Table 14.1
B’s Strategy
Refer to Table 14.1. If both firms follow a maximin strategy, the equilibrium in the
game is ________.
A) (Raise Price, Don’t Raise Price)
B) (Raise Price, Raise Price)
C) (Don’t Raise Price, Raise Price)
D) (Don’t Raise Price, Don’t Raise Price)
Table 19.1
Relating to the Economics in Practice on page 392: Refer to Table 19.1. At an income
level of $20,000, the average tax rate is
A) 1%.
B) 5%.
C) 10%.
D) 20%.
You use $3,000 of your own money to start a dog-sitting service. During the first year
you earn a 10% return on your investment. If the current interest rate on savings is 7%,
you earn an economic profit of
A) -$90.
B) $90.
C) $210.
D) $300.
Figure 5.3
Refer to Figure 5.3. Using the midpoint formula, if the price of a gardenburger is
decreased from $7 to $6, the price elasticity of demand equals ________, and the
decrease results in a(n) ________ in total revenue.
A) -.13; decrease
B) -.69; increase
C) -1.44; increase
D) -13; increase
Salaries of NBA players, like Dirk Nowitski, are
A) too high.
B) related to the additional revenues team owners expect to enjoy as a result of having
them on the team roster.
C) the result of perfectly competitive markets.
D) All of the above are correct.
Table 10.2
Refer to Table 10.2. The most firms would be willing to pay per worker and hire three
total workers is
A) $120.
B) $150.
C) $200.
D) $250.
Total variable costs ________ with increasing output.
A) always increase
B) always decrease
C) initially increase and then decrease
D) initially decrease and then increase
If your tuition is $25,000 this semester, your books cost $1,500, you can only work 20
rather than 40 hours per week during the 15 weeks you are taking classes and you make
$15 per hour, and your room and board is $7,500 this semester (same as if not attending
college), then your opportunity cost of attending college this semester is
A) $26,500.
B) $26,800.
C) $31,000.
D) $38,500.
According to the theory of comparative advantage, a country should specialize in and
________ goods with ________ opportunity cost.
A) import; the lowest
B) import; negative
C) export; the lowest
D) export; the highest
In the short run
A) existing firms do NOT face limits imposed by a fixed input.
B) all firms have costs that they must bear regardless of their output.
C) new firms can enter an industry.
D) existing firms can exit an industry.
If it is possible to make person A better off without making person B worse off, then the
distribution of goods must be ________.
A) efficient
B) inefficient
C) equitable
D) inequitable
The market will produce ________ of education when we don’t consider its external
benefits.
A) an efficient level
B) more than an efficient level
C) less than an efficient level
D) zero units
A short run total cost schedule is a ________ cost schedule shifted upward by the
amount of ________ cost.
A) total fixed; marginal
B) marginal; total variable
C) total variable; total fixed
D) total variable; marginal
Market failure occurs when
A) firms that are incurring losses leave a market.
B) perfectly competitive firms produce where MR = MC.
C) resources are misallocated, or allocated inefficiently.
D) firms are only able to earn a normal profit.
Investors put up $520,000 to construct a building and purchase all equipment for a new
restaurant. The investors expect to earn a minimum return of 10 per cent on their
investment. The restaurant is open 52 weeks per year and serves 900 meals per week.
The fixed costs are spread over the 52 weeks (i.e. prorated weekly). Included in the
fixed costs is the 10% return to the investors and $1,000 per week in other fixed costs.
Variable costs include $1,000 in weekly wages and $600 per week for materials,
electricity, etc. The restaurant charges $5 on average per meal.
Total cost per week is
A) $1,000.
B) $1,600.
C) $2,000.
D) $3,600.
Equilibrium in this market occurs at the intersection of curves S and D.
Figure 6
In figure 4.6, producer surplus is area G if price is
A) below P1.
B) P1.
C) P2.
D) P3.
Figure 3.11
Refer to Figure 3.11. Assume hamburgers are a normal good. An increase in income
will cause a movement from
A) Point A to Point B.
B) Point G to Point F.
C) D1 toD2.
D) S1 toS2.
The quantity of investment demanded by firms is ________ related to the interest rate.
A) inversely
B) directly
C) not
D) only
If TR equals TC, a firm
A) earns a positive profit.
B) earns a profit of $0.
C) suffers a loss.
D) shuts down.
Table 8.2
Refer to Table 8.2. If Sherry produces one pair of earrings, her total variable costs are
A) $50.
B) $100.
C) $150.
D) indeterminate from this information.
If you ________ prevent at a low cost another person from enjoying the benefits of a
good that you produced, the good is nonexcludable. This is a characteristic of a
________ good.
A) can; public
B) cannot; public
C) cannot; private
D) can; private
As interest rates ________, a firm would have to pay more now to purchase the same
number of future dollars.
A) fall
B) rise
C) remain unchanged
D) Interest rates have no bearing on the payment for future dollars.
Related to theEconomics in Practice on page 55: The Amazon Kindle and the electronic
textbooks available for the Kindle are complementary goods. Electronic textbooks and
traditional, hard copy textbooks are substitute products. If the price of traditional, hard
copy textbooks increases,
A) demand for traditional, hard copy textbooks decreases and demand for electronic
textbooks increases.
B) the quantity of traditional, hard copy textbooks demanded decreases and demand for
electronic textbooks increases.
C) the quantity of electronic textbooks demanded increases and demand for the Kindle
increases.
D) the quantity of electronic textbooks demanded increases and demand for traditional,
hard copy textbooks decreases.
Table 19.4
Refer to Table 19.4. The tax rate structure in this example is
A) proportional.
B) progressive.
C) regressive.
D) marginal.
Figure 10.1
Refer to Figure 10.1. This firm is currently hiring 16 workers and paying a wage of $10.
This firm should
A) do nothing because it is maximizing profits.
B) reduce employment to 15 workers to increase profits.
C) reduce employment to 14 workers to increase profits.
D) increase employment to 17 workers to increase profits.
In a laissez-faire economy, ________ what gets produced, how it is produced, and who
gets it.
A) the behavior of buyers and sellers determines
B) the central government authority determines
C) firms but not consumers determine
D) consumers but not firms determine
Below are drawn cost curves for Clips Ahoy Barber Shop, a monopolistically
competitive firm.
Figure 15.1
Refer to Figure 15.1. The ________ haircut is $16.
A) average total cost of a
B) marginal cost of a
C) profit from each
D) profit-maximizing price for a
The price-leadership model does NOT assume the
A) demand elasticity in response to an increase in price is different from the demand
elasticity in response to a price cut.
B) industry is made up of one large firm and a number of smaller, competitive firms.
C) dominant firm maximizes profit.
D) dominant firm allows the smaller firms to sell all they want at the price the leader
has set.
Relating to the Economics in Practice on page 360: A long-term study of Huntington’s
disease patients found that individuals who carry the Huntington’s disease genetic
mutation are up to five times as likely as the general population to buy long-term care
insurance. This is an example of ________ in the health insurance market.
A) moral hazard
B) risk-loving
C) adverse selection
D) market signaling
Which one of the following is NOT a source of market failure?
A) externalities
B) public goods
C) imperfect information
D) price ceilings
Figure 13.7
Refer to Figure 13.7. The Memory Company’s ________ level of output is 200 high
school yearbooks.
A) break-even
B) profit-maximizing
C) loss-maximizing
D) shut down
Assume Dell Computer Company operates in a perfectly competitive market producing
5,000 computers per day. At this output level, price equals this firm’s marginal cost. To
maximize profits, Dell should
A) make no adjustments as they are already maximizing their profits.
B) increase their output.
C) decrease their output.
D) stop producing since it is earning a loss.
The optimal level of provision of public goods is where society s total willingness to ʹ
pay per unit is equal to the
A) total cost of producing the good.
B) average cost of producing the good.
C) variable cost of producing the good.
D) marginal cost of producing the good.
Figure 5.4
Refer to Figure 5.4. The demand for milkshakes is unit elastic at Point C. If a store
reduces the price of a milkshake from P3 to P4, its total revenue will
A) increase.
B) decrease.
C) remain constant.
D) either increase or decrease.
To the extent that oligopolies ________, there is the promise of new and exciting
products.
A) differentiate their products
B) advertise
C) produce homogeneous products
D) Both A and B are correct.
Why is it true that under monopolistic competition the price is above marginal revenue
while under pure competition price is equal to marginal revenue?
Assume that the economy has two sectors, milk and orange juice, and that both sectors
are initially in long-run competitive equilibrium. Milk and orange juice are substitute
goods. Trace the effects of a change in preferences that increases the demand for orange
juice.
Do firms in a perfectly contestable market earn positive economic profit in the long
run? Explain.
Prove that the total cost curve and the total variable cost curve have the same slope.
During the mid 1980s the price of gasoline fell. Americans purchased not only more
gasoline but other goods as well. Use consumer theory to explain why this happened.
What is the relationship between average fixed cost and output?
Graph the following equation with qs on the horizontal axis and calculate the slope:
P = 6 + 3qs.
If grocery stores are able to place their own private label “generic” products wherever
they wish, why do some managers deliberately put them on shelves that are hard to get
to or difficult to notice?
Draw a supply curve for a hypothetical firm and explain the relationship.
Suppose that a state needs to build both prisons and schools with a budget limited to 10
million dollars. Schools cost $1 million each to build and prisons cost $2 million each
to build.
Assume that the state originally spent one-half of its budget on schools and one-half on
prisons. What was the production of schools and prisons? Could the same number be
achieved after the price of producing prisons falls to $1.5 million and the price of
producing schools rises to $2 million? Explain.
Define wealth, or net worth.
Why might a firm remain in operation even if it is earning zero economic profit?
Who makes investment decisions in most modern industrial societies? Discuss the roles
played by firms, households, and the capital market.
Suppose a firm is considering locating a manufacturing facility in a poorer country
where wage rates are much lower than in the United States. Why would social capital
be a factor in their decision to relocate? Explain in terms of the impact that a lack of
social capital may have on the marginal revenue product
It is often argued that gas stations operate inefficiently because they have “excess
capacity” in the form of more pumping stations than they would otherwise need if they
were operating under conditions of perfect competition. However, can you think of any
reason why a gas station franchise owner would wish to install more pumps than he
knows will rarely if ever be fully utilized at any one time? Can you explain the
economic logic of this “apparent” wastefulness?
Describe the Clayton Act.
Often you will hear students say that a college degree is nothing more than a piece of
paper. They argue that there are many successful people who don”t go to college that
are managing large corporations or otherwise have fulfilling and rewarding careers.
Given that this is true does this undermine the usefulness of a college degree as a
signaling device?
Assume that at very low tax rates the government collects a very modest amount of
revenue from personal taxes. As the rate is raised the government collects more revenue
but at a decreasing rate. Suppose furthermore that at some tax rate of let’s say 30% the
total amount of tax revenue is maximized. Any tax rate above that leads to a reduction
in tax revenue collected. From this information and that contained in the table below
graph the relationship between the tax rate and tax revenue with the tax rate on the
horizontal axis and tax revenue on the vertical axis.
Suppose the price and quantity of steel fell at the same time. What might be the likely
explanation of this using supply and demand analysis?