Table 14-7
The payoff matrix shown above assumes that Perfect Plants and Florabunda Florist
must decide whether to offer same-day delivery for their products. The matrix shows
how much profit each firm will earn if it does or does not offer same-day delivery. The
amount of profit for one firm depends on whether the other firm offers same-day
delivery.
Refer to Table 14-7. Which of the following statements is true?
A) Neither Perfect nor Florabunda have a dominant strategy.
B) Perfect’s dominant strategy is to offer same-day delivery; Florabunda’s dominant
strategy is to not offer same-day delivery.
C) Florabunda’s dominant strategy is to offer same-day delivery; Perfect’s dominant
strategy is to not offer same-day delivery.
D) The dominant strategy for both firms is to offer same-day delivery.
According to the production possibilities model, if more resources are allocated to the
production of physical and human capital, then which of the following is likely to
happen?
A) Fewer goods will be produced for consumption today.
B) The production possibilities frontier will shift inward in the future.
C) Future economic growth will decline.
D) The country’s total production will fall.
Figure 11-7
Figure 11-7 shows the cost structure for a firm.
Refer to Figure 11-7. When output level is 100, what is the total cost of production?
A) $20
B) $1,000
C) $1,200
D) $2,000
Which of the following statements is true?
A) Monopolists are price makers. All other firms are price takers.
B) Unlike other industries, monopoly industries have high barriers to entry.
C) Only monopoly firms are granted patents and copyrights.
D) Unlike other firms, a monopolist’s demand curve is the same as the market demand
curve.
The law of diminishing marginal returns
A) explains why the average total cost and marginal cost curves are U-shaped in the
short run.
B) explains why the average total cost, average fixed cost, and the marginal cost curves
are U-shaped in the short run.
C) causes average total costs to rise at a decreasing rate as output increases.
D) causes the difference between average total cost and average variable cost to get
smaller as output increases.
Figure 2-10
Figure 2-10 shows the production possibilities frontiers for Tahiti and Bora Bora. Each
country produces two goods, milk and honey.
Refer to Figure 2-10. What is the opportunity cost of producing one gallon of honey in
Tahiti?
A) 5/6 of a gallon of milk
B) 9 gallons of milk
C) 2 gallons of milk
D) 1 1/3 gallons of milk
A monopoly firm is the only seller of a good or service that
A) has a perfectly elastic demand.
B) has no close complements.
C) does not need to be advertised.
D) does not have a close substitute.
A recent study indicated that “Stricter college alcohol policies such as raising the price
of alcohol, or banning alcohol on campus, decreases the number of students who use
marijuana.” This indicates that the cross-price elasticity between alcohol and marijuana
is positive.
Table 13-4
Table 13-4 lists estimated revenues and costs (per week) for plastic vials (100 vials per
box) for the Victoria Biological Supplies Company. Victoria sells plastic vials to
university and private research laboratories.
Refer to Table 13-4. At Victoria’s profit-maximizing output
A) profit equals $2.
B) total revenue equals $24 and total cost equals $20.
C) total revenue equals $25 and total cost equals $22.
D) total revenue equals $21 and total cost equals $17.
The slope of a demand curve is not used to measure the price elasticity of demand
because
A) the slope of a linear demand curve is not constant.
B) the slope of a line cannot have a negative value.
C) the measurement of slope is sensitive to the units chosen for price and quantity.
D) the slope of the demand curve does not tell us how much quantity changes as price
changes.
As women’s wages have risen relative to men’s wages, the opportunity cost to women
of doing housework has ________ than has the opportunity cost to men.
A) increased less
B) increased more
C) decreased more
D) decreased less
The Clayton Act is an antitrust law that was passed to
A) outlaw monopolization.
B) address loopholes in the Sherman Act.
C) prohibit charging buyers different prices if the result would reduce competition.
D) toughen restrictions on mergers by prohibiting mergers that reduce competition.
If the price elasticity of demand for insulin is equal to zero then the demand curve for
insulin is
A) horizontal.
B) downward sloping.
C) curvilinear.
D) vertical.
The payroll tax is a tax imposed on ________ that is used to fund Social Security and
Medicare.
A) employers only
B) workers only
C) employers and workers
D) the unemployed
Figure 11-13
Refer to Figure 11-13. The lines shown in the diagram are isocost lines. Which of the
following shows an increase in the firm’s total cost while the price of labor and capital
remain unchanged?
A) the movement from CE to BF
B) the movement from CE to AF
C) the movement from BD to AF
D) the movement from BD to CE
Article Summary
The use of celebrities to endorse products remains a popular way for many companies
to attract customers and keep their products relevant to their customers. The article
discusses five factors that must be examined by a company when choosing a celebrity
to endorse its product:
The cost of a superstar versus the value of a rising star
Finding a good fit between the celebrity and the image of the brand
Choosing someone who will promote the brand
Identifying valid metrics to measure success
The future appeal of the celebrity
Carefully chosen celebrity endorsements have proven to influence customers and
enhance a brand’s reputation, but as the list indicates, not all celebrities are the right fit
for all products.
Source: David Schwab, ” Keeping Up With The Evolving World Of Celebrity
Endorsement,” Forbes, June 27, 2015.
Refer to the Article Summary above. Economists refer to an increase in sales due to
celebrity endorsements as being the result of
A) network externalities.
B) the endowment effect.
C) social influence.
D) the ultimatum game.
To affect the market outcome, a price ceiling
A) must be set below the black market price.
B) must be set below the legal price.
C) must be set below the price floor.
D) must be set below the equilibrium price.
The idea that because of scarcity, producing more of one good or service means
producing less of another good or service refers to the economic concept of
A) optimization.
B) efficiency.
C) trade-off.
D) equity.
A Herfindahl-Hirschman Index is calculated by
A) summing the amount of sales by the four largest firms and dividing by total industry
sales.
B) dividing the number of firms wanting to merge by the total number in the industry.
C) summing the squares of the market shares of each firm in the industry.
D) dividing the advertising expenditures of the firms that want to merge by total
industry advertising expenditures.
Alan Krueger conducted a survey of fans at the 2001 Super Bowl who purchased tickets
to the game for $325 or $400. Krueger found that (a) 94 percent of those surveyed
would not have paid $3,000 for their tickets, and (b) 92 percent of those surveyed
would not have sold their tickets for $3,000. These results are an example of
A) the tendency of people to be unwilling to sell a good they already own even if they
are offered a price that is greater than the price they would be willing to pay if they did
not already own it.
B) the tendency for consumers to account for monetary costs but to ignore sunk costs.
C) consumers placing a high value on a product because it makes them appear to be
fashionable.
D) the law of demand.
Figure 4-5
Figure 4-5 shows the market for apartments in Springfield. Recently, the government
imposed a rent ceiling of $1,000 per month.
Refer to Figure 4-5. Suppose that instead of a rent ceiling, the government imposed a
price floor of $2,000 per month for apartments. What is the value of consumer surplus
after the imposition of the price floor?
A) $6,000
B) $30,000
C) $100,000
D) $240,000
Figure 11-13
Refer to Figure 11-13. The lines shown in the diagram are isocost lines. Which of the
following shows a decrease in the price of capital while the price of labor remains
unchanged?
A) the movement from AF to BF
B) the movement from BF to AF
C) the movement from BF to BD
D) the movement from BF to CE
The Santa Fe Spark Plug Company supplies spark plugs to automotive parts dealers. An
increase in the demand for its product led Santa Fe to hire 150 new workers. Santa Fe
also plans to expand the capacity of its plant but this project will take 2 years to
complete. Which of the following statements is true?
A) The wages and benefits paid to the new workers are implicit costs.
B) The long run for Santa Fe is longer than 1 year.
C) The short run for Santa Fe is 1 year.
D) In the short run Santa Fe’s variable costs increase but its fixed costs decrease.
In August 2008, Ethan Nicholas developed the iShoot application for the Apple iPhone
3G, and within five months had earned $800,000 from this program. By May 2009,
Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales.
This example indicates that in a competitive market
A) earning an economic profit in the long run is extremely easy.
B) earning an economic profit in the long run is extremely difficult.
C) it is impossible to earn an economic profit in either the short run or the long run.
D) economic profits are only earned in the long run.
The ________ demonstrates the roles played by households and firms in the market
system.
A) production possibilities frontier
B) circular flow model
C) theory of comparative advantage
D) business cycle
What is the rationale behind a marketable emission allowance scheme?
A) to create a market for externalities: the scheme brings together buyers and sellers of
marketable permits
B) to discipline polluting firms by specifying the maximum amount of emissions
allowed and giving them permits to pollute up to their allowance
C) to raise revenue for the government through the sale of emission permits and at the
same time set an emissions target
D) to provide firms with the incentive to consider less costly alternatives to pollution
reduction by making firms pay for the right to pollute beyond their specified allowance
Figure 2-14
Refer to Figure 2-14. Which two arrows in the diagram depict the following
transaction: LaDonna sells 20 pairs of sunglasses at the Oakley store.
A) J and M
B) J and G
C) K and M
D) K and G
Figure 9-1
Figure 9-1 shows the U.S. demand and supply for leather footwear.
Refer to Figure 9-1. Suppose the government allows imports of leather footwear into
the United States. The market price falls to $18. What is the value of domestic producer
surplus?
A) $0.
B) $40.
C) $320.
D) $360.
Table 13-1
Refer to Table 13-1. What is the marginal revenue of the 3rd unit?
A) $6.50
B) $5.50
C) $1.83
D) $0.50
Which of the following goods would have the most inelastic demand?
A) ski vacations
B) bread
C) luxury cars
D) big screen TVs
What is the Congressional act, enacted in 1933 and repealed in 1999, which prevented
financial firms from being both commercial banks and investment banks?
A) the Sarbanes-Oxley Act
B) the Glass-Steagall Act
C) the Taft-Hartley Act
D) the Cellar-Kefauver Act
Compared to perfect competition, the consumer surplus in a monopoly
A) is unchanged because price and output are the same.
B) is lower because price is higher and output is lower.
C) is higher because price is higher and output is the same.
D) is eliminated.
If a firm raised its price and discovered that its total revenue fell, then the demand for
its product is
A) perfectly inelastic.
B) relatively inelastic.
C) perfectly elastic.
D) relatively elastic.