When ________ for a monopolistically competitive firm, the firm is in long-run
equilibrium.
A) MR = MC and P > ATC
B) MR > MC and P > ATC
C) MR = MC and P = ATC
D) MR < MC and P < ATC
You own and are the only employee of a company that sets odds for sporting events.
Last year your total revenue was $60,000. Your costs for rent and supplies were
$50,000. To start this business you invested an amount of your own capital that could
pay you a $20,000 a year return.
During the year your economic costs were
A) $70,000.
B) $60,000.
C) $50,000.
D) $20,000.
Table 3.1
Refer to Table 3.1. In this market there will be an excess demand of 300 pizzas at a
price of
A) $6.
B) $9.
C) $12.
D) $15.
Figure 6.1
Refer to Figure 6.1. AC represents Tom’s budget constraint. Point D then represents a
point that is
A) an available option, as Tom is just spending all of his income.
B) available, but at which he does not spend all his income.
C) not available because it represents a combination of hamburgers and hot dogs that he
cannot purchase with his income.
D) in his opportunity set but not on his budget constraint.
Figure 15.2
Refer to Figure 15.2. If We Do Hair maximizes profits as a monopolistically
competitive firm, its ________ equals $1,280.
A) total cost
B) profit
C) total revenue
D) loss
An individual earning $40,000 pays $3,200 in taxes. The marginal tax rate on any
income earned above $40,000 is 20%.
When this person earns $40,000, her average tax rate is
A) 8%.
B) 5%.
C) 20%.
D) indeterminate from this information.
The reoccurrence of contagious diseases should be significantly lower in a technically
advanced nation such as the United States. This statement is best described as
A) a normative statement.
B) a positive statement.
C) a marginal statement.
D) an implication of an efficient market.
A pure monopoly has an HHI value of
A) 1,000.
B) 5,000.
C) 10,000.
D) 100,000.
Which of the following is NOT a resource as the term is used by economists?
A) land
B) labor
C) buildings
D) money
A society can produce two goods: green tea and vitamin water. As this society moves
down its production possibility frontier, producing more and more units of vitamin
water, the opportunity cost of producing vitamin water increases. The society’s
production possibilities frontier will be
A) positively sloped and bowed outward.
B) positively sloped and bowed inward.
C) negatively sloped and bowed outward.
D) negatively sloped and bowed inward.
The lack of capital in developing nations causes
A) labor productivity to remain low.
B) the savings rate to be too high.
C) output to be low in the present but high in the future.
D) consumption rates to be too high.
You agree to lend a friend $20,000 for a year at an annual interest rate of 45%. At the
end of the year your friend must pay you ________ in interest.
A) $133
B) $750
C) $1,900
D) $9,000
________ is a source of market failure.
A) An externality
B) A public good
C) Imperfect information
D) All of the above are correct.
A firm is currently producing in the inelastic portion of its demand curve. What course
of action do you recommend for it, assuming it wants to raise revenue?
A) Continue producing at the current output level, because it maximizes its total
revenue by producing in the inelastic portion of its demand curve.
B) Reduce price, because if it reduces price and demand is inelastic, total revenue will
increase.
C) Increase price, because if it increases price and demand is inelastic, total revenue
will increase.
D) Continue selling at the same price, but increase the amount it produces.
Table 8.3
Refer to Table 8.3. If the firm is in a perfectly competitive industry with a market price
of $30 per unit, the firm will produce ________ units and earn a profit of ________.
A) three; $20
B) four; $20
C) four; -$20
D) five; $30
According to the Tiebout hypothesis,
A) an optimal (or most efficient) level of output exists for every public good.
B) an efficient mix of public goods is produced when local land/housing prices and
taxes reflect consumer preferences.
C) a good or service is usually so costly that its provision generally does not depend on
whether any single person pays.
D) under certain conditions, when externalities are present, private parties can arrive at
the efficient solution without government involvement.
Assume there are two people in a society. Person A is willing to pay $140 to have one
unit of a public good produced, and Person B is willing to pay $160 to have one unit of
a public good produced and $140 to have two units produced. As a result, society would
be willing to pay a price of ________ of this public good.
A) $300 for 1 unit
B) $200 for 3 units
C) $200 for 1 unit
D) $160 for 5 units
The change in the ________ of a good leads to a change in ________, which leads to a
________.
A) price; quantity supplied; movement along a supply curve
B) quantity; supply; change in demand
C) supply; demand; change in price
D) demand; quantity demanded; supply
The ________ is the product of the marginal product of labor and the price of the
output.
A) marginal factor cost
B) total revenue
C) average revenue
D) marginal revenue product
Figure 3.7
Refer to Figure 3.7. A decrease in demand is represented by the movement
A) from D2 to D1.
B) from D2 to D3.
C) along D2 from Point B to Point A.
D) along D2 from Point B to Point C.
The marginal benefit for a particular food is described by MB = 30 – q,
where q refers to the quantity of the food. The marginal cost of producing the food is
described by MC = 2q. There is a negative externality associated with food production
and the marginal social cost of food production is MSC = 4q.
The marginal damage cost is ________.
A) MDC = 2q
B) MDC = 6q
C) MDC = 8q
D) Indeterminate from the given information
Hi Phi Sound Unlimited has a monopoly over the installation of surround sound
systems. Hi Phi Unlimited’s total revenue from installing 20 sound systems is $30,000,
and its total revenue from installing 21 sound systems is $33,800. The price of the 21st
sound system is ________ the marginal revenue of that system.
A) equal to
B) greater than
C) less than
D) Indeterminate from the given information.
Table 9.1
Refer to Table 9.1. The lowest output this firm would produce before shutting down is
________ unit(s).
A) 1
B) 2
C) 3
D) 4
Related to the Economics in Practice on page 719: When the government of
Bangladesh built flood embankments on the sides of rivers, this represented an
investment in
A) social overhead capital.
B) human capital.
C) financial capital.
D) intangible capital.
A firm will choose to shut down rather than operate as long as
A) price is greater than or equal to AFC.
B) AVC is greater than AFC.
C) price is less than AVC.
D) MC is greater than AVC.
For inferior goods, the substitution and income effects of a price decrease will do which
of the following?
A) Both will decrease the quantity of the good demanded.
B) Both will increase the quantity of the good demanded.
C) The substitution effect will increase the quantity of the good demanded while the
income effect will decrease the quantity of the good demanded.
D) The substitution effect will decrease the quantity of the good demanded while the
income effect will increase the quantity of the good demanded.
Figure 3.19
Refer to Figure 3.19. When the economy moves from Point C to Point A, there has been
A) an increase in demand and an increase in supply.
B) an increase in demand and an increase in quantity supplied.
C) an increase in quantity demanded and a decrease in supply.
D) an increase in quantity demanded and an increase in supply.
Rented DVDs and movies shown in theaters are substitutes. Rented DVDs and plasma
TVs are complements. Plasma TVs and movies shown in theaters are normal goods.
People watch rented DVDs more often in the winter than in the summer.
The number of stores renting DVDs is reduced by 25%, reducing the number of DVDs
available. Which of the following would occur?
A) The rental price of DVDs would increase, and the price of plasma TVs and movie
tickets would decrease.
B) The rental price of DVDs would increase, but the price of plasma TVs and movie
tickets would be unaffected.
C) The rental price of DVDs and movie tickets would decrease, but the price of plasma
TVs would increase.
D) The rental price of DVDs and the price of movie tickets would increase, but the
price of plasma TVs would decrease.
You will still be able to listen to NPR (National Public Radio) whether or not you
contribute to their fund-raising campaign, so you decide not to contribute. This is an
example of the
A) private good problem.
B) free-rider problem.
C) rival in consumption problem.
D) drop-in-the-bucket problem.
Figure 4.4
Refer to Figure 4.4. Assume that initially there is free trade. If the United States then
imposes a $25 tax per barrel of imported oil,
A) the quantity demanded of oil will be reduced by 4 million barrels per day.
B) the quantity of oil supplied by U.S. firms will increase by 8 million barrels per day.
C) U.S. imports of oil will increase by 4 million barrels per day.
D) the price of oil in the U.S. will increase to $150 per barrel.
Economists usually assume that capital is a ________ input in the ________ run.
A) variable; short
B) fixed; short
C) fixed; long
D) variable; short and long
To maximize profit, a monopolistically competitive firm will produce where
A) marginal revenue equals price.
B) price equals marginal cost.
C) price equals average total cost.
D) marginal revenue equals marginal cost.
Figure 9.7
Refer to Figure 9.7. If demand for wheat is D3, then in the long run
A) the firm will shut down.
B) the firm will exit the industry.
C) new firms will enter the industry, and the current firms will expand production.
D) None of the above is correct.
In the ________ market, households supply their savings to firms that demand funds in
order to buy capital goods.
A) money
B) savings
C) investment
D) capital
Name three determinants of elasticity identified in the text. Explain how each one
affects the responsiveness of demand.
When the price of good X rises, the demand for good Y falls. Explain what this
relationship implies about the two goods.
The university you attend needs to increase total revenue. The president suggests that
by raising tuition by 5%, total revenue will increase. However, after the tuition increase,
total revenue actually fell. What can you infer about the price elasticity of demand for
an education at your university? Why is this likely to be true? What did your university
president assume to be true about the price elasticity of demand for an education at your
university?
List four sources of market failure.
Using the graph below draw a marginal cost curve that would likely be the result. Use
the output level of 200 as a reference point and explain why you drew it the way you
did.
Assume that you are the new CEO of a major corporation that has five major product
lines each run as separate corporations. You discover that if you invested the company’s
money outside of the firm that it could earn a 15% rate of return on the investment. You
tell all the presidents of each of these subsidiary companies that in order for them to
remain with the company that their return on capital must equal to or exceed 15% rate
of return. Use two economic principles discussed in chapter 1 to explain why the CEO’s
advice is sound.
Explain how it is possible for marginal product to fall while average product is rising?
Oscar and Felix room together in an apartment in New York City. Oscar is very messy
and Felix is obsessed with neatness. Felix cannot stand a messy apartment and is even
willing to pay Oscar $50 per week for him to clean up after himself. Oscar hates to
clean up so much that he is willing to pay Felix $30 per week to maintain his messy
habits. If Felix has the right to a clean apartment explain why the apartment will be
clean. If Oscar has the right to remain messy explain why the apartment will still be
clean.
Explain the difference between a change in demand and a change in quantity
demanded.
When does an oligopoly market result in a cartel? What conditions must be present for
the cartel to be successful?
Explain how the burden of a payroll tax changes if labor supply is relatively inelastic?
Explain how your answer would change if labor supply is relatively elastic?
List the five approaches used to solve the problem of externalities.
Use a graph to illustrate why monopoly leads to an inefficient level of output.
What are public assistance programs?
Most goods and service that we enjoy are bought and sold in the market.
However,leisure is something that we value but we do not buy it explicitly. What is the
price of leisure? Explain what would happen to the amount of leisure that we would
enjoy if the wage rate went up. Make sure to use the substitution and income effect to
explain your answer and postulate whether leisure is a normal or inferior good. Why is
the ultimate net effect not determinable by appealing to logic alone?
What is partial equilibrium analysis?
What is the primary source for capital available to businesses? Name four methods of
channeling these funds.
Consider two firms that are in the same industry and the industry is competitive.
Initially each firm employees equal amounts of type A and type B labor. Labor is
perfectly mobile between the two firms, and type A and type B labor are perfect
substitutes. Diagram separately the equilibrium conditions in the labor markets for type
A and type B labor. What must be true about the wages both firms face? Why? Now
assume that one of the firms decides not to hire type A labor due to some type of
discrimination. What do you think will happen to the type A labor supply for both
firms? How do you think the action will affect the wages for type A labor relative to
type B? Why?