Font size
WorksheetsEcon Final
Total questions: 137
Worksheet time: 34hrs 15mins
Scarcity in economics means:
the needs of people are limited
the wants of people are limited
there must be poor people in rich countries
shortages exist in nearly all markets
society is unable to produce all the goods and services we want with existing resources
Whenever a choice is made:
The cost of that choice could be referred to as opportunity cost
the cost is easy to measure in dollar terms
efficiency is always improved
scarcity is not a problem
marginal costs are greater than marginal benefits of that choice
(Table 3-1: Production Possibilities Schedule I) The opportunity cost of producing the fourth unit of consumer goods is ____ units of capital goods
2
4
6
8
10
(Figure 3-1: Guns and Butter) Points A, B, E, and F:
indicate combinations of guns and butter that society can produce using all of its factors efficiently
show that the opportunity cost of more guns increases, but that of more butter decreases
indicate that society wants butter more than it wants guns
indicate constant costs for guns an increasing costs for butter
indicate that society is experiencing many idle resources
(Figure 3-1: Guns and Butter) This production possibility curve is:
bowed out from the origin because of increasing opportunity costs
bowed in toward the origin because of increasing opportunity costs
bowed in toward the origin because of constant opportunity costs
linear because of constant opportunity costs
bowed out from the origin because of constant opportunity costs
(Figure 3-2: Strawberries and Submarines) Suppose the economy is operating at point G. This implies that:
the economy can move to a point such as C only if it improves its technology
the economy is experiencing unemployment and/or an inefficient allocation of resources
the economy lacks the resources to achieve a combination such that C
people in this economy don't really like strawberries and submarines
the economy can move to point B, but must sacrifice submarine production to do so
(Figure 3-10: Consumer and Capital Goods II) Technological improvements will likely:
shift the production possibility curve inward to Curve 1
shift the production possibility curve outward to Curve 2
lead to increased unemployment
cause a movement from point C to point A
cause a movement from point B to point C
An economy is said to have a comparative advantage if:
can produce more of all goods than another economy
can produce less of all goods than another economy
has the highest opportunity cost for producing a particular good
has the lowest opportunity cost for producing a particular good
has more economic resources than another country
(Figure: Bicycles and Radishes I) The figure shows production possibility curve for two countries that produce only radishes and bicycles. The axes of both graphs are measured in equivalent units. Country A is now operating at point M, and Country B is operating at point N. The opportunity cost of producing an additional ton of radishes would be:
greater in Country A than in Country B
greater in Country B than in Country A
the same in both countries
greater at point M than at point N
zero for either country if the country was operating on the production possibility curve
(Table 4-1: Coffee and Salmon Production Possibilities) The table shows the maximum amounts of coffee and salmon that Brazil and Alaska can produce if they just produce one good. The opportunity cost of producing 1 unit of coffee for Brazil is:
2 salmon
1/4 salmon
1 salmon
1/2 salmon
20 salmon
Which of the following factors cause a movement along the demand curve for good X?
change in the price of related good Y
change in the price of good X
change in the population
both a change in the price of good X and a change in the population
change in the popularity of good X
Which of the following is most likely to shift the supply of milk to the right?
a tax on each gallon of milk produced
an increase in household income and milk is a normal good
removal of milk subsidies that had previously been given to dairy farmers
the bankruptcy of many small dairy farms
a decrease in the price of feed given to dairy cows
Which of the following will result in an increased price of milk?
a shift to the right of the supply curve for milk
a shift to the right of the demand curve for milk
an increase in the number of milk suppliers
a decrease in the number of milk buyers
an increase in the production technology of milk suppliers
An increase in price and an ambiguous change in quantity is most likely caused by:
a shift to the left in demand and no shift in supply
a shift to the left in supply and no shift in demand
a shuft to the right in supply and a shift to the left in demand
a shift to the right in supply and a shift to the right in demand
a shift to the left in supply and a shift to the right in demand
(Figure 7-5: DVD Market) At a rental price of $3, there will be
equilibrium in the rental market for DVDs
an increase in demand
an excess supply of 40 DVD rentals
an excess demand of 40 DVD rentals
an excess demand of 10 DVD rentals
The price of microchips used to produce computers falls. As a result, the equilibrium price of computers ______ and the equilibrium quantity ______.
rises; increases
rises; decreases
falls; decreases
falls; increases
stays the same; decreases
(Figure 8-4: Market for Blue Jeans) Suppose the government believes blue jeans are too expensive and it wants to make sure blue jeans are affordable to more citizens. This type of price control is called a ______ and the price would be set equal to ______.
price floor, $100
price floor, $35
price ceiling, $55
price ceiling, $100
price ceiling, $80
West African cotton farmers are very upset about the subsidies the U.S government pays to American cotton farmers. One reason for this could be that subsidized cotton from the United States:
leads to global cotton surpluses and lower prices for West African farmers
raises the world price of cotton
has led to a global shortage of cotton
has led to an increase in the demand for West African cotton
has led to improved efficiency in the global cotton market
the price elasticity of demand measure the responsiveness of the change in:
quantity demanded to a change in consumer income
price to a change in quantity demanded
the slope of the demand curve to a change in price
the slope of the demand curve to a change in quantity demanded
quantity demanded to a change in price
If the price of a good is increased by 20% and the quantity demanded decreases by 15%, then the price elasticity of demand is equal to:
0.75
approximately 0.33
approximately 1.33
1
zero
The demand for textbooks is price inelastic. Which of the following would explain this?
Many alternative textbooks can be used as substitutes
Students have a lot of time to adjust to price changes
Textbook purchases consume a large portion of students' income
Textbooks are luxury goods for college students
The good is a necessity for college students
When a consumer consumes more of a good that has become cheaper in place of a good that has become relatively more expensive, this is known as the:
substitution effect
income effect
budget constraint
inferior effect
normal effect
Each month Jessica buys exactly 4 Big Macs regardless of the price. Jessica's price elasticity of demand for Big Macs is:
0
1
greater than 1, but less than 4
less than 1, but greater than 0
greater than 4
You manage a popular malt shop and lately revenues have been disappointing. Your friend suggests that raising soda prices will increase revenues, but your waitress suggests that decreasing soda prices will increase revenues. You aren't sure who is right, but you do know that:
your friend thinks the demand for sodas is elastic, while your waitress thinks the demand for sodas is inelastic
your friend thinks the demand for sodas is inelastic, while your waitress thinks the demand for sodas is elastic
both the friend and waitress think the demand for soda is elastic
both the friend and waitress think the demand for soda is inelastic
your friend thinks the demand curve for sodas is nearly horizontal, while your waitress thinks the demand curve is nearly vertical
Suppose the price of cereal rose by 25% and the quantity of milk sold decreased by 50%. Then we know that the:
cross-price elasticity between cereal and milks is -2
cross-price elasticity between cereal and milks is -0.5
price elasticity of demand for milk is 2
cross-price elasticity of demand for milk is 2
price elasticity of demand for cereal is 0.5
When Joe's income is $100 per week, he spends $20 per week on pizza. When his income rises to $110 per week, he spends $25 per week on pizza. If the price of pizza remains constant, this information implies that for Joe:
pizza is a normal good and a luxury
pizza is a normal good and a necessity
pizza is an inferior good
demand for pizza is price-elastic
demand for pizza is price-inelastic
Which of the following would be most likely to have a vertical supply curve?
salt
oil
insulin
paintings by Van Gogh
gasoline
(Table 49-1: Consumer Surplus and Phantom Tickets) If the box-office price of a ticket to see Phantom of the Opera is $50, and there is no other market for tickets, then total consumer surplus for the five students is:
$100
$175
$230
$240
$200
Which of the following is true if there is a decrease in the demand for ice cream?
There is an increase in producer surplus
There is a decrease in producer surplus
There is no change in producer surplus
There is an increase in consumer surplus
There is an increase in deadweight loss
(Figure 49-8: Producer Surplus II) At a price of P1, producer surplus equals the area:
LMK
P1K0
P2M0
P2P1KM
0P1KQ1
Suppose the government imposes a $4 excise tax on Good X. If the demand for Good X is perfectly elastic and the supply curve is elastic, then the price consumers pay for Good X will:
increase by more than $4
increase by exactly $4
increase, but by less than $4
decrease, but by less than $4
remain constant
Oranges cost $2 per pound and starfruit cost $5 per pound. The table shows Ned's total utility from eating various amounts of oranges and starfruits. How many pounds of oranges and starfruit would Ned eat, if Ned has $26?
0 pounds of oranges, 5 pounds of starfruit, $1 left over
8 pounds of oranges and 2 pounds of starfruit
3 pounds of oranges and 4 pounds of starfruit
4 pounds of oranges and 5 pounds of starfruit
3 pounds of oranges and 3 pounds of starfruit
Jenny believes that spending one hour studying for economics will increase her grade by 20 points. Studying for a second hour will increase her grade by 10 points. She also believes that studying for an hour of history will increase her grade by 15 points, but spending a second hour will increase her grade by only 5 points. Jenny has two hours to study. If Jenny wants to maximize her scores, what should she do?
study 1 hour for economics and 1 hour for history
study 2 hour for economics and 0 hour for history
study 0 hour for economics and 2 hour for history
study 1 hour for economics and 0 hour for history
study 1 hour for economics and 2 hour for history
Joseph consumer pizza and soda. He is currently consuming three units of pizza and two units of soda. If he is consuming the optimal consumption bundle and his marginal utility of pizza is 50, then his marginal utility of soda is:
50
10
5
impossible to determine unless you know Joseph's income
25
If a consumer purchases a combination of commodities A and B such that MUA/PA = 50 and MUB/PB = 30, to maximize utility, the consumer should:
buy less of both A and B
buy more of both A and B
by more of A and less of B
buy less of A and more of B
make no changes to the current combination of A and B
If economic profit for a firm is negative:
the firm should exit the industry in the long run
accounting profit must also be negative
the firm should stay in business so long as accounting profit is positive
the firm will not owe any taxes to the government
the firm is earning a normal profit
For most firms, economic profit is:
less than accounting profit
equal to accounting profit
greater than accounting profit
negative in the short run
positive in the short run but negative in the long run
Pauli's Pizza offers the following prices: one slice for $2, two slices for $3.50, three slices for $4.50, four slices for $5.00. Sal orders two slices. From this we know that Sal's marginal benefit from the second slice must be at least _______ while the marginal benefit from the third slice must be less than ______.
$3.50; $4.50
$3.50; $1.00
$1.50; $1.00
$1.50; $4.50
$5.50; $10.50
Which of the following scenarios best describes an oligopolistic industry?
A single cable company serves customers in a small town.
Thousands of soybean farmers sell their output in a global commodities market.
Coca-Cola and Pepsi sell most of the soft drinks consumed around the world.
A college has one bookstore selling textbooks to students.
Hundreds of firms produce similar, but differentiated, types of shoes
You own a small manufacturing company that produces gadgets. The table shows the quantity of gadgets that you could produce, the total cost you incur at each level of productions, and the total revenue you learn at each level of production. At what level of output does marginal revenue equal marginal cost?
2
3
1
5
4
(Figure 65-8: Pricing Strategy in Cable TV Market II) The dominant strategy for CableNorth:
is to charge a high price
is always to charge a low price
is to always charge what CableSouth does
does not exist
is to charge the opposite of what CableSouth does
(Table 54-1: Labor and Output) Referring to the table, the marginal product of the fifth worker is:
8
4
3
40
36
(Table 54-9: Marginal Product of Labor) Using the table above, the total product of labor for three workers is:
51 bushels
45 bushels
39 bushels
15 bushels
17 bushels
At 76 units of labor, a firms finds that average product of labor equals 39.6 and marginal product of labor equals 42.9. We can conclude that the average product curve at 76 units of labor is:
upward-sloping
downward-sloping
vertical
horizontal
maximized
(Table 55-1: Cost Data) The table shows some cost data for a firm currently operating in the short run. What is the value of the total fixed cost for this firm?
$40
$50
$100
$70
It is impossible to determine without more information
(Table 65-1: Two Rival Gas Stations) There are only two gas stations in a small town, Swiftly Gas and Speedy Gas. Each firm can set either a high price or a low price, and customers view these two firms as nearly perfect substitutes. The table shows the payoff matrix of daily profits that each firm would receive from their pricing decision, given the pricing decision of their rival. Profits in each cell of the payoff matrix are given as (Swifty, Speedy). If each firm sets the price independently, the Nash equilibrium outcome will be:
$100, $100
$150, $50
$25, $150
$50, $50
A Nash equilibrium does not exist in this game
The marginal cost curve is the mirror image of the:
total product curve
average product curve
marginal product curve
average total cost curve
marginal utility curve
For the monopolistically competitive seafood market, the demand curve for any individual firm is and there producers of seafood.
downward-sloping; are few
upward-sloping; are many
vertical; are a few
downward-sloping; are many
downward-sloping; one or two
(Table 55-2: Output and Costs) Using the information in the table, when quantity increases from one to two, marginal cost equals:
13
10
18
17
8
Kalie Cakes is currently producing 10 cakes per day. The marginal cost of the tenth cake is $24, and average total cost of 10 cakes is $6. The average total cost of 9 cakes is:
$4
$5
$6
$8
$9
Suppose a monopolistically competitive firm is producing the profit-maximizing level of output and is earning an economic profit in the short run. Then:
price is less than average total cost
price is less that marginal cost
marginal revenue is greater than marginal cost
marginal revenue equals marginal cost
average total cost is at its minimum point
(Figure 56-1: Long-Run Average Cost) Output per period in the region from 0 to A indicates that a firm is experiencing:
diseconomies of scale
constant returns to scale
decreasing returns to scale
negative costs of production
economies of scale
The price received by a firm in a perfectly competetitive market:
is equal to the market price
is less than the market price
is greater than the market price
decreases as the quantity of output sold by the firm increases
is equal to total revenue earned by the firm
The demand curve for a perfectly competitive firm is:
perfectly inelastic
perfectly elastic
downward-sloping
relatively, but not perfectly elastic
non-existent
If a perfectly competitive firm sells 30 units of output at a price of $10 per unit, its marginal revenue is:
$10
$30
$0
$300
$3
(Figure 67-1: Monopolistic Competition I) Which of the panels in the figure shows a monopolistic competitor earning a profit in the short run?
Panel a
Panel b
Panel c
Both panels a and c
None of the panels show a profit in the short run
A competitive firm operating in the short run is producing at the output level at which ATC is not at a minimum. If ATC = $8 and MR = $9, in order to maximize profits (or minimize losses), this firm should:
increase output
reduce output
shut down
do nothing; the firm is already maximizing profits
liquidate assets and exit the industry
If a perfectly competitive firm is producing a quantity that generates MC > MR, then profit:
is maximized
can be increased by increasing production
can be increased by decreasing production
can be increased by decreasing the price
is negative and the firm should exit the market
The monopolistic competitor in the figure is producing at the output level that maximizes profit (minimizes losses). The shaded rectangle depicts the level of:
profit
loss
fixed cost
variable cost
total cost
Suppose the dry-cleaning market is monopolistically competitive and economically profitable this year. In the long-run, the demand for any one firm's dry-cleaning services will as more firms enter the industry, causing profits to
decrease; become economic losses
decrease; fall to zero
not change; fall
increase; increase
increase; fall to zero
A monopolistically competitive firm is operating in the short run at the optimal level of output and is earning positive economic profits. Which of the following describes how this firm will adjust in the long run?
Entry of new firms shifts the firm's demand and marginal revenue curves leftward, decreasing the firm's level of output, and decreasing the firm's level of output, and increasing the price the firm can charge until the price equals average total cost.
Entry of new firms shifts the firm's demand and marginal revenue curves leftward, decreasing the firm's level of output, and decreasing the price the firm can charge until price equals average total cost.
Entry of new firms shifts the firm's marginal cost and average total cost curves downward, decreasing the firm's level of output, and decreasing the price the firm can charge until price equals average total cost.
Exit of firms shifts the firm's demand and marginal revenue curves rightward, increasing the firm's level of output, and increasing the price the firm can charge until price equals average total cost.
Entry of new firms shifts the firm's demand and marginal revenue curves leftward, decreasing the firm's level of output, and decreasing the price the firm can charge until price equals average variable cost.
The largest HHI possible is in the case of and the index is this case is equal to .
monopoly; 10
monopoly; 10,000
monopoly; 100,000
oligopoly; 100,000
perfect competition; 10,000
Raclette is a popular wintertime dish in Switzerland. It is essentially melted Raclette cheese over boiled new potatoes. If the price of this cheese decreased, we would expect:
an increase in demand for the cheese
an increase in demand for new potatoes
there to be no effect on the demand for either the cheese or the new potatoes
an increase in demand both for the cheese and for the new potatoes
a decrease in the demand for new potatoes
When the price of lamps increases, the:
supply increases
quantity supplied increases
supply decreases
quantity supplied decreases
quantity supplied increases
The incidence of a tax:
is a measure of the revenue the government receieves from the tax
refers to who writes the check to the governement
refers to the share of the tax paid by consumers and the share paid by sellers
is a measure of the deadweight loss from the tax
is the price elasticity of demand after the tax is paid
At the profit-maxmizing quantity of outpit in the figure, total revenue is $______, total cost is $______ and profit is $_______
90; 14; 76
90; 70; 20
30; 42; -12
48; 56; -8
70; 70; 0
(Figure 59-3: Profit Maximizing) The figure shows cost curves for a firm operating in a perfectly competitive market. M is the _______ curve.
ATC
MR
Profit
AVC
MC
(Figure 59-4: A Perfectly Competitive Firm in the Short Run) The firm's total economic profit at its most profitable level of output is:
0GHB
EFJS
EGHS
FGLK
NFKU
A perfectly competitive firm will continue producing in the short run as long as it can cover its:
total cost
average fixed cost
variable cost
fixed cost
marginal cost
In the figure, if the market price is $18, this firm will:
incur economic losses
earn a positive economic profit
earn break-even profits
be forced to shut down
increase output
A monopoly is likely to ______ units of output and ______ price than a perfectly competitive firm
produce more; charge a higher
produce fewer; charge a higher
produce more; charge a lower
produce fewer; charge a lower
produce equivalent; charge a higher
Suppose that a monopolist increases production from 10 units to 11 units. If the market price declines from $30 per unit to $29 per unit, marginal revenue for the eleventh unit is:
$1
$9
$19
$29
$11
The long-run average total cost of producing 100 units of output is $4, while the long-run average total cost of producing 110 units of output is $5. These numbers suggest that the firm producing this output is experiencing:
economies of scale
diseconomies of scale
constant returns to scale
diminishing marginal returns
increasing returns to scale
The demand for factors of production is called a derived demand because it is:
derived from the marginal cost of employing those factors
derived from the available supply of factors
not easy to determine and must be derived by a technical (and often complicated) process
derived on the basis of questions posed to residents during the census
derived from the demand for outputs that are produced by the factors of production
Which of the following is not a factor of production at a college?
the faculty
classroom buildings
the value of stocks and bonds owned by the college
the computer labs
the gymnasium
When labor is hired in a competitive market, the marginal revenue product of labor is computed by:
multiplying the price of the output by the marginal product of labor
multiplying the price of the output by the wage paid to the labor
multiplying the wage paid to labor by the marginal product of labor
dividing the marginal product of labor by the price of the output
multiplying the price of the output by the total product of labor
(Table 69-1: Total Product of Labor at Debbie's Bakery) Debbie owns a bakery and can hire workers to produce cakes selling in a competitive output market at $10 each. The table shows the relationship between the number of workers and the number of cakes produced. What is the marginal revenue product of the fourth worker?
five cakes
$50
$210
21 cakes
$250
An increase in market demand for electricians might occur if:
the market price of electrical repair and installation services increases.
the demand for new houses falls.
the price of copper electrical wiring increases.
the wage for electricians falls.
the wage for electricians rises.
To maximize profits a firm will employ workers up to the point at which for the last worker employed:
marginal product is equal to the nominal wage rate.
the marginal revenue product is equal to the wage rate.
the marginal revenue product is equal to the price per unit of output.
the marginal revenue product is as high as possible
the marginal product is equal to the price per unit of output
For a perfectly competitive employer, the marginal revenue product curve is the firm's labor curve. This means the marginal product curve has a slope.
demand; positive
supply; positive
demand; negative
supply; negative
demand; horizontal
Phil's Photo Studio pays its worker $60 per day and it sells photos for $10 per print. Now the market wage rises to $70. What happens to Phil's labor demands?
The demand for labor increases.
The demand for labor decreases.
The quantity demanded of labor increases but the demand for labor curve does not shift.
The quantity demanded of labor decreases but the demand for labor curve does not shift.
There are no shifts of, and no movements along, the labor demand curve.
Suppose you achieve your dream of opening your own art studio, specializing in selling mud statues. You pay $10 in fixed costs for equipment, and you pay $9 per day to each of your workers who make the mud statues. You know the mud statues industry is perfectly competitive, with a current market price of $1. The table shows your production function. How many statues should you produce?
25
35
43
48
10
Suppose all perfectly competitive fast-food firms are hiring the profit-maximizing quantity of labor and are paying their workers $7 per hour. Then suppose the government decides to raise the minimum wage to $8 per hour. Then:
since the marginal revenue product would exceed the wage, firms would hire more workers.
since the marginal revenue product would be less than the wage, firms would lay off some workers.
the firms would increase their prices to keep the marginal revenue product equal to the wage
firms would have to exit the industry since the marginal revenue product is less than the wage
firms would be unable to alter their hiring because the minimum wage is set by the government
Oscar's Wilderness Flower Shop maximizes profits by hiring four workers in a perfectly competitive labor market. The workers and their MRPs are Afred - $30, Barbara - $35, Calvin - $27, and Diana - $15. Which of the following statements is true?
In equilibrium, each worker would be paid his or her MRP
Each worker would be paid a wage equal to the highest MRP (i.e. $40)
Each worker would be paid $15
We need to know the product price before we can figure out the wage rate.
Each worker would be paid the average of the four MRPs
(Table 69-3: Employment and Output) In the table, if the price of a bushel of wheat is $10, then the marginal revenue product of the third worker is:
$15
$150
$170
$510
$10
A factor demand curve will shift to the right because of a(n)
increase in the price of the factor
increase in the price of the good the factor produces
decrease in the price of the factor
decrease in the price of the good the factor produces
increase in the elasticity of demand for the final product.
(Table 69-4: Marginal Revenue Product of Labor and Demand) If the product price is $2 per unit, the marginal revenue product for the fifth unit of labor is:
$0
$20
$40
$60
$280
Which of the following would cause the supply of teachers to decrease?
The overall size of the workforce increased
The government required another year of college before a teacher could begin teaching
The wage for teachers rose
The population of school-aged children increased.
The value of wealth decreased
When the competitive labor market is in equilibrium, we know that:
the quantity of labor demanded is greater than the quantity of labor supplied
the quantity of labor demanded is less than the quantity of labor supplied
the wage is less than the marginal revenue of the last worker employed
the wage is determined by the monopolist
the quantity of labor demanded is equal to the quantity of labor supplied
Because monopoly firms are the only firm in the market:
they can maximize total revenue, but cannot maximize profit
they sell more at higher prices than at lower prices
they take the market-determined price as given and sell all they can at that price
they charge the highest possible price
they can only sell more by lowering price
A single buyer in a factor market is called a:
monopoly
labor union
monopsony
cartel
wage taker
(Table 71- 1: Marci's Monopsony) Marci is a monopsony employer of bakers. The table shows how many hours of labor will be supplied at a variety of wages. If the marginal revenue product of labor is a constant $7, how many hours will Marci employ?
7
0
5
6
4
Which of the following is true concerning monopoly?
a monopoly firm must accept the market price and has no ability to change it
a monopoly firm has several close competitors in the market
a monopoly firm typically earns break-even long-run profits
barriers to entry prevent other firms from entering the industry
a monopolist is considered a price-taking firm
When compared to a perfectly competitive labor marker, a monopsony labor market
hires fewer workers and pays the same wage
hires fewer workers and pays a higher wage
hires more workers and pays a lower wage
hires fewer workers and pays a lower wage
hires more workers and pays the same wage
(Figure 61-1: Profit-Maximizing Output and Price) Assume there are no fixed costs and AC = MC. In the figure, at the profit-maximizing quantity of production for the monopolist, total revenue is ______, total cost is ______, and profit is ______
$600; $200; $400
$1,600; $3,200; $1,600
$4,800; $3,200; $1.600
$4,800; $1,600; $3,200
$1,600; $800; $800
The wage rate is $20 per hour and the last worker hired by the firm increased output by 100 units. Computers rent for $50 per hour and the last computer rented by the firm increased output by 200 units. If the firm is producing the desired level of output, what should the firm do to minimize costs?
Hire more workers and rent more computers because the marginal revenue product of both workers and computers are greater than their respective prices
Keep the same number of workers and computers because the marginal revenue products of both workers are positive
Lay off workers and rent more computers because computers produce more output per dollar of additional expenditure
Lay off workers and rent more computers because computers produce more output
Hire more workers and reduce the number of computers rented because the higher the marginal product per dollar spent is higher for workers
The XYZ Company is a profit-maximizing firm with a monopoly in the production of pennants. The firm sells its pennants for $10 each and economic profit is positive. We can conclude that the XYZ Company is producing a level of output at which:
average total cost equals $10
average total cost is greater than $10
marginal revenue equals $10
marginal revenue is greater than $10
marginal cost equals marginal revenue at a value less than $10
The U-shape of the long-run average total cost curve is the result of:
technological change
economies and diseconomies of scale
constant marginal returns to labor
sunk costs
inefficient management at all levels of output
Max employs both labor and capital to produce his trinkets. Currently the last unit of labor employed has a marginal product of 100 units. The last unit of capital employed has a marginal product of 40 units. The price of labor is $25 per unit and the price of capital is $10 per unit. Max should:
Increase the hiring of both labor and capital
Increase the hiring of labor and decrease the hiring of capital
Decrease the hiring of labor and increase the hiring of capital
Do nothing; he is hiring the optimal quantity of labor and capital
Decrease the hiring of both labor and capital
Eric is a college professor who uses a laptop computer to write exam questions on the side. For Eric, he and his laptop computer are:
both examples of labor
more productive when used together, rather than when they are used separately
substitute inputs in the production process
both examples of [physical capital
both examples are human capital
If the marginal revenue received from selling a good is less than the marginal cost of production, then:
the firm's profit can be improved if production increases
the firm's profit can be improved if production decreases
the firm's profit cannot be improved by changing production
the firm is producing too little of the good
the firm is producing the optimal quantity of the good
Price discrimination is the practice of:
offering differentiated products to consumers with different tastes
paying different prices to suppliers of different goods
equating price to marginal cost
equating price to marginal revenue
charging different prices to buyers of the same good
(Table 61-1: Demand and Total Cost) Lenoia runs a natural monopoly firm producing electricity for a small mountain village. The table shows Lenoia's demand and total cost of producing electricity. To maximize profits, Lenoia should charge a price of:
$350
$400
$450
$500
$300
(Table 61-1: Demand and Total Cost) Lenoia runs a natural monopoly firm producing electricity for a small mountain village. The table shows Lenoia's demand and total cost of producing electricity. The marginal revenue of the fourth unit of production is:
$200
$250
$450
$500
$400
The socially optimal quantity of pollution occurs where:
the marginal social benefit of pollution is equal to the marginal social cost of pollution.
the marginal social benefit of pollution is greater than the marginal social cost of pollution.
the marginal social benefit of pollution is less than the marginal social cost of pollution.
there is no pollution
the total benefit of pollution is equal to the total cost of pollution
Most electric, gas, and water companies are examples of:
unregulated monopolies
natural monopolies
restricted-input monopolies
sunk-cost monopolies
private monopolies
If regulation of a monopoly results in a price equal to marginal cost, but price is below average total cost:
the firm can still make an economic profit
the firm will earn only a zero economic progit
efficiency is lost
the firm will require subsidization or it will go out of business
deadweight loss exists
Which of the following is an example of an activity generating negative externality?
You buy a new car and discover it needs a new transmission
Jane enjoys canoeing on a quiet mountain lake
The only two coffee shops in town conspire to raise prices
After Jane bought health insurance, she began racing motorcycles on the weekends
Your next-door neighbor mows the lawn at 6 AM
After the first unit sold, the marginal revenue a monopolist receives from selling one more unit of a good is less than the price at which that unit is sold because of:
economies of scale
increasing marginal cost
a downward-sloping demand curve
declining average fixed cost
diminishing marginal returns in production
(Figure 61-2: Computing Monopoly Profit) The profit-maximizing price is _____ and will generate total economic profit of _____
P2; EF
P3; the rectangle P1P2FG
P3; the rectangle P2P3EF
P3; EF
P3; the rectangle P1P3EG
The graph shows a monopoly firm that sells gadgets. If the firm is regulated such that the firm earns zero economic profit, the firm will sell _____ units at a price of _____ per unit.
Q1; P1
Q2; P1
Q4; P3
Q3; P2
Q3; P3
Prof. Dumbler has a monopoly on magic hats. He sells at most one hat to each customer, and the table shows each customer's willingness to pay. The marginal cost of producing a hat is $18. Suppose Dumbler can perfectly price discriminate. How many hats will he produce?
three
four
five
six
seven
Suppose Prof. Dumbler's magic hat monopoly is broken up and the magic hat industry becomes perfectly competitive. We would expect the ______ to increase from the breakup and ______ to decrease from the breakup
producer surplus; consumer surplus and total surplus
consumer surplus; producer surplus and total surplus
price; output
producer surplus and total surplus; consumer surplus
consumer surplus and total surplus; producer surplus
A natural monopoly exists whenever a single firm:
is owned and operated by the federal or local government
is investor-owned but has been granted the exclusive right by the government to operate in a market
earns economic profits in the long run
has gained control over a strategic input of an important production process
experiences economies of scale over the entire range of production that is relevant to its market
The deadweight loss associated with this monopoly can be measured as the area:
1/2(P1 - P2)(Q2 - Q1)
1/2(P2 - P4)(Q4 - Q2)
1/2(P1 - P3)(Q3
1/2(P1 - P3)Q2
P4Q4
The following are four statements about monopoly and perfect competition. Which of these is correct?
a monopolist has market power while a perfect competitor does not
like a perfectly competitive firm, a monopoly can make positive economic profits in the long run
a monopoly will charge a higher price and produce a larger quantity than a competitive market with the same demand and cost structure
monopoly profits cannot continue to exist in the long run, because there are no barriers to entry
the demand for the monopolist's product is highly elastic due to many available substitutes
If drivers decide to make cell phone calls without considering the cost imposed on others, the
Number of phone calls made while driving will be above the socially optimal quantity
number of phone calls made while driving will be below the social optimum quality
marginal social cost curve for cell phone calls will lie below the marginal cost of production curve
marginal social benefit curve for cell phone calls will lie below the marginal cost of production curve
number of phone calls made while driving will be the socially optimal
Which of the following is an example of a negative externality?
high prices for necessities such as drinking water in the aftermath of a natural disaster
the risks to nonsmoker from second-hand smoke
the increased risk of a head injury to a motorcyclist who fails to wear her helmet
unemployment in the steel industry caused by low prices of external steel
the vaccination of young children for certain contagious diseases
An externality is said to exist when:
individuals impose costs or benefits on others but have no incentive to take these costs and benefits account
individuals impose costs or benefits on others and the market provides incentives to take these costs and into account
individual actions are affected by external forces for example the loss of US jobs due to competition from abroad is an externality
individual actions are affected by government policies such as taxes that are externally imposed on the market
the quantity of a good produced in the market is the socially optimal quantity
(Figure 74-1: The Socially Optimal Quantity of Pollution) In the figure, the optimal level of pollution is:
zero, since no pollution is best for society
where the marginal social benefit curve intersects the quantity axis
where the marginal social cost curve intersects the quantity axis
where the marginal social benefit curve intersects the marginal social cost curve
where marginal social benefit curve intersects the vertical axis
If external costs exist, the competitve free market:
inefficiently allocates resources
efficiently allocates resources
automatically corrects an overallocation of resources
automatically corrects an under allocation of resources
cannot provide any units of the good without government assistance
Suppose that the federal government determines the total level of municipal sewage that can be discharged by cities located along the river. If the cities are able to exchange rights to this total discharge level among themselves this would be an environmental policy of
emissions taxes
regulations
tradeable pollution permits
command and control
pollution subsidies
If government officials set an emissions tax too low:
there will be too little pollution
there will be too much pollution
the marginal social cost of pollution will be less than the marginal social benefit of pollution
there will be the efficient level of pollution
the externality will be completely internalized
A negative externality
is any cost above the economic cost
equals the social cost plus the firm's private cost
is an uncompensated cost imposed by an individual firm or firm on others
equals the opportunity cost minus the social cost
is best internalized by subsidizing the production of the good generating the negative externality
Assume there are external benefits associated with the production of good x. Without government regulation the market will:
Produce too much of good X
generate a price below the marginal social cost
generate a price equal to marginal social benefit
generate a price above the marginal cost
under allocate resources to the production of good x
Which of the following is an example of an activity generating a positive externaility
You buy a new car and then find 5000 in the door panel
Your next-door neighbor mows the lawn at 6 AM
Your next door neighbor installs a bat house and the bats eat mosquitos
Joe buys health insurance, but decides not to take the time to get a flu shot
An oil platform explodes and crude oil washes up all over a tourist beach
Figure 75-7: Positive Externalities of Semiconductor Chip: If the marginal external benefit of producing a chip is $10, then the socially optimal quantity of chips is and the socially optimal price is
200; $20
300; $25
500; $35
600; $20
400; $40
Which of the following goods best fit the characteristics of a private good?
a professor giving a lecture in a large classroom
national defense
fire protection
disease prevention
an ice-cream cone
Television programs are non-rival because:
the supplier cannot prevent consumption by people who do not pay for it
the program is subject to the free-rider program
individuals ignore the effect their use has on the amount of the resources remaining on others
the market suffers from inefficiently low consumption
more than one person can consume the same unit of the good at the same time
The free-rider problem is the direct result of
the inability to exclude non taxpayers
marginal-cost pricing
full-cost pricing
horizontally summed supply curves
rivalry in consumption
When the market does not result in an efficient allocation of scarce resources, economists call this
market dropout
normative economics
market disincentives
market failure
market planning
The is widely used to measure income inequality
Gini coefficient
median household income
poverty rate
ability-to-pay principle
unemployment rate
Figure 76-2: Traffic Lights in Sleepytown: Sleepytown has 1000 residents the figure shows the marginal social benefit and marginal cost of traffic lights, a public good in town We know that each of the residents has the same individual marginal benefit per traffic light if the government provides traffic lights the socially efficient quantity is
0
4
8
12
6
Progressive taxes are designed to
redistribute income from poor households to rich households and reduce income inequality
redistribute income from rich households to poor households to increase income inequality
redistribute income from rich households to poor households and increase poverty rates
redistribute income from poor households to rich households to increase income inequality
redistribute income from rich households to poor households and reduce income inequality
Figure 77-1: The figure above shows a natural monopoly. If the firm is unregulated, what will be the profit maximizing monopoly price and quantity
A
B
C
D
E
Figure 77-1: The figure above shows a natural monopoly. The shaded area shown in the graph represents:
deadweight losses
consumer surplus
producer surplus
allocative efficiency
economic profits
The graph shows a monopoly firm that sells gadgets. If the firm is regulated such that there is no dead weight loss, the firm will sell _____ units at a price of _____ per unit
Q1; P1
Q2; P1
Q4; P3
Q3; P2
Q3; P3
