1)
Refer to Table 16-5. How much profit will this firm earn at the monopolistically competitive price?
a. $0
b. $5
c. $12
d. $16
Answer: View Answer

2) 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. is characterized by market-share maximization.
b. has no barriers to entry.
c. faces a downward-sloping demand curve for its product.
d. faces a horizontal demand curve at the market clearing price.
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3) Philip is an average contractor in town, and he earns $40,000 a year. Billy is the best contractor in town, and he earns $480,000 a year. Philip’s contracting services
a. are valued more by the market relative to Billy’s and that explains why his income is higher than Billy’s.
b. are valued less by the market relative to Billy’s and that explains why his income is higher than Billy’s.
c. are valued less by the market relative to Billy’s and that explains why his income is lower than Billy’s.
d. are more expensive because he receives a compensating differential.
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4) A movie theater can increase its profits through price discrimination by charging a higher price to adults and a lower price to children if it
a. can prevent children from buying the lower-priced tickets and selling them to adults.
b. has some degree of monopoly pricing power.
c. can easily distinguish between the two groups of customers.
d. All of the above are correct.
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5)
Refer to Table 15-4. If the monopolist produces 10 units, what is its average revenue?
a. $100
b. $15
c. $10
d. $1
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6)
Scenario 21-2
Fred has recently graduated from college with a degree in journalism and economics. He has decided to pursue a career as a freelance journalist writing for business newspapers and magazines. Fred is typically awake for 112 hours each week (he sleeps an average of 8 hours each day). For each hour Fred spends writing, he can earn $75. Fred is such a good writer that he can get paid for as many hours of writing as he chooses to work.
Refer to Figure 21-23. Fiona experiences an increase in her hourly wage. Her optimal choice point moves from A to B. For Fiona,
a. her labor supply curve is backward bending.
b. her labor supply curve is upward sloping.
c. leisure is a normal good.
d. both a and c are correct.
Answer: View Answer

7) Much of the research on game theory in recent decades was driven by attempts to analyze actions of players during
a. the Great Depression of the 1930s.
b. World War II.
c. the Cold War between the United States and the Soviet Union.
d. the ascendancy of the conservative movement in the United States in the 1970s and 1980s.
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8) Diminishing marginal product affects the shape of the production function in what way?
a. The slope of the production function decreases as the quantity of input increases.
b. The production function becomes steeper as the quantity of input increases.
c. The production function slopes downward.
d. The production function is horizontal beyond a certain quantity of input.
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9) Scenario 15-6
The concert promoters of a heavy-metal band, WeR2Loud, know that there are two types of concert-goers: die-hard fans and casual fans. For a particular WeR2Loud concert, there are 1,000 die-hard fans who will pay $150 for a ticket and 500 casual fans who will pay $50 for a ticket. There are 1,500 seats available at the concert venue. Suppose the cost of putting on the concert is $50,000, which includes the cost of the band, lighting, security, etc.
Refer to Scenario 15-6. How much profit will the concert promoters earn if they set the price of each ticket at $50?
a. $25,000
b. $75,000
c. $100,000
d. $150,000
Answer: View Answer

10) In the long run, a firm in a perfectly competitive market operates
a. at its efficient scale, and a monopolistically competitive firm operates at its efficient scale.
b. at its efficient scale, and a monopolistically competitive firm operates with excess capacity.
c. with excess capacity, and a monopolistically competitive firm operates with excess capacity.
d. with excess capacity, and a monopolistically competitive firm operates at its efficient scale.
Answer: View Answer

11)
Refer to Figure 18-9. If the apple pickers start working fewer hours because they are taking more vacation time, the equilibrium wage will
a. fall below w1 due to a shift in demand.
b. fall below w1 due to a shift in supply.
c. rise above w1 due to a shift in demand.
d. rise above w1 due to a shift in supply.
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12)
Refer to Figure 21-3. Which of the graphs in the figure reflects an increase in the price of good Y only?
a. graph a
b. graph b
c. graph c
d. graph d
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13) When economists assume that people are rational, they assume that
a. consumers maximize profits.
b. firms maximize revenues.
c. consumers maximize utility.
d. firms maximize output.
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14) Suppose the voters in a small country are choosing between two options, A and B. After the voting is complete it is discovered that option A recevied 100% of the votes with option B receiving no votes. After the vote, however, the countrys leader decides that option B is better for the people and implements B rather than A. The voting system in this country fails which of Arrows properties of a desirable voting system?
a. Unanimity
b. Transitivity
c. Independence of irrelevant alternatives
d. No dictators
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15) When labor is the only input a firm uses, the marginal cost of a unit of output can be defined as
a. the marginal revenue multiplied by the wage.
b. the marginal product of labor multiplied by the wage.
c. the wage divided by the marginal product of labor.
d. the marginal product of labor divided by the wage.
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16) The slope of the budget constraint is all of the following except
a. the relative price of two goods.
b. the rate at which a consumer can afford to trade one good for another.
c. the marginal rate of substitution.
d. constant.
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17) The primary claim of defenders of advertising is that it
a. conveys information about firm profitability.
b. is psychological rather than informational.
c. enhances the information available to consumers.
d. reduces the elasticity of demand for a firms product.
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18) For a monopoly market, total surplus can be defined as the value of the good to
a. producers minus the cost incurred by consumers.
b. producers plus the cost incurred by consumers.
c. consumers minus the costs of producing the good.
d. consumers plus the cost of producing the good.
Answer: View Answer

19) Majority rule will produce the outcome most preferred by the median voter, as demonstrated by the
a. Arrow impossibility theorem.
b. Condorcet paradox.
c. pairwise voting proposition.
d. median voter theorem.
Answer: View Answer

20) Monopolistically competitive markets may be socially inefficient because
a. most firms produce inferior products.
b. government programs cannot effectively regulate price.
c. firms earn zero economic profit.
d. the market may have too much or too little entry by new firms.
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21)
Refer to Table 15-2. What is Tanya’s profit-maximizing level of output?
a. 1
b. 2
c. 3
d. 4
Answer: View Answer

22)
Refer to Figure 21-21. If the consumer is currently at point A in the figure, a movement to point B as a result of a decrease in the price of potato chips represents the
a. substitution effect.
b. income effect.
c. budget effect.
d. price effect.
Answer: View Answer

23) Minimum wage laws
a. benefit all unskilled workers.
b. create unemployment, but if demand is relatively elastic, the unemployment effects will be minor.
c. may help the nonpoor, such as teenagers from wealthy families.
d. reduce poverty by reducing unemployment.
Answer: View Answer

24) On average, electricians who work on dangerous high-voltage power lines earn more per hour than similarly skilled electricians who don’t work on dangerous high-voltage power lines. The difference in pay is attributed to
a. the marginal product of labor.
b. the marginal product of capital.
c. diminishing marginal returns.
d. a compensating differential.
Answer: View Answer

25) Bill and Hillary both work for the same bakery. Bill is an expert pastry chef who begins baking at 4 a.m. Hillary is a bookkeeper who works a regular 9-5 work day. Bill earns twice as much as Hillary. Which of the following could explain the higher wages that Bill earns?
a. The employer is discriminating against women.
b. The employer is paying a compensating differential for a job that starts very early in the morning.
c. The employer is rewarding Bill for acquiring the human capital of a pastry chef.
d. All of the above could be correct.
Answer: View Answer

26)
Refer to Table 15-4. In order to maximize profits, the monopolist should produce
a. 7.5 units.
b. 10 units.
c. where marginal revenue equals marginal cost.
d. Both a) and c) are correct.
Answer: View Answer

27) The labor supply curve may have a backward-bending portion if, at higher wages, the income effect is
a. smaller than the substitution effect.
b. larger than the substitution effect.
c. negative.
d. Any of the above could result in a backward-bending supply curve.
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28) Antitrust laws may
a. enhance the ability of firms to capture profits from a concentration of market power.
b. enhance the ability of firms to reduce economic losses.
c. restrict the ability of firms to operate at the socially efficient level of production.
d. restrict the ability of firms to merge.
Answer: View Answer

29) The lower the concentration ratio, the
a. more control an individual firm has to set prices.
b. more competitive the industry.
c. less competitive the industry.
d. Both a and c are correct.
Answer: View Answer

30) Which of the following is not correct?
a. In a labor market, the wage adjusts to balance the supply and demand for labor.
b. A profit-maximizing firm hires workers so long as the wage rate exceeds the value of the marginal product of labor.
c. Any event that changes the supply or demand for labor must change the equilibrium wage.
d. Any event that changes the supply or demand for labor must change the value of the marginal product.
Answer: View Answer

31) Which of the following does not explain the rise in income inequality in the United States from 1970 to 2008?
a. Changes in technology.
b. An increase in minimum wages.
c. A reduction in the demand for unskilled labor.
d. Increased international trade with low-wage countries.
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32) Of the total income earned in the U.S. economy, approximately
a. 25 percent is earned by workers, and 75 percent is earned by landowners.
b. 50 percent is earned by workers, 25 percent is earned by landowners, and 25 percent is earned by owners of capital.
c. 75 percent is earned by workers, and 25 percent is earned by owners of land and capital.
d. 90 percent is earned by workers, and 10 percent is earned by owners of land and capital.
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33) Which of the following is not an example of an adverse selection problem?
a. A homeowner purchases a refrigerator that the seller knows has a history of leaking.
b. A highly productive worker quits her job after a salary cut knowing that she can make more at a different job.
c. A major league baseball player performs poorly in his second season after signing a multi-million dollar contract.
d. A contractor uses low quality materials for construction but charges for higher quality materials.
Answer: View Answer

34)
Refer to Table 22-2. Which of the following statements is correct?
a. In a pairwise election, “zoo” beats “movie.”
b. In a pairwise election, “baseball game” beats “zoo.”
c. In a pairwise election, “movie” beats “baseball game.”
d. All of the above are correct.
Answer: View Answer

35) The practice of tying is used to
a. enhance the enforcement of antitrust laws.
b. encourage the enforcement of collusive agreements.
c. control the retail price of a collection of related products.
d. package products to sell at a combined price closer to a buyer’s total willingness to pay.
Answer: View Answer

36) According to the superstar phenomenon, the most talented person in which of the following occupations is most likely to earn extremely high wages?
a. an electrician
b. a hair stylist
c. a journalist
d. a roofer
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37) Certain factors that are probably important in determining wages are nevertheless difficult to measure. Consequently, labor economists find those factors difficult to incorporate into their studies of labor markets and wages. Those factors include
a. effort and natural ability.
b. natural ability and years of experience.
c. years of experience and job characteristics.
d. race and job characteristics.
Answer: View Answer

38) A rational person can have a negatively-sloped labor supply curve.
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39) Evaluate the following statement: “Advertisements that use celebrity endorsements are devoid of any value and do not enhance the efficient functioning of markets.”
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40) If advertising decreases the elasticity of demand for specific brand names of hard liquor, we would expect firms to be able to charge a larger markup over marginal cost.
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41) When a firm in a monopolistically competitive market earns zero economic profit, its product price must equal marginal cost.
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42) The poverty line is set by the government so that 10 percent of all families fall below that line and are thereby classified as poor.
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