1) If marginal cost exceeds marginal revenue, the firm
a.is most likely to be at a profit-maximizing level of output.
b.should increase the level of production to maximize its profit.
c.should reduce its average fixed cost in order to lower its marginal cost.
d.may still be earning a positive accounting profit.
2) Figure 16-13
Use the letters to identify the area of profit for this firm.
3) Suppose that Philip is the best contractor in town, and he makes $400,000 a year.
Suppose that Julia Roberts is the best and highest paid actress in Hollywood, and she
makes $13 million per movie. Both are the best in their respective fields of work. One
reason for the significant difference in incomes has to do with the nature of the service
each offers. Philip’s contracting services
a.can be provided to an unlimited number of customers in a year, but Julia’s work is
sold to only a few individuals in a year.
b.can only be provided to a limited number of customers in a year, but Julia’s work is
sold to millions of
individuals in a year – i.e., to anyone who has the willingness and ability to pay for
admission to her movies.
c.can be provided to a unlimited number of customers in a year, and Julia’s work is sold
to millions of
individuals in a year – i.e., to anyone who has the willingness and ability to pay for
admission to her movies.
d.can only be provided to a limited number of customers in a year, and Julia’s work is
sold to only a few individuals in a year.
4) Scenario 12-1
Ken places a $20 value on a cigar, and Mark places a $17 value on it. The equilibrium
price for this brand of cigar is $15.
Suppose the government levies a tax of $1 on each cigar, and the equilibrium price of a
cigar increases to $16. How much tax revenue is collected?
a.$0
b.$1
c.$2
d.$4
5) If a consumer purchases more of good B when his income rises, good B is an inferior
good.
a.True
b.False
6) In the markets for the factors of production in the circular-flow diagram, households
are buyers and firms are sellers.
a.True
b.False
7) Game theory is important for understanding which of the following market types?
a.perfectly competitive and oligopolistic markets
b.perfectly competitive markets but not oligopolistic markets
c.oligoplistic but not perfectly competitive markets
d.neither oligopolistic nor perfectly competitive markets.
8) Some colleges charge all students the same “activity fee.” Suppose that students
differ by how many campus activities they engage in. This charge is most like
a.an excise tax which conforms to the benefits principle.
b.an excise tax which violates the benefits principle.
c.a lump-sum tax which conforms to the benefits principle.
d.a lump-sum tax which violates the benefits principle.
9) The deadweight loss from a tax of $2 per unit will be smallest in a market with
a.inelastic supply and elastic demand.
b.inelastic supply and inelastic demand.
c.elastic supply and elastic demand.
d.elastic supply and inelastic demand.
10) Figure 8-9
The vertical distance between points A and C represents a tax in the market.
The equilibrium price and quantity
before the imposition of the tax is
a. P=$800 and Q=20.
b. P=$600 and Q=20.
c. P=$300 and Q=20.
d. P=$600 and Q=40.
11) When the nation of Worldova allows trade and becomes an exporter of silk,
a.residents of Worldova who produce silk become worse off; residents of Worldova who
buy silk become better off; and the economic well-being of Worldova rises.
b.residents of Worldova who produce silk become worse off; residents of Worldova
who buy silk become better off; and the economic well-being of Worldova falls.
c.residents of Worldova who produce silk become better off; residents of Worldova who
buy silk become worse off; and the economic well-being of Worldova rises.
d.residents of Worldova who produce silk become better off; residents of Worldova who
buy silk become worse off; and the economic well-being of Worldova falls.
12) Suppose that a firm’s longrun average total costs of producing televisions decreases
as it produces between 10,000 and 20,000 televisions. For this range of output, the firm
is experiencing
a.economies of scale.
b.constant returns to scale.
c.diseconomies of scale.
d.coordination problems.
13) Table 17-15
This table shows a game played between two players, A and B. The payoffs in the table
are shown as (Payoff to A, Payoff to B).
Refer to Table 17-15. Which of the following statements regarding this game is true?
a.Both players have a dominant strategy.
b.Player A has a dominant strategy, but player B does not have a dominant strategy.
c.Player A does not have a dominant strategy, but player B does have a dominant
strategy.
d.Neither player has a dominant strategy.
14) In a certain economy, toys and greeting cards are produced, and the economy
currently operates on its production possibilities frontier. Which of the following events
would allow the economy to produce more toys and more greeting cards, relative to the
quantities of those goods that are being produced now?
a.The economy experiences economic growth.
b.There is a technological advance in the toy industry, but the greeting card industry
experiences no such advance.
c.There is a technological advance in the greeting card industry, but the toy industry
experiences no such advance.
d.All of the above are correct.
15) For a particular good, a 3 percent increase in price causes a 10 percent decrease in
quantity demanded. Which of the following statements is most likely applicable to this
good?
a.The relevant time horizon is short.
b.The good is a necessity.
c.The market for the good is broadly defined.
d.There are many close substitutes for this good.
16) A production possibilities frontier is a straight line when
a.the more resources the economy uses to produce one good, the fewer resources it has
available to produce the other good.
b.an economy is interdependent and engaged in trade instead of self-sufficient.
c.the rate of tradeoff between the two goods being produced is constant.
d.the rate of tradeoff between the two goods being produced depends on how much of
each good is being produced.