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Table: Lindsay's Farm
(Table: Lindsay's Farm) Look at the table Lindsay's Farm. When Lindsay produces 50
units of produce, her total cost is:
A) $250.
B) $50.
C) $200.
D) $350.
Figure: Demand for Coconuts
(Figure: Demand for Coconuts) Look at the figure Demand for Coconuts. If there is an
increase in preference for coconuts, it will be represented in the figure as a movement
from:
A) A to C.
B) B to A.
C) C to A.
D) B to E.
When a firm adds capital, in the short run variable costs for any level of output will:
A) increase.
B) decrease.
C) remain the same.
D) increase at first and then decrease.
Suppose Sarah's pottery studio is charging the market price, which is just higher than
her minimum average total cost. This means that Sarah:
A) is breaking even.
B) should shut down immediately.
C) is earning a small economic profit.
D) is incurring a small economic loss.
Margo spends $10,000 on one year's college tuition. The opportunity cost of spending
one year in college for Margo is:
A) $10,000.
B) whatever she would have purchased with the $10,000 instead.
C) whatever she would have earned had she not been in college.
D) whatever she would have purchased with the $10,000 plus whatever she would have
earned had she not been in college.
(Table: Output and Costs) Look at the table Output and Costs. When output increases
from 1 to 2, marginal cost equals:
A) $13.
B) $10.
C) $8.
D) $17.
Kayla and Jada are roommates in New York City. Both Kayla and Jada recently
received raises. Kayla now buys more album downloads than before, but Jada buys
fewer. Kayla behaves as if album downloads are _____ goods, and Jada's income
elasticity of demand for album downloads is _____.
A) normal; positive
B) normal; negative
C) inferior; positive
D) inferior; negative
(Table: Demand and Total Cost) Look at the table Demand and Total Cost. Lenoia runs
a natural monopoly producing electricity for a small mountain village. The
accompanying table shows Lenoia's demand and total cost of producing electricity. The
maximum profit Lenoia can make is:
A) $225.
B) $425.
C) $400.
D) $1,800.
Given any upward-sloping supply curve for a good, the more elastic the demand curve,
the _____ equilibrium output will fall and the _____ will be the deadweight loss when
the government imposes an excise tax.
A) more; smaller
B) more; larger
C) less; smaller
D) less; larger
In monopoly:
A) a basic condition for efficiency is violated because P > MC.
B) consumers are confronted with a price that is lower than marginal cost.
C) consumers will buy more of the good than is economically efficient.
D) consumers are confronted with a price that is lower than average total cost.
(Table: Cost Data) Look at the table Cost Data. The average total cost of producing 6
purses is:
A) $190.
B) $70.
C) $50.
D) $35.
Ashley, who makes knitted caps, determines that her marginal cost of knitting one more
cap is $10. A consumer offers her $12 for one more knitted cap. Ashley will:
A) not sell the additional cap, since she does not know what her total costs will be.
B) sell the additional cap, since the marginal revenue is greater than the marginal cost
for the unit.
C) realize that her production is not profitable and shut down her business.
D) offer to sell 20 additional caps, since it must be profitable.
Provided that there are no external benefits or costs, resources are efficiently allocated
when:
A) P = MR.
B) P = AVC.
C) P = MC.
D) MC = AVC.
Figure: Production Possibility Frontier
(Figure: Production Possibility
Frontier) Look at the figure Production Possibilities Frontier. Points A, B, E, and F:
A) indicate combinations of cars and computers that society can produce using all of its
resources efficiently.
B) show that the opportunity cost of cars increases as more cars are produced but that of
more computers decreases as more computers are produced.
C) indicate that society wants computers more than cars.
D) indicate constant opportunity costs for cars and increasing opportunity costs for
computers.
Monopolistically competitive firms:
A) engage in collusive activity to maximize profit.
B) are very similar to perfect competitors in producing at the minimum ATC.
C) earn a positive economic profit if price is greater than ATC.
D) will set price where MC > MR.
Producers will supply an inefficiently low quality of a good if the government imposes:
A) a price control.
B) an excise tax.
C) a binding price floor.
D) a binding price ceiling.
Which of the following is a principle of the insurance industry?
A) Trade in risk can produce mutual gains.
B) Diversification can increase risk.
C) Deductibles add to the problem of moral hazard.
D) Adverse selection should be used to reduce insurance costs.
(Table: Workers and Corn Output) Look at the table Workers and Corn Output. Laura is
a price-taking farmer who produces corn. Assume the wage rate for workers is $125 and
the price per bushel of corn is $10. Suppose Laura is employing seven workers. If she
reduces employment to six workers, her profits will:
A) increase by $20.
B) decrease by $970.
C) increase by $105.
D) increase by $90.
The model of monopolistic competition characterizes a city's market for plumbing
services. Suppose that the market is initially in long-run equilibrium, and then demand
for plumbing services increases. In the short run, plumbing services' price will _____
and output will _____.
A) fall; fall
B) not change; not change
C) rise; rise
D) rise; fall
If the marginal social benefit received from a good is less than the marginal social cost
of production:
A) an increase in production will improve society's well-being.
B) a decrease in production will improve society's well-being.
C) no change in production can improve society's well-being.
D) the market is producing too little of the good.
Figure: The Demand Curve
(Figure: The Demand Curve) Look at the figure The Demand Curve. By the midpoint
method, the price elasticity of demand between $6 and $7 is approximately:
A) 0.19.
B) 1.00.
C) 1.86.
D) 5.40.
Because of monopoly, consumers experience _____ than with perfect competition.
A) more choices
B) larger quantities
C) higher quality
D) higher prices
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 economic profits to _____.
A) decrease; become economic losses
B) decrease; fall to zero
C) not change; fall
D) increase; increase
A _____ wage will _____ the _____ leisure.
A) lower; increase; opportunity cost of
B) higher; always decrease; amount of time spent on
C) higher; increase; opportunity cost of
D) lower; not affect; amount of time spent on
Imports are good and services that are:
A) sold outside of the country.
B) domestically produced.
C) purchased from another country.
D) purchased inside the country.
If the price of tacos increases from $1 to $2 and customers decrease their consumption
from 10 tacos to 8 tacos, what is the price elasticity of demand (by the midpoint
method)?
A) 1.5
B) 1
C) 0.33
D) 0.5
The implicit cost of capital is:
A) the explicit cost of capital that the firm might have used but didn't need to.
B) depreciation.
C) the opportunity cost of the capital used by a business.
D) the cost of human capital.
Risk-averse individuals:
A) will not gamble at casinos such as those found in Las Vegas.
B) will pay higher insurance premiums based on their risk aversion.
C) are a minority of the population.
D) have upward-sloping marginal utility functions.
