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1) Average variable cost is equal to total variable cost divided by quantity of output.
a.True
b.False
2) For a typical firm, fixed costs increase in direct proportion to the increases in output.
a.True
b.False
3) Figure 14-13
Suppose a firm in a competitive industry has the following cost curves:
If the price is $2 in the short run, what will happen in the long run?
a.Nothing. The price is consistent with zero economic profits, so there is no incentive
for firms to enter or exit the industry.
b.Individual firms will earn positive economic profits in the short run, which will entice
other firms to enter the industry.
c.Individual firms will earn negative economic profits in the short run, which will cause
some firms to exit the industry.
d.Because the price is below the firm's average variable costs, the firms will shut down.
4) Economists dismiss the idea that lower tax rates can lead to higher tax revenue,
because there is a consensus that the relevant elasticities of demand and supply are very
low.
a.True
b.False
5)
This economy has the ability to produce at which point(s)?
a.Q, R, T, U
b.R, T, U
c.R, U
d.T
6) Because it is difficult for economists to use experiments to generate data, they
generally must
a.do without data.
b.substitute assumptions for data when data are unavailable.
c.rely upon hypothetical data that were previously concocted by other economists.
d.use whatever data the world gives them.
7) What would happen to the equilibrium price and quantity of latt©s if coffee shops
began using a machine that reduced the amount of labor necessary to produce them?
a.Both the equilibrium price and quantity would increase.
b.Both the equilibrium price and quantity would decrease.
c.The equilibrium price would increase, and the equilibrium quantity would decrease.
d.The equilibrium price would decrease, and the equilibrium quantity would increase.
8) Figure 9-8. On the diagram below, Q represents the quantity of cars and P represents
the price of cars.
The country for which the figure is
drawn
a.has a comparative advantage relative to other countries in the production of cars and it
will export cars.
b.has a comparative advantage relative to other countries in the production of cars and it
will import cars.
c.has a comparative disadvantage relative to other countries in the production of cars
and it will export cars.
d.has a comparative disadvantage relative to other countries in the production of cars
and it will import cars.
9) Tom, the manager and owner of a small company, believes in the signaling theory of
education, not the human capital theory. As such, we would expect Tom not to offer
which of the following company benefits?
a.employer-matching 401k retirement plan contributions
b.tuition reimbursement for workers who take college classes
c.on-site day care
d.health insurance
10) Assume that Indonesia and India can switch between producing rice and bananas at
a constant rate.
For which good(s) does Indonesia have a comparative advantage
a.rice and bananas.
b.rice but not bananas.
c.bananas but not rice.
d.nether rice nor bananas.
11) The size of a tax and the deadweight loss that results from the tax are
a.positively related.
b.negatively related.
c.independent of each other.
d.equal to each other.
12) "Other things equal, when the price of a good rises, the quantity demanded of the
good falls, and when the price falls, the quantity demanded rises." This relationship
between price and quantity demanded
a.applies to most goods in the economy.
b.is represented by a downward-sloping demand curve.
c.is referred to as the law of demand.
d.All of the above are correct.
13) Table 15-13
The following table gives information on the price, quantity, and total cost of
production for a monopolist.
If the monopolist maximizes profits, he will charge a price of
a. $4.
b.$3.
c.$2.
d.$1.
14) You purchase a $30, nonrefundable ticket to a play at a local theater. Ten minutes
into the show you realize that it is not a very good show and place only a $10 value on
seeing the remainder of the show. Alternatively you could leave the theater and go
home and watch TV or read a book. You place an $8 value on watching TV and a $12
value on reading a book.
a.You should stay and watch the remainder of the show.
b.You should go home and watch TV.
c.You should go home and read a book.
d.You should go home and either watch TV or read a book.
15) When property rights are not well established,
a.private goods become public goods.
b.markets fail to allocate resources efficiently.
c.the distribution of private goods is unfair.
d.government resources are used inefficiently.
16) A monopolistically competitive firm
a.charges a price that is equal to marginal cost.
b.experiences a zero profit in the long run.
c.produces at the efficient scale in the long run.
d.All of the above are correct.
