Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Figure 5-7
Refer to Figure 5-7. The marginal benefit of reducing pollution curve is the same curve
as
A) the supply of pollution reduction curve.
B) the demand for pollution reduction curve.
C) the positive externality curve.
D) the external benefit curve.
A merger between U.S. Steel and General Motors would be an example of a
A) vertical merger.
B) horizontal merger.
C) conglomerate merger.
D) conspiracy in restraint of trade.
Scenario 1-2
Suppose a hat manufacturer currently sells 2,000 hats per week and makes a profit of
$5,000 per week. The plant owner observes, "Although the last 300 hats we produced
and sold increased our revenue by $1,000 and our costs by $1,100, we are still making
an overall profit of $5,000 per week so I think we're on the right track. We are
producing the optimal number of hats."
Refer to Scenario 1-2. Had the firm not produced and sold the last 300 hats, would its
profit be higher or lower, and by how much?
A) Its profit will be $1,100 higher.
B) Its profit will be $100 higher.
C) Its profit will be $100 lower.
D) Its profit will be $1,000 lower.
Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to
make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed
cost of $120 per day. Calculate Vipsana's variable cost per day when she produces 50
gyros using two workers?
A) $100
B) $124.40
C) $220
D) $240
Table 15-4
Shakti Inc. has been granted a patent for its Arnica toothache balm. Table 15-4 shows
the demand and the total cost schedule for the firm.
Refer to Table 15-4. What is Shakti's profit-maximizing output?
A) 4 units
B) 5 units
C) 6 units
D) 7 units
Suppose two firms in a duopoly implicitly collude and charge a high price. How might
each firm benefit from advertising that it will match the lowest price offered by its
competitor?
A) The offer to match prices is a way of deterring entry by other large firms, thereby
keeping the market share of the existing firms intact.
B) The advertisement ensures that the other firm does not cheat. If a firm cheats on the
agreement and charges the lower price, the rival firm will retaliate by doing the same.
C) The offer to match prices is a way of signaling to antitrust authorities that the firms
are not engaged in illegal collusion.
D) The advertisement is meant to suggest to consumers that the offered price is actually
the lowest price available.
Which of the following can a firm do in the long run but not in the short run?
A) decrease the size of its physical plant
B) reduce its rate of output by laying off workers
C) increase its variable costs
D) increase its use of raw materials
Which of the following explains why the marginal cost curve has a U shape?
A) Initially, the marginal product of labor falls, then rises.
B) Initially, the average product of labor rises, then falls.
C) Initially, the marginal product of labor rises, then falls.
D) Initially, the average cost of production rises, then falls.
Scarcity
A) stems from the incompatibility between limited resources and unlimited wants.
B) can be overcome by discovering new resources.
C) can be eliminated by rationing products.
D) is a bigger problem in market economies than in socialist economies.
In 2014, the NCAA was the subject of two antitrust lawsuits related to video games.
The NCAA reached a settlement in which it agreed to
A) stop authorizing the production of NCAA-branded video games.
B) allow schools to pay athletes so it could continue to use their images in the video
games.
C) pay current and former athletes whose names or images had been used in
NCAA-branded video games.
D) split into two separate entities, one which monitors college athletics and the other
which markets products.
Which of the following would result in a higher absolute value of the price elasticity of
demand for a product?
A) A wide variety of substitutes are available for the good.
B) The time period under consideration is short.
C) The good is a necessity.
D) The expenditure on the good is small relative to one's budget.
Congress passed the ________ in 1996, the purpose of which was to phase out price
floors and return to a free market in agriculture
A) Rice and Beans Act
B) Smoot-Hawley Act
C) Agribusiness Act
D) Freedom to Farm Act
Which of the following statements is true?
A) Individuals who have never been the best at doing anything cannot have a
comparative advantage in producing any product.
B) Individuals who have never been the best at doing anything can still have a
comparative advantage in producing some product.
C) Individuals who have never been the best at doing anything perform all tasks at a
higher opportunity cost than others.
D) Individuals who have never been the best at doing anything must have an absolute
advantage in at least ones task.
In the short run, marginal product of labor increases at first and then falls because
A) as more labor is hired, they are not as skilled as the first ones hired.
B) there are fewer opportunities for division of labor and specialization when fewer
workers are hired.
C) managerial inefficiency sets in when a firm gets too large.
D) the new workers do not have as much experience as those who have been with the
firm for a long time and therefore are not as productive.
What is the primary difference between a sole proprietorship and a partnership?
A) Proprietorships have unlimited liability while partnerships have limited liability.
B) Partnerships can issue stocks and bonds while proprietorships cannot.
C) Partnerships have more owners than do proprietorships.
D) There is no real difference between the two types of firms.
Some economists who use the public choice model to explain the ways government
intervenes in the economy believe that regulatory capture results when an agency or
commission is given authority over a particular industry or product. Which of the
following is the best example of regulatory capture?
A) The Food and Drug Administration (FDA) has increased the time and expense
pharmaceutical firms incur to receive approval to market a new drug.
B) A federal government agency hires more employees than it requires to regulate an
industry because it does not seek to minimize costs or maximize the agency's profits.
C) The head of an agency is required to testify before Congress because Congress
controls the size of the agency's budget. Congress "captures" the agency because of its
budget authority.
D) Firms that were regulated by the Interstate Commerce Commission (ICC) attempted
for many years to influence the ICC's actions.
When the price of tortilla chips rose by 10 percent, the quantity of tortilla chips sold fell
4 percent. This indicates that the demand for tortilla chips is
A) inelastic.
B) elastic.
C) unit elastic.
D) perfectly inelastic.
Which of the following is an advantage of starting a new business as a corporation?
A) double taxation
B) ease in setting up
C) low expenses of legally organizing
D) greater ability to raise funds
Economists Gary Becker and Kevin Murphy are associated with which of the
following?
A) They discovered the first example of a Giffen good.
B) They have argued that social factors are not important in explaining the choices
consumers make.
C) Consumers appear to receive utility from consuming goods they believe are popular.
D) They discovered that price changes have both income and substitution effects.
If, in a perfectly competitive industry, the market price facing a firm is above its
average total cost at the output where marginal revenue equals marginal cost, then
A) firms are breaking even.
B) new firms are attracted to the industry.
C) existing firms will exit the industry.
D) market supply will remain constant.
When the government wants to give an exclusive right to one firm to produce a product,
it
A) imposes a tariff on imports of the product.
B) imposes a quota on imports of the product.
C) grants a patent or copyright to an individual or firm.
D) uses antitrust laws to keep other firms from entering the market.
Table 13-1
Refer to Table 13-1. What portion of the marginal revenue of the 4th unit is due to the
output effect and what portion is due to the price effect?
A) output effect = $24.00; price effect = $19.50
B) output effect = $6.50; price effect = $2.00
C) output effect = -$0.50; price effect = $5.00
D) output effect = $6.00; price effect = -$1.50
The marginal tax rate is
A) the amount of taxes paid as a percentage of income.
B) the amount of per-capita taxes paid.
C) the amount of taxes paid as a percentage of gross domestic product (GDP).
D) the fraction of each additional dollar of income that must be paid in taxes.
Figure 14-2
The government of a developing country plans to award two firms, Gigacom and
Xenophone, the exclusive rights to share the market for high speed internet service.
Gigacom and Xenophone can both provide the service either via television cable lines
or via direct subscriber line (DSL). Suppose the government is considering a proposal
to delay one firm's entry into the market on the grounds that it wants to prevent
"harmful" competition. Figure 14-2 shows the decision tree for this game.
Refer to Figure 14-2. If the government delays Gigacom's entry and Xenophone moves
first, is a threat by Gigacom that it will provide DSL service if Xenophone provides
cable service a credible threat?
A) No, because Gigacom will lose $4.5 million in profits if it carries out its threat.
B) Yes, because Gigacom's DSL service will drive Xenophone out of business.
C) No, because as a second mover, it has no choice but to abide by the choices of the
first mover.
D) Yes, Xenophone stands to lose $3 million in profit.
In each of the following situations, list what will happen to the equilibrium price and
the equilibrium quantity for a particular product, which is a normal good.
a. The population increases and the price of inputs increase.
b. The price of a complement increases and technology advances.
c. The number of firms in the market increases and income increases.
d. Price is expected to increase in the future.
e. Consumer preference increases and the price of a substitute in production decreases.
Many people leave their servers tips in restaurants, even when they are not likely to
visit the restaurant again. This is evidence that
A) people would rather pay for good service at an inexpensive restaurant than pay
higher prices and receive poor service at an expensive restaurant.
B) people enjoy eating at restaurants more than eating at home.
C) people treat others fairly even if doing so makes them worse off financially.
D) there has been an improvement in the service people receive in restaurants over
time, partly because the restaurant industry has become more competitive.
Table 2-9
Table 2-9 shows the number of labor hours required to produce a canoe and a sailboat in
Guatemala and Honduras.
Refer to Table 2-9. What is Guatemala's opportunity cost of producing one sailboat?
A) 1/6 of a canoe
B) 2/3 of a canoe
C) 3 canoes
D) 6 canoes
A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000.
The fixed cost of production is $20,000. The price of each good is $10. Should the firm
continue to produce in the short run?
A) No, it should shut down because it is making a loss.
B) Yes, it should continue to produce because its price exceeds its average fixed cost.
C) Yes, it should continue to produce because it is minimizing its loss.
D) There is insufficient information to answer the question.
Table 12-1
Table 12-1 shows the short-run cost data of a perfectly competitive firm that produces
plastic camera cases. Assume that output can only be increased in batches of 100 units.
Refer to Table 12-1. If the market price of each camera case is $8, what is the firm's
total revenue?
A) $2,400
B) $3,200
C) $4,000
D) $4,800
Figure 2-4
Figure 2-4 shows various points on three different production possibilities frontiers for
a nation.
Refer to Figure 2-4. Consider the following events:
a. an increase in the patent protection period to 30 years
b. an increase of a nation's capital stock
c. an improved property rights system
Which of the events listed above could cause a movement from V to W?
A) a only
B) a and b only
C) a and c only
D) b and c only
E) a, b, and c
