1) Which of the following statements does not apply to a market economy?
a.Firms decide whom to hire and what to produce.
b.The invisible hand usually maximizes the wellbeing of society as a whole.
c.Households decide which firms to work for and what to buy with their incomes.
d.Government policies are the primary forces that guide the decisions of firms and
households.
2) Figure 8-10
Suppose the government imposes a tax that reduces the quantity sold in the market after
the tax to Q2. The price that buyers pay is
a.P0.
b.P2.
c.P5.
d.P8.
3) Scenario 15-5
An airline knows that there are two types of travelers: business travelers and
vacationers. For a particular flight, there are 100 business travelers who will pay $600
for a ticket while there are 50 vacationers who will pay $300 for a ticket. There are 150
seats available on the plane. Suppose the cost to the airline of providing the flight is
$20,000, which includes the cost of the pilots, flight attendants, fuel, etc.
How much additional profit can the airline earn by charging each customer their
willingness to pay relative to charging a flat price of $300 per ticket?
a. $10,000
b. $15,000
c. $30,000
d. $45,000
4) If a profit-maximizing firm in a competitive market discovers that, at its current level
of production, price is greater than marginal cost, it should
a.shut down.
b.reduce its output but continue operating.
c.continue to produce at the current levels.
d.increase its output.
5) Table 18-12
The table displays data for a small, competitive, profit-maximizing firm that produces
and sells envelopes. The time frame is one week.
Refer to Table 18-12. Let Q represent the number of boxes of envelopes produced per
week. Which of the following points is not a point on this firm’s production function?
a.(L = 2, Q = 240).
b.(L = 3, Q = 332).
c.(L = 4, Q = 408).
d.(L = 5, Q = 494).
6) Which of the following would violate transitivity?
a.Vanessa likes A more than B, C more than B, and C more than A.
b.Jay likes C more than B, A more than B, B more than D, and C more than D.
c.Maddy likes C more than A, B more than D, A more than B, and D more than C.
d.Victoria likes C more than B, C more than D, and B more than D.
7) Discrimination by a manager in the hiring process may be consistent with the
decision to maximize profits if
a.customers are willing to pay higher prices in order to maintain the discrimination.
b.the discrimination is based on race but not gender.
c.the discrimination is based on gender but not race.
d.Discrimination is never consistent with profit maximization.
8) When a competitive firm produces output up to the point at which the price is equal
to marginal cost, it also hires labor up to the point at which the wage is equal to the
a.marginal cost of labor.
b.marginal profit of labor.
c.marginal product of labor.
d.value of the marginal product of labor.
9) Consider a firm operating in a competitive market. The firm is producing 40 units of
output, has an average total cost of production equal to $5, and is earning $240
economic profit in the short run. What is the current market price?
a.$9
b.$10
c.$11
d.$12
10) A movement along the supply curve might be caused by a change in
a.production technology.
b.input prices.
c.expectations about future prices.
d.the price of the good or service that is being supplied.
11) When a factory is operating in the short run,
a.it cannot alter variable costs.
b.total cost and variable cost are usually the same.
c.average fixed cost rises as output increases.
d.it cannot adjust the quantity of fixed inputs.
12) Scenario 16-5
McDonald’s restaurants has recently announced intentions to open a new restaurant in
Smalltown, Indiana. Assume that the fast-food restaurant market in Smalltown is
characterized by monopolistic competition.
As a result of the new McDonald’s, existing fast food restaurants in Smalltown are
likely to
a.suffer from a product-variety externality.
b.suffer from a business-stealing externality.
c.increase their production to achieve the efficient scale.
d.Both b and c are correct.
13) To be considered an oligopoly, the market must have a concentration ratio below
50%.
a.True
b.False
14) Scenario 15-7
Black Box Cable TV is able to purchase an exclusive right to sell a premium movie
channel (PMC) in its market area. Let’s assume that Black Box Cable pays $150,000 a
year for the exclusive marketing rights to PMC. Since Black Box has already installed
cable to all of the homes in its market area, the marginal cost of delivering PMC to
subscribers is zero. The manager of Black Box needs to know what price to charge for
the PMC service to maximize her profit. Before setting price, she hires an economist to
estimate demand for the PMC service. The economist discovers that there are two types
of subscribers who value premium movie channels. First are the 4,000 die-hard TV
viewers who will pay as much as $150 a year for the new PMC premium channel.
Second, the PMC channel will appeal to 20,000 occasional TV viewers who will pay as
much as $20 a year for a subscription to PMC.
If Black Box Cable TV is able to price discriminate, what would be the maximum
amount of profit it could generate?
a. $500,000
b. $600,000
c. $850,000
d. $925,000
15) Figure 7-24
Refer to Figure 7-24. At equilibrium, producer surplus is measured by the area
a.ABD.
b.ABF.
c.CDI.
d.BDF.