A firm hires labor, capital, and land to produce tomatoes. Currently the marginal
product of the last unit of labor input is 20, the marginal product of the last unit of
capital input is 30, and the marginal product of the last unit of land input is 100. The
market wage is $10 and the market price for capital is $15. If the firm is using the
optimal combination of inputs, then the price of land is
A) $2.
B) $20.
C) $50.
D) indeterminate from the given information.
Throughout the developing world, ________ is a problem that affects education.
A) student absenteeism
B) teacher absenteeism
C) an excess supply of classrooms
D) Both A and B are correct.
Figure 7.11
Refer to Figure 7.11. If the given isocost line represents the firm’s level of total cost, the
________ point represents the firm’s optimal combination of capital and labor.
A) A
B) B
C) C
D) 50 units of capital and 50 of labor
Figure 16.2
Refer to Figure 16.2. The ________ imposed as a result of producing the market
(unregulated) level of fertilizer is $350.
A) marginal damage cost
B) total damage
C) marginal private cost
D) marginal social cost
Figure 20.1
Refer to Figure 20.1. The opportunity cost of producing a bushel of alfalfa in the United
States is
A) twice as much as that in Canada.
B) half as much as that in Canada.
C) the same as that in Canada.
D) four times as much as that in Canada.
In which of the following oligopoly models do firms not always produce where price
exceeds marginal cost?
A) collusive oligopoly model
B) kinked demand curve model
C) Cournot model
D) contestable market model
Related to the Economics in Practice on page 222: If labor productivity increases and
the supply of labor increases, the equilibrium wage rate
A) will increase.
B) will decrease.
C) will remain constant.
D) may increase, decrease, or remain constant.
Figure 15.3
Refer to Figure 15.3. Gwen’s Country Curtains is currently manufacturing and selling
1,000 pairs of curtains per month. The ________ for this company is $80,000.
A) total cost
B) profit
C) total revenue
D) fixed cost
If a product’s demand decreases as its supply simultaneously increases, the marginal
revenue product curve will
A) shift to the right.
B) shift to the left.
C) remain unchanged.
D) either shift to the left, shift to the right, or remain unchanged depending upon what
happens to product price.
Equilibrium in this market occurs at the intersection of curves S and D.
Figure 4.6
In figure 4.6, the area of [A + B + C] represents
A) producer surplus.
B) consumer surplus.
C) consumer surplus plus producer surplus.
D) consumer surplus minus producer surplus.
Related to the Economics in Practice on page 360: Insurance companies are interested
in being legally allowed to obtain the results of genetic testing before deciding on
issuing insurance policies to potential buyers, which would lessen the problem of
________ in the health insurance market.
A) moral hazard
B) market signaling
C) adverse selection
D) risk-loving
Which of the following are examples of tools used to reduce adverse selection?
A) universal health coverage
B) dealer warranties
C) lemon laws
D) all of the above
Many economists argue that items such as food and clothing should be exempt from
sales tax because low-income people spend a greater percentage of their income on
these goods than do high-income individuals. This argument is motivated by concerns
over
A) economic stability.
B) economic growth.
C) equity.
D) efficiency.
To produce one unit of output, a firm can use either one unit of capital or one unit of
labor. In this case, capital and labor are
A) complementary inputs.
B) substitutable inputs.
C) both complementary and substitutable inputs.
D) unrelated inputs.
________ occurs when price- and quantity-fixing agreements among producers are
implicit.
A) Tacit collusion
B) A Cournot model
C) A price-leadership model
D) A monopoly
Figure 1.5
Refer to Figure 1.5. In many industries, as firms produce additional units, average costs
of production decline as the firm produces an additional unit, but average costs declines
by a smaller and smaller amount as production continues to increase. If output is
graphed on the horizontal axis and average costs are graphed on the vertical axis, the
relationship between average costs and output would be like which of the following
panels?
A) A
B) B
C) C
D) D
The average variable cost of producing ice cream sundaes are minimized when 100
sundaes are produced. The total cost of producing 100 sundaes is $500. If fixed cost of
production is $200, what is the marginal cost of producing the 100th sundae?
A) $2
B) $3
C) $5
D) indeterminate from the given information
A firm ________ in the short-run has an incentive to expand its long-run scale of
operation.
A) breaking even
B) earning positive profits
C) that shuts down
D) making a loss
Compared to developing countries, developed countries tend to have a(n) ________
percentage of the labor force in ________ areas.
A) larger; urban
B) larger; rural
C) equal; urban
D) equal; rural
A motorcycle manufacturer produced 8,000 motorcycles, but sold only 6,500 of them.
We would classify the remaining 1,500 motorcycles as
A) a loss to the firm.
B) part of the firm’s tangible capital.
C) part of the firm’s intangible capital.
D) a factor of production.
To maximize profit, a ________ firm will produce where marginal revenue equals
marginal cost.
A) monopolistically competitive
B) perfectly competitive
C) monopolistic
D) All of the above are correct.
In a monopoly, the market demand curve is
A) the same as the demand curve facing the firm.
B) the summation of all the individual firm’s cost curves.
C) nonexistent.
D) the marginal cost curve above minimum average variable cost.
Figure 5.2
Refer to Figure 5.2. If the price of a hamburger decreases from $8 to $6, the price
elasticity of demand equals ________. Use the midpoint formula.
A) -0.24
B) -1.0
C) -1.4
D) -2.0
Figure 6.6
Refer to Figure 6.6. Bill’s budget constraint was originally EF. If his new budget
constraint is AD, then his income
A) increased.
B) decreased.
C) increased, and the price of bell peppers decreased.
D) decreased, and the price of bell peppers increased.
Suppose you want to buy a popular brand of digital camera. Every store in town is out
of stock. You are willing and able to pay the current market price of $300 for a camera,
but you cannot find any available. Is the market for the digital camera in equilibrium? If
not, is the market equilibrium price of the camera above or below $300? Use supply
and demand analysis to explain your answer.
If marginal cost is above average variable cost, then
A) average variable cost is increasing.
B) marginal cost must be decreasing.
C) average variable cost is constant.
D) average variable cost is decreasing.
The tragedy of commons relates to the idea that common owned resources tend to be
A) overvalued.
B) underutilized.
C) overused.
D) economically useless.
When measuring ________ for the purpose of classifying people as poor, the
measurement used is money income.
A) employment
B) wealth
C) income
D) All of the above are correct.
Figure 15.5
Refer to Figure 15.5. Assume The Custom Sweater Shop has fixed costs of $350 and is
a monopolistically competitive firm. To maximize profits in the short run, this firm
should produce ________ personalized sweaters.
A) 0
B) 50
C) 75
D) 100
Figure 20.2
Refer to Figure 20.2. The theory of comparative advantage suggests that
A) England should export trucks and import cars.
B) England should export both trucks and cars.
C) the United States should export both trucks and cars.
D) the United States should import cars and export trucks.
Explain what market signaling is?
Explain the strategy of product differentiation?
Explain the income effect and the substitution effects of a price change for a normal
good.
If an indifference curve were concave instead of convex to the origin, what implication
would that have if the consumer reduces consumption of one good but still wants to
enjoy the same level of utility in a two-good world?
Define the process of queuing.
Graph the following equation and then calculate the slope. If variable X increases by 5,
what will happen to variable Y?
Y = 45 – 5X
What is social capital? Give an example.
What is meant by increasing returns to scale?
The Whatsa Widget Company produces widgets in a perfectly competitive market. The
price of a widget is $9. Whatsa is currently producing at a rate where the marginal cost
of production is $15. Is this company maximizing profit at its current level of output?
Explain.
If a firm is earning just enough to cover all its economic profits does that mean it’s not
making a profit?
What is a quota?
Figure 13.3
Using the Figure 13.3 above explain why this firm could not possibly represent a
monopolist. What type of firm is represented by this graph and why?
What role do households play in the market for inputs? What role do firms play?
Explain what is meant by the term production.
Review the following statement. “He who has choice has pain.” What is meant by this?
How does a firm measure its profit?
Why is the manager of a company typically not the same person as an entrepreneur?
When the price of raisins falls, the quantity of raisins demanded rises. Explain this
change in terms of income and substitution effects.