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1) Suppose that Christine owns her own CPA firm. She uses only two inputs in her
business: her hours worked (labor) and a computer (capital). In the short run, Christine
most likely considers
a.both labor and capital to be fixed.
b.both labor and capital to be variable.
c.capital to be variable and labor to be fixed.
d.labor to be variable and capital to be fixed.
2) Table 15-20
A monopolist faces the following demand curve:
If a monopolist faces a constant marginal cost of $10, how much output should the firm
produce in order to maximize profit?
a.2 units
b.3 units
c.4 units
d.5 units
3) Suppose a group of people read an article on capital punishment. Prior to reading the
article, 60% of the members of the group were opposed to capital punishment, while
40% of the members of the group were in favor of capital punishment. According to
studies of human decision-making, which of the following is likely?
a.After reading the article, all members of the group oppose capital punishment.
b.After reading the article, all members of the group are in favor of capital punishment.
c.After reading the article, 60% of the members of the group are opposed and 40% of
the members of the group are in favor of capital punishment.
d.The members of the group would elect a representative in favor of capital
punishment.
4) In order to sell more of its product, a monopolist must
a.sell to the government.
b.sell in international markets.
c.lower its price.
d.use its market power to force up the price of complementary products.
5) If the demand for labor decreases and the supply of labor is unchanged, then the
opportunity cost of leisure will decrease.
a.True
b.False
6) Scenario 7-2
Suppose market demand and market supply are given by the equations:
Refer to Scenario 7-2. Suppose a reduction in input prices shifts the market supply
curve to
By how much does total consumer surplus increase for those consumers who were
already willing to purchase the good with the original supply curve?
7) Suppose that an MBA degree creates no externality because the benefits of an MBA
are internalized by the student in the form of higher wages. If the government offers
subsidies for MBAs, then which of the following statements is correct?
a.The equilibrium quantity of MBAs will equal the socially optimal quantity of MBAs.
b.The equilibrium quantity of MBAs will be greater than the socially optimal quantity
of MBAs.
c.The equilibrium quantity of MBAs will be less than the socially optimal quantity of
MBAs.
d.There is not enough information to answer the question.
8) Monopolistic competition is an
a.inefficient market structure because there is deadweight loss.
b.inefficient market structure because price exceeds marginal cost.
c.efficient market structure because free entry drives long-run profits to zero.
d.Both a and b are correct.
9) The cost of an action is measured in terms of foregone opportunities.
a.True
b.False
10) Economists view normative statements as
a.prescriptive, making a claim about how the world ought to be.
b.descriptive, making a claim about how the world is.
c.statements about the normal condition of the world.
d.pessimistic, putting the worst possible interpretation on things.
11) Which of the following is not a characteristic of monopolistic competition?
a.a large number of sellers
b.firms are price takers
c.free entry into the market
d.a differentiated product
12) A profit-maximizing firm in a monopolistically competitive market is characterized
by which of the following?
a.average revenue exceeds marginal revenue
b.marginal revenue equals marginal cost
c.price exceeds marginal cost
d.All of the above are correct.
13) If a good or service has only one seller, then the seller is called a monopoly.
a.True
b.False
14) Which of the following statements best reflects the production decision of a
profit-maximizing firm in a competitive market when price falls below the minimum of
average variable cost?
a.The firm will continue to produce to attempt to pay fixed costs.
b.The firm will immediately stop production to minimize its losses.
c.The firm will stop production as soon as it is able to pay its sunk costs.
d.The firm will continue to produce in the short run but will likely exit the market in the
long run.
