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As George ate pizza during one recent outing, he found that he enjoyed each additional
slice less and less. This implies that his marginal benefit was:
A) decreasing.
B) increasing.
C) constant.
D) vertical.
Decreasing and increasing returns to scale account for the shape of the:
A) short-run average total cost curve.
B) short-run average variable cost curve.
C) long-run average total cost curve.
D) marginal cost curve in both the short run and the long run.
Anna is willing to sell her 20-year-old boat, but not for less than $2,300. For Anna, the
cost of selling this boat is _____ $2,300.
A) more than
B) less than
C) equal to
D) There is not enough information to answer the question.
Assuming that desktop computers are normal goods, which of the following will NOT
increase demand for desktop computers?
A) an increase in the incomes of computer users
B) cool new computer games that can only be played on desktop computers
C) a very large computer company going out of business
D) the price of notebook computers increasing
(Table: Cakes) Look at the table Cakes. Pat is opening a bakery to make and sell special
birthday cakes. She is trying to decide how many mixers to purchase. Her estimated
fixed and average variable costs if she purchases one, two, or three mixers are shown in
the table. Assume that average variable costs do not vary with the quantity of output. If
Pat purchases two mixers and bakes 400 cakes per day, what is her average fixed cost?
A) $0.02
B) $3.75
C) $500
D) $1,508
The market for apples is in equilibrium at a price of $0.50 per pound. If the government
imposes a price ceiling in the market at $0.40 per pound:
A) quantity demanded will decrease.
B) quantity supplied will increase.
C) there will be a shortage of the good.
D) the price ceiling will not affect the market price or output.
A community college charges lower tuition fees to town residents than to nonresidents.
This pricing strategy increases the profits of the community college. Using this
information, we can conclude that nonresidents must have a _____ demand for
attending the community college than residents.
A) less price-elastic
B) greater
C) lower
D) more price-elastic
Each month Jessica buys exactly 15 Big Macs regardless of the price. Jessica's price
elasticity of demand for Big Macs is:
A) 0.
B) 1.
C) greater than 1.
D) less than 1 but greater than 0.
Monopolistically competitive firms produce less than the output at which average total
cost is minimized in the long run. As a result, there is:
A) irrational capacity.
B) excess capacity.
C) product differentiation.
D) zero economic profit.
Figure: Profit Maximization for a Firm in Monopolistic Competition
(Figure: Profit Maximization for a Firm in Monopolistic Competition) Look at the
figure Profit Maximization for a Firm in Monopolistic Competition. Suppose that an
innovation reduces a firm's costs from ATC to ATC¢. Before the innovation reduced the
cost, the firm's maximum economic profit was:
A) $0.
B) $30.
C) $750.
D) $4,500.
The persistent unwanted surplus that results from a price floor causes inefficiencies that
include all of the following EXCEPT:
A) inefficiently low quality.
B) inefficient allocation of sales among sellers.
C) wasted resources.
D) the temptation to break the law by selling below the legal price.
Decreases in the price of the good measured on the vertical axis will make the vertical
intercept _____ and make the budget line _____.
A) larger; steeper
B) larger; flatter
C) smaller; steeper
D) smaller; flatter
A regressive tax structure is one in which taxes:
A) rise less than in proportion to income.
B) rise more than in proportion to income.
C) rise exactly in proportion to income.
D) stay the same regardless of income changes.
Scenario: Monopolist
The demand curve for a monopolist is P = 75 " 0.5Q, and the monopolist has the
following MC expressed as P = 2Q. Assume also that ATC at the profit-maximizing
level of production is equal to $12.50.
(Scenario: Monopolist) Look at the scenario Monopolist. The MR curve is:
A) P = 150 " 0.5Q.
B) P = 75 " Q.
C) P = 150 " Q.
D) P = 225 " Q.
Suppose an industry is composed of seven producers with market shares given in the
table that follows. Compute the Herfindahl"Hirschman index (HHI) for this market. A)
If firms B and C merge, how will this affect the HHI, all else equal? B) Instead, if firm
A splits into two equal-sized competing firms, how would this affect the HHI, all else
equal? Support your answers with specific calculations. Do your results make sense?
Beth promises to do Alice's taxes, and in exchange, Alice will set up several
spreadsheets for Beth's household budget. This trade will most likely:
A) be beneficial to both individuals.
B) hurt both individuals.
C) help Beth but hurt Alice.
D) help Alice but hurt Beth.
Ashley bought a new pair of jeans. When she walked out of the store, she thought, "I
got such a great deal; I would have paid $40 more for these jeans!" This best represents
the concept of:
A) consumer surplus.
B) producer surplus.
C) total surplus.
D) equilibrium.
One parent picks up the child from day care while the other parent goes to the grocery
store and begins to make dinner. This is an example of the principle that:
A) markets move toward equilibrium.
B) government policies can change spending.
C) there are gains from trade.
D) markets usually lead to efficiency.
(Table: Producer Surplus and Phantom Tickets) The table Producer Surplus and
Phantom Tickets shows the minimum price at which each of the students is willing to
sell a ticket to Phantom of the Opera. Assume that each student has only one ticket to
sell. If the price for Phantom tickets is $55, which student has the highest individual
producer surplus?
A) Tim
B) Laura
C) Rick
D) Ralph
Because of the lack of substitutes, the market for newly developed brand-name
prescription drugs is best considered to be:
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.
Among the following, which factor has been associated with the increase in income
inequality in the United States?
A) a decrease in households headed by single women
B) a reduction in the percentage of the population over age 65
C) a smaller gap between the wages of skilled and unskilled workers
D) the way technological change has affected labor demand
Assume that Siri is consuming the utility-maximizing quantities of pork and chicken.
We can conclude that:
A) the price of pork equals the price of chicken.
B) the marginal utility of pork equals the marginal utility of chicken.
C) the ratio of the marginal utility to price is the same for pork as it is for chicken.
D) Siri is consuming the same amount of pork and chicken.
Figure: Harold's Indifference Curves The figure shows three of Harold's indifference
curves for bread and cheese.
(Figure: Harold's Indifference Curves) Look at the figure Harold's Indifference Curves.
If the price of bread is $2 per loaf, the price of cheese is $4 per pound, and Harold has
$28 to spend on bread and cheese, Harold's optimal consumption bundle is _____
loaves of bread and _____ pounds of cheese.
A) 6; 4
B) 4; 3
C) 3; 2
D) 2; 8
When a market is efficient:
A) there is no way to make some people better off without making other people worse
off.
B) consumers who value buying a good the least are the ones who can purchase the
good.
C) producers whose willingness to accept a price above the market price can sell their
good.
D) there are ways to make everyone better off.
Because of an increase in the price of wheat, an important ingredient in the production
of bread, combined with an increase in the number of people consuming bread:
A) both the equilibrium price and quantity will increase.
B) equilibrium quantity will decrease, but equilibrium price may decrease, increase, or
stay the same.
C) both the equilibrium price and quantity will decrease.
D) equilibrium price will increase, but equilibrium quantity may decrease, increase, or
stay the same.
Average variable cost is the ratio of:
A) total cost to marginal cost.
B) total cost to the amount of variable input.
C) variable cost to the quantity of output.
D) marginal cost to the quantity of output.
