Recall the application regarding opening a Dunkin’ Donuts shop and the small barriers
to entering the donut business. What should an owner of a Dunkin’ Donut shop expect
in a monopolistically competitive market?
A) total revenue equal to total cost
B) keen competition for consumers
C) his economic profit to be zero
D) all of the above
According to the Application, due to the marginal revenue from ticket sales for a typical
Major League Baseball team, the team could increase total revenue from ticket sales by
________ the price of tickets and ________ the quantity of tickets sold.
A) increasing; increasing
B) increasing; decreasing
C) decreasing; increasing
D) decreasing; decreasing
Deciding if a company will produce automobiles by manual labor or with the use of
robots answers the economic question of:
A) Who consumes the products produced?
B) What will be produced?
C) Where will the products produced be consumed?
D) How will we produce it?
Refer to Figure 11.2. In the long run the monopolistic competitor would generate total
cost equal to the area:
A) 0AFD.
B) AHE0.
C) AFGB.
D) 0BGD.
Suppose that an Italian ice cream firm is facing a linear demand curve and that the
current price for the Italian ice cream is set at a point where the price elasticity is 0.7. If
the firm decreases the product price:
A) the demand becomes more inelastic and total revenue increases.
B) the demand becomes more inelastic and total revenue decreases.
C) the demand becomes less inelastic and total revenue increases.
D) the demand becomes less inelastic and total revenue decreases.
Suppose Kevin offers to match his competitors’ prices in an oligopoly market. This will
have the effect of:
A) providing consumers with the lowest possible price.
B) decreasing his competitors’ incentive to reduce price.
C) driving out his competition.
D) triggering an antitrust investigation.
In assessing numerical changes, the brain appears to be naturally inclined to work in
________ terms rather than ________ terms, leading to misguided decisions.
A) absolute; relative
B) relative; percentage
C) percentage; absolute
D) percentage; relative
Recall the Application about reducing pollution generated from international
shipping to answer the following question(s).
Recall the Application. Of the following CO2 reduction methods for international
shipping, which has the lowest marginal abatement cost (MAC)?
A) weather-sensitive routing
B) switching from diesel to gas-powered engines
C) reducing speed and increasing fleet size
D) installing fixed sails and wings
Refer to Figure 17.2. If the demand for labor decreases, then equilibrium wage will
________ and equilibrium quantity of hours will ________.
A) rise; fall
B) fall; fall
C) rise; rise
D) fall; rise
Recall Application 4, “Fertilizer and Crop Yields,” to answer the following
questions:
According to the application, the corn production exhibited the principle of diminishing
returns because:
A) the size of the land and the amount of machinery were held constant.
B) the type of soil was held constant.
C) the type of fertilizer was held constant.
D) the amount of nitrogen in each bag is decreasing.
Allocating more hours toward studying for your economics exam gives you a higher
grade. Based on this observation, hours and your economics grade exhibit:
A) a positive relationship.
B) a negative relationship.
C) no relationship.
D) an unpredictable relationship.
A special case of an oligopoly where there are only two firms is called:
A) a monopoly.
B) a duopoly.
C) perfect competition.
D) monopolistic competition.
A variable is:
A) something that always has the same value.
B) something that can take on different values.
C) something that cannot be measured.
D) something that varies over time.
When does a firm’s average variable cost exceed the average total cost?
A) never
B) when the average variable cost is at its minimum
C) when the average fixed cost is at its minimum
D) when the average total cost equals the average fixed cost
Assume that Crystal’s demand for hand bags remains constant, but the price of hand
bags increases. Crystal’s consumer surplus:
A) decreases.
B) increases.
C) remains constant.
D) may increase or decrease depending on the amount of the price decrease.
Refer to Figure 12.10. The data in the boxes are the annual profits for each company
whether they choose to advertise or not. If Big Box follows its dominant strategy it will:
A) earn$ 6 million.
B) earn $4 million.
C) earn $10 million.
D) earn $5 million.
Refer to Figure 10.4. The Exclusive Gift Company has a monopoly over the sale of
gold hula hoops. This company is currently selling 50 gold hula hoops at a price of
$5,000. You are hired as an economic consultant to this company. You should advise
this monopolist to:
A) shut down in the short run and exit the industry in the long run.
B) produce in the short run and expand capacity in the long run.
C) produce in the short run but exit the industry in the long run if conditions do not
change.
D) shut down in the short run but expand capacity in the long run if conditions do not
change.
A milk company in a perfectly competitive industry is producing 10000 gallons of milk,
its profit-maximizing quantity. Industry price for a gallon of milk is $3.50, total fixed
costs are $5,000, and total variable costs are $10,000. The firm’s economic profit is:
A) $35,000.
B) $30,000.
C) $20,000.
D) $15,000.
Refer to Figure 11.2. In the long run the monopolistic competitor would produce
________ units.
A) 0C
B) 0D
C) 0E
D) none of these
When measured along a linear downward-sloping demand curve, the price elasticity:
A) remains constant and is greater than one.
B) remains constant and is less than one.
C) increases in absolute value from left to right.
D) decreases in absolute value from left to right.
Consider two individuals, Nigel and Mia, who produce hair pins and bandanas. Nigel’s
and Mia’s hourly productivity are shown in Table 3.3.
Table 3.3
Which of the following is true?
A) Nigel has both an absolute and comparative advantage in hair pin production.
B) Nigel has both an absolute and comparative advantage in bandana production.
C) Nigel has neither an absolute nor comparative advantage in hair pin production.
D) Nigel has neither an absolute nor a comparative advantage in bandana production.
Refer to Table 10.1, which shows the relationship between the price that Gladys charges
for a product and the quantity of that product that Gladys sells. The marginal revenue
that Gladys receives from selling the fourth unit of output is:
Table 10.1
A) $3.
B) $6.
C) $10.
D) $24.
The median voter rule says that:
A) people “vote with their feet.”
B) the median voter will not bother to vote in the election, it is extremists who vote.
C) the median voter never gets what he or she wants in an election.
D) government decisions will reflect the preferences of the median voter.
Table 14.5
Table 14.5 contains data on the marginal benefit of searching for a lower price for a
digital camera.
The price of the camera ranges from $100 at the lowest price store to $140 at the
highest price store.
For any randomly selected store, any price from the low price to the high price is
equally likely.
The marginal cost of visiting each store is constant at $1.50 per visit.
Refer to Table 14.5. At the discovered price of $120, the expected savings from visiting
another store is:
A) $2.50.
B) $5.
C) $10.
D) $20.
Toby sells wheat in a perfectly competitive market. This month Toby receives a lower
price for a bushel of wheat than he did last month. Which of the following might
explain this?
A) The market demand for wheat increased.
B) The market demand for wheat decreased.
C) Firms exited the market.
D) Toby’s costs have increased.
An economic model is:
A) a small but completely working economy.
B) a simplified representation of an economic environment.
C) any graph.
D) all of the above.
The price elasticity of supply is calculated by:
A) dividing the percentage change in quantity supplied by the price.
B) dividing the percentage change in income by the percentage quantity supplied.
C) dividing the percentage change in price by the percentage quantity supplied.
D) dividing the percentage change in quantity supplied by the percentage change in
price.
An increase in the supply of musicians ________ the number of musicians employed,
and ________ the wages paid to musicians.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
Which of the following is true for a perfectly competitive market in long-run
equilibrium?
A) There is no incentive for new firms to enter the market.
B) Each firm in the market earns zero economic profit.
C) There is no incentive for existing firms to leave the market.
D) All of the above are correct.
Recall the Application. LoJack is system that allows the police to track stolen cars.
LoJack is a ________ good that generates ________.
A) public good; external benefits
B) public good; no external benefits
C) private good; external benefits
D) private good; no external benefits
The process of using public policy to gain economic profit is:
A) deadweight loss.
B) never successful.
C) rent seeking.
D) illegal.
What is a deadweight loss or tax burden associated with a tax?
What does the World Trade Organization do?
Table 9.3 shows the short-run cost data for the XYZ Widget Company. If widgets sell
for $8 each and XYZ’s total fixed costs equal $50, what will the firm do? Explain.
Table 9.3
When consumers find their incomes increasing, they tend to buy more ________.