The table shows the relationship between income and utility for Sue.
Table 17.2
Refer to Table 17.2. Sue earns $40,000 annually. She has the opportunity to bet her
entire salary on the upcoming super bowl. If Sue takes the bet, she will pick the
Patriots. She believes that the Patriots have a 50-50 chance of winning the game. If the
Patriots win, Sue will win $81,000 but if they lose she loses her entire salary ($0). Will
Sue take the bet?
A) yes
B) no
C) maybe
D) indeterminate from the given information
If you own a building and you decide to use that building to open a book store,
A) there is no opportunity cost of using this building for a book store because you own
it.
B) there is an opportunity cost of using this building for a book store because it could
have been used in other ways.
C) the opportunity costs equal the cost of inventory.
D) the only cost relevant to this decision is the price you paid for the building.
Voss Calculator Company has a monopoly on the sale of graphing calculators. If it sells
two of these calculators its total revenue is $600, and if it sells three calculators its total
revenue is $750. The marginal revenue of the third calculator sold is
A) $50.
B) $75.
C) $150.
D) $250.
The Dominican Republic has a comparative advantage in the production of tobacco,
and Panama has a comparative advantage in the production of oranges. If both countries
specialize based on the theory of comparative advantage
A) only the production of tobacco will increase.
B) only the production of both goods will increase.
C) only the consumption of both goods will increase.
D) the production and consumption of both goods will increase.
A firm in a perfectly competitive industry is producing 50 units, its profit-maximizing
quantity. Industry price is $2, total fixed costs are $25, and total variable costs are $40.
The firm’s economic profit is
A) $15.
B) $30.
C) $35.
D) $60.
The total of consumer plus producer surplus is ________ at the market equilibrium.
A) greatest
B) smallest
C) zero
D) negative
Table 7.2
Inputs Required to Produce a Product Using Alternative Technologies
Refer to Table 7.2. Which technology is the most capital intensive?
A) A
B) B
C) C
D) D
If you observe that Event A happens before Event B happens, and you conclude that
Event A caused Event B, you would be guilty of an error called the
A) fallacy of composition.
B) fallacy of inductive reasoning.
C) fallacy of ceteris paribus.
D) post hoc, ergo propter hoc fallacy.
Figure 9.7
Refer to Figure 9.7. If demand for wheat is D2, then a profit maximizing firm will
produce ________ units and earn a profit of ________.
A) 13; $0
B) 7; $0
C) 13; $91
D) 15; $30
The Specialty Cake Store, a monopolistically competitive firm, is producing 200
decorated cakes per day and selling each cake for $17. At that production level, ATC is
$20, AVC is $15, AFC is $5, and both MR and MC are $8. This firm should
A) continue to produce 200 cakes, as price is greater than AVC.
B) increase output to the point where price equals marginal cost.
C) decrease output to the point where price equals average total cost.
D) shutdown and produce zero cakes and just pay fixed costs.
The pizza delivery industry is monopolistically competitive. Little Joe’s Pizzeria raises
its prices by 10%, but all the other pizzerias in town keep their prices the same. Which
of the following is most likely to occur?
A) Little Joe’s Pizzeria will not be able to sell any pizzas, because it was the only firm
to raise its price.
B) Little Joe’s Pizzeria will lose some of its customers.
C) Little Joe’s Pizzeria’s profits will increase.
D) The number of customers served by Little Joe’s Pizzeria will increase.
Table 9.2
Refer to Table 9.2. The market price is $84 and this firm is producing four units of
output. Which of the following would you recommend to this firm?
A) Continue producing four units of output, because the firm is able to make an
economic profit.
B) Increase output to six units, so that marginal cost equals marginal revenue.
C) Reduce price to $34, so that marginal cost will equal marginal revenue at 4 units of
output.
D) Increase output to seven units so that price is less than marginal cost.
Earning a master’s degree in Engineering is an example of ________.
A) a Pareto good
B) a compensating differential
C) economic income
D) an investment in human capital
Jim has $600 a week to spend on clothing and food. The price of clothing is $30 and the
price of food is $5. The clothing and food pairs in Jim’s choice set include ________
units of clothing and ________ units of food.
A) 20; 50
B) 15; 70
C) 10; 60
D) 0; 200
You borrow $10,000 at an interest rate of 5% to open Movies Galore, a DVD rental
store. You will earn an economic loss if
A) the return on your investment is less than 5%.
B) the return on your investment is exactly 5%.
C) the return on your investment is greater than 5%.
D) indeterminate from given information.
The International Monetary Fund lends money to countries to
A) finance their international transactions.
B) stabilize their exchange rates.
C) promote their economic development.
D) Both A and B are correct.
If a pet grooming salon hires an additional groomer, that worker can groom 4 additional
pets per day. The average grooming fee is $25. The most the salon would be willing to
pay that groomer is
A) $4 per day.
B) $25 per day.
C) $100 per day.
D) indeterminate with the given information.
You own and are the only employee of a company that writes computer software that
gamblers use to collect sports data. Last year your total revenue was $90,000. Your
costs for equipment, rent, and supplies were $50,000. To start this business you invested
an amount of your own capital that could pay you a $40,000 a year return.
Refer to Scenario 7.1. A yearly normal rate of return for your computer software firm
would be
A) $20,000.
B) $40,000.
C) $60,000.
D) $100,000.
Table 8.1
Refer to Table 8.1. Assume that the relevant time period is the short run. Assuming the
price of capital (K) is $10 per unit and the price of labor (L) is $5 per unit, this firm’s
total cost of producing one unit of output is
A) $50.
B) $60.
C) $110.
D) indeterminate from this information.
A Gini coefficient of one means that ________.
A) income is distributed equally
B) one family has all the income and everyone else has nothing
C) all the income is received by the top 20% of families
D) the income is split equally between the top 20% and the rest of the distribution
Using the concept of income and substitution effects, explain how you might react to
each of the following:
(a) You currently work 20 hours a week at $10 per hour and your employer tells you he
must reduce your wage to $8 per hour.
(b) The price of pizza doubles and the price of hamburgers remains constant.
Assume the total product of two workers is 160 and the total product of three workers is
180. The three workers’ average product is ________ while the third worker’s marginal
product is ________.
A) 20; 60
B) 60; 20
C) 20; 26.67
D) 320; 540
________ is (are) used to distinguish between high and low quality and help correct the
adverse selection problem.
A) Asymmetric information
B) Payoffs
C) Moral hazard
D) Market signals
You borrow $75,000 at an interest rate of 3% to open Spinners, a bicycle shop. You will
earn an economic profit if the return on your investment is
A) greater than 3%.
B) 3%.
C) between 0 and 3%.
D) 6% or less.
When firms enter a monopolistically competitive industry, the demand curves of the
remaining firms in the industry
A) do not change.
B) shift to the left.
C) shift upward.
D) shift to the right.
Sally’s Sandwiches produces sandwiches using one variable inputlabor. Sally’s
Sandwiches is a ________ in the labor market and a ________ in the sandwich market.
A) producer; consumer
B) consumer; producer
C) consumer; consumer
D) producer; producer
Governments often ________ activities that generate external ________.
A) tax; benefits
B) subsidize; benefits
C) subsidize; costs
D) simultaneously tax and subsidize; costs
Figure 2.5
Refer to Figure 2.5. The marginal rate of transformation in moving from Point B to
Point A is
A) -2/3.
B) -3/4.
C) -1.5.
D) -20.
If the exchange rate between the United States and India changes from $1 = 60 rupees
to
$1 = 10 rupees, ceteris paribus
A) the United States imports from India increase.
B) Indian exports to the United States increase.
C) the United States exports to India increase.
D) the trade deficit in the United States increases.
Figure 4.3
Refer to Figure 4.3. A non-price rationing system such as queuing must be used to
ration the available supply of pencils if the government will not allow retailers to charge
more than ________ for a pencil.
A) $0.40
B) $0.45
C) $0.50
D) $0.55
In a short run production process, a(n) ________ marginal product of labor explains
why marginal cost is positive and ________.
A) zero; falls
B) constant; rises
C) increasing; does not change
D) diminishing; rises
A company requires that all new employees become certified in using Microsoft
Office . This investment is in ________ capital.
A) tangible
B) financial
C) human
D) productive
In a monopolistically competitive industry,
A) firms are large relative to the total market.
B) firms are small relative to the total market.
C) firms can be either large or small relative to the total market.
D) there is only one firm.
Suppose that the normal rate of return in the laser printer industry is 15% and the return
that firms earn in this industry equals exactly 5%. Which of the following is likely to
follow from this scenario?
A) Firms will collude to keep competition out.
B) New firms will want to enter the industry.
C) Existing firms will want to leave the industry.
D) The normal rate of return will fall to 7.5% in the long run.
The excise tax is ________.
A) progressive
B) regressive
C) proportional
D) an ability-to-pay tax
How is a potentially efficient change different from a Pareto optimal change?
If pure competition doesn”t exist in the real world what is the implication for the shape
of the demand curve that real-world firms would face?
Discuss the practical difficulties associated with practicing perfect price discrimination.
Script Pro produces robots that are sold to retail pharmacies. Among other things the
robots print and apply the prescription and auxiliary labels and delivers uncapped vials
for final inspection using on-screen drug image verification. The manager of the
pharmacy is trying to calm his workers’ fear that their jobs are in jeopardy if he starts
using these robots. What economic explanation could the manager use to assuage the
fears of his employees that their jobs are in jeopardy.
What is the relationship between a perfectly competitive firm’s marginal cost curve and
its short-run supply curve?
If the fixed costs for a firm rise what will be the impact on the marginal cost, average
variable cost and average total cost curves? Explain.
What is the price of a unit of labor in a competitive labor market?
A firm produces an output level at which price is greater than marginal cost. Explain
why this is inefficient.
Suppose that the widget industry has a Herfindahl-Hirschman index of 1,200. Two
firms have proposed a merger. Firm A has a current market share of 5 percent. Firm B
has a market share of 7 percent. Will the Justice Department challenge the merger?
Explain.
Describe the marginal revenue curve in relationship to the demand curve for a
monopoly. Why is it like that?
Cigarette advertising on our nation’s radio and television stations has been prohibited
for more than the past three decades by federal law. What is curious about this law is
that it came into being not just because of the lobbying efforts of American Medical
Association but also by the tobacco industry. Use economic logic to explain this
apparent paradox.
What would be the consequence for the Lorenz curve is rich people use their resources
more efficiently than poor people?
What is a laissez-faire economy?
A lawyer quits his job at a top legal firm where he was making $100,000 per year. He
was just informed that his late aunt has bequeathed to him $1 million in cash. He
decides to use all of the money to open and run his own hardware store. Assume at the
end of the first year of business that his accountant has informed him that he earned a
$90,000 accounting profit. Why would an economist not be quite as impressed?
Explain.
Do food stamps affect the slope of the budget constraint of their recipients or rather
shift the budget constraint? Explain.