs.

The two taxes that together provide the U.S. federal government with almost 80 percent of its revenue are a. individual income taxes and property taxes. b. individual income taxes and corporate income taxes. c. individual income taxes and payroll taxes. d. sales taxes and payroll taxes.

c. individual income taxes and payroll taxes.

Suppose New York City passes a local "big gulp" tax that taxes carbonated beverages larger than 20 ounces if they contain sugar or high fructose corn syrup. If the revenue from the "big gulp" tax is earmarked for diabetes research, the "big gulp" tax may be justified a. on the basis of the ability-to-pay principle. b. because it is an example of a lump-sum tax and thus is the most efficient tax. c. on the basis of the benefits principle. d. because it is an example of a progressive tax and thus is the most equitable tax.

c. on the basis of the benefits principle.

All of the following are transfer payments except a. welfare payments. b. unemployment compensation. c. personal income taxes. d. Social Security.

c. personal income taxes.

For a firm, the production function represents the relationship between a. implicit costs and explicit costs. b. quantity of inputs and total cost. c. quantity of inputs and quantity of output. d. quantity of output and total cost.

c. quantity of inputs and quantity of output.

When market conditions in a competitive industry are such that firms cannot cover their total production costs, then a. the firms will suffer long-run economic losses. b. the firms will suffer short-run economic losses that will be exactly offset by long-run economic profits. c. some firms will exit the market, causing prices to rise until the remaining firms can cover their total production costs. d. all firms will go out of business, since consumers will not pay prices that enable firms to cover their total production costs.

c. some firms will exit the market, causing prices to rise until the remaining firms can cover their total production costs.

Suppose the tax on automobile tires is increased so that the tax goes from being a "medium" tax to being a "large" tax. As a result, it is likely that a. tax revenue increases, and the deadweight loss increases. b. tax revenue increases, and the deadweight loss decreases. c. tax revenue decreases, and the deadweight loss increases. d. tax revenue decreases, and the deadweight loss decreases.

c. tax revenue decreases, and the deadweight loss increases.

Farmer McDonald sells wheat to a broker in Kansas City, Missouri. Because the market for wheat is generally considered to be competitive, Mr. McDonald maximizes his profit by choosing a. to produce the quantity at which average variable cost is minimized. b. to produce the quantity at which average fixed cost is minimized. c. the quantity at which market price is equal to Mr. McDonald's marginal cost of production. d. the quantity at which market price exceeds Mr. McDonald's marginal cost of production by the greatest amount.

c. the quantity at which market price is equal to Mr. McDonald's marginal cost of production.

Tom's Tent Company has total fixed costs of $300,000 per year. The firm's average variable cost is $80 for 10,000 tents. At that level of output, the firm's average total costs equal a. $80 b. $90 c. $100 d. $110

d. $110

Scenario 13-11 Walter builds birdhouses. He spends $5 on the materials for each birdhouse. He can build one in 30 minutes. He is semi-retired but earns $8 per hour at the local hardware store. He can sell a birdhouse for $20 each. 4. Refer to Scenario 13-11. An accountant would calculate the total profit for one birdhouse to be a. $7. b. $11. c. $12. d. $15.

d. $15.

Scenario 14-4 Victor is the recipient of $1 million from a lawsuit. Victor decides to use the money to purchase a small business in Florida. His business operates in a perfectly competitive industry. If Victor would have invested the $1 million in a risk-free bond fund, he could have earned $100,000 each year. After he bought the small business, Victor quit his job as a market analyst with Research, Inc., where he used to earn $75,000 per year. Refer to Scenario 14-4. What is Victor's opportunity costs of operating his new business? a. $25,000 b. $75,000 c. $100,000 d. $175,000

d. $175,000

Scenario 14-4 The information below applies to a competitive firm that sells its output for $40 per unit. • When the firm produces and sells 150 units of output, its average total cost is $24.50. • When the firm produces and sells 151 units of output, its average total cost is $24.55. Refer to Scenario 14-4. Suppose the firm is producing 150 units of output and its fixed cost is $975. Then its variable cost amounts to a. $2,360.25. b. $2,500.00. c. $2,612.75. d. $2,700.00.

d. $2,700.00.

Refer to Figure 8-4. The price that sellers effectively receive after the tax is imposed is a. $12. b. between $8 and $12. c. between $5 and $8. d. $5.

d. $5.

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. (i) only b. (iii) only c. (i) and (ii) only d. (i), (ii), and (iii)

d. (i), (ii), and (iii)

Kate is a florist. Kate can arrange 20 bouquets per day. She is considering hiring her husband William to work for her. Together Kate and William can arrange 35 bouquets per day. What is William's marginal product? a. 55 bouquets b. 35 bouquets c. 22.5 bouquets d. 15 bouquets

d. 15 bouquets

Refer to Figure 14-9. If there are 300 identical firms in this market, what level of output will be supplied to the market when price is $2.00? a. 300 b. 6,000 c. 30,000 d. 60,000

d. 60,000

Refer to Figure 14-13. If the price is $2 in the short run, what will happen in the long run? a. Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry. b. Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry. c. Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry. d. Because the price is below the firm's average variable costs, the firms will shut down.

d. Because the price is below the firm's average variable costs, the firms will shut down.

Marginal cost is equal to average total cost when a. average variable cost is falling. b. average fixed cost is rising. c. marginal cost is at its minimum. d. average total cost is at its minimum.

d. average total cost is at its minimum.

In the long run a company that produces and sells popcorn incurs total costs of $1,050 when output is 90 canisters and $1,200 when output is 120 canisters. The popcorn company exhibits a. diseconomies of scale because total cost is rising as output rises. b. diseconomies of scale because average total cost is rising as output rises. c. economies of scale because total cost is rising as output rises. d. economies of scale because average total cost is falling as output rises.

d. economies of scale because average total cost is falling as output rises.

When a tax is imposed on a good, the a. supply curve for the good always shifts. b. demand curve for the good always shifts. c. amount of the good that buyers are willing to buy at each price always remains unchanged. d. equilibrium quantity of the good always decreases.

d. equilibrium quantity of the good always decreases.

Scenario 14-4 The information below applies to a competitive firm that sells its output for $40 per unit. • When the firm produces and sells 150 units of output, its average total cost is $24.50. • When the firm produces and sells 151 units of output, its average total cost is $24.55. Refer to Scenario 14-4. When the firm increases its output from 150 units to 151 units, its profit a. decreases by $5.75. b. decreases by $7.20. c. increases by $4.15. d. increases by $7.95.

d. increases by $7.95.

State and local governments receive the largest portion of their tax revenues from a. sales taxes and income taxes. b. income taxes and property taxes. c. payroll taxes and income taxes. d. property taxes and sales taxes.

d. property taxes and sales taxes.

"A $1,000 tax paid by a poor person may be a larger sacrifice than a $10,000 tax paid by a wealthy person" is an argument in favor of a. the horizontal equity principle. b. the benefits principle. c. a regressive tax argument. d. the ability-to-pay principle.

d. the ability-to-pay principle.

In the short run, a firm incurs fixed costs a. only if it incurs variable costs. b. only if it produces no output. c. only if it produces a positive quantity of output. d. whether it produces output or not.

d. whether it produces output or not.