Consider the following production functions along with its corresponding marginal
product of labor function.
I.Q = 15KL, where MPL = 15K
II.Q = 2K0.4L0.6, where MPL =
III.Q = 8K + L, where MPL = 1
a.In all three cases, what happens to the marginal product of labor as the firm uses more
labor?
b.In all three cases, what happens to the marginal product of labor as the firm uses more
capital?
Answer:
A consumer’s bundle includes two normal goods, good X and good Y. According to the
income effect, a(n) ______ in the price of good X or ______ in the price of good Y will
cause the consumer to buy less of good X.
A) increase; decrease
B) increase; increase
C) decrease; increase
D) decrease; decrease
Answer:
Table 12.5
(Table 12.5) In the table, payoffs represent profits in millions of dollars. In a Nash
equilibrium, Sports Illustrated will run the ______ cover story and ESPN Magazine will
run the ______ cover story.
A) Brett Favre; Brett Favre
B) Brett Favre; Tim Tebow
C) Tim Tebow; Brett Favre
D) Tim Tebow; Tim Tebow
Answer:
Figure 9.8
(Figure 9.8) Which of the following statements is TRUE?
I. The deadweight loss owing to market power is $225.
II. The price under perfect competition is $10.
III. Consumer surplus under perfect competition is higher than under monopoly by
$337.50.
A) I, II, and III
B) II and III
C) III only
D) II only
Answer:
The Internet has made learning to play a musical instrument easier than ever, with
thousands of Web sites offering free music lessons. What happens in the musical
instruments market?
A) The supply curve increases, pushing down the price.
B) The demand curve shifts out, pushing up the price.
C) The demand curve shifts out, which in turn causes the supply curve to increase. The
overall effect on price is ambiguous.
D) The price of musical instruments falls, causing an increase in the quantity
demanded.
Answer:
For the following questions assume that the marginal product of capital = and
the marginal product of labor = . a. If the firm is hiring 10 workers at $100 per
worker and 5 units of capital at $50 per unit, is the firm minimizing its cost of
production? If not, what should the firm do? b. If the firm is hiring 10 workers at $100
per worker and 5 units of capital at $200 per unit, is the firm minimizing its cost of
production? If not, what should the firm do? c. If the firm is minimizing its costs of
production by hiring an equal number of workers and units of capital, what is the slope
of the isocost line?
a. If the firm is hiring 10 workers at $100 per worker and 5 units of capital at $50 per
unit, is the firm minimizing its cost of production? If not, what should the firm do?
b. If the firm is hiring 10 workers at $100 per worker and 5 units of capital at $200 per
unit, is the firm minimizing its cost of production? If not, what should the firm do?
c. If the firm is minimizing its costs of production by hiring an equal number of workers
and units of capital, what is the slope of the isocost line?
Answer:
In 2010, the average household spent $1,178 on telephone services and $333 on
nonalcoholic drinks. From this information, we can conclude that:
A) the substitution effect of a price change will be larger for telephone services than for
nonalcoholic drinks.
B) an increase in the price of telephone services will cause a larger income effect than a
similar increase in the price of nonalcoholic drinks.
C) an increase in the price of nonalcoholic drinks will cause a larger income effect than
a similar increase in the price of telephone services.
D) the substitution effect of a price change will be larger for nonalcoholic drinks than
for telephone services.
Answer:
Pizza Plus operates in a monopolistically competitive industry and faces an inverse
demand curve of P = 30 ” 2Q, where Q is measured in hundreds of pizzas per week and
P is the price per pizza. The marginal cost per pizza is $6. What price should Pizza Plus
charge per pizza to maximize profit?
A) $18
B) $16
C) $14
D) $12
Answer:
If a 10% increase in the price of pork reduces quantity demanded by 7%, the price
elasticity of demand is:
A) “1.43.
B) “0.14.
C) “3.0.
D) “0.70.
Answer:
Figure 6.6
(Figure 6.6) Suppose a firm spends $4,000 per day producing a good. The wage rate per
worker is $200 per day and rental rate per unit of capital is $500 per day. The firm’s
isocost line at the current expenditure level is represented by:
A) C1.
B) C2.
C) C3.
D) C4.
Answer:
Suppose that the average level of prices in the economy fell 4% and workers’ wages
were cut by 2%. Which of the following statement(s) is TRUE regarding this situation?
I. Real wages of workers increased.
II. The nominal wages of workers were cut.
III. Workers who are nominally loss averse feel worse off.
A) I only
B) II and III
C) I, II, and III
D) II only
Answer:
Which of the following are the basic elements of every game?
I. players
II. strategies
III. payoffs
IV. a pure-strategy Nash equilibrium
A) I, II, III, and IV
B) I, II, and III
C) IV only
D) I and II
Answer:
Which of the following methods mitigates moral hazard?
I. A health insurance company’s policy requires a $500 deductible and a 20%
coinsurance rate.
II. Progressive Insurance offers drivers a discount for using a black box in their car that
records miles driven and the number of sudden stops.
III. Homeowner’s insurance does not cover claims arising from backyard trampolines.
A) I only
B) I, II, and III
C) III only
D) II and III
Answer:
Consider the vaccine for the human papillomavirus (HPV), a sexually transmitted
disease that causes cervical cancer and genital warts.
a. Why might an HPV vaccine create positive externalities?
b. Draw a graph of the HPV vaccine market, illustrating the demand curve, social
demand curve, and supply curve.
c. On your graph, indicate the perfectly competitive output of vaccines and the socially
optimal output.
Answer:
Table 12.4
(Table 12.4) The table shows payoffs as profits in thousands of dollars. Which of the
following statements is TRUE?
A) This game has no Nash equilibrium.
B) Horizon’s dominant strategy is High Price.
C) The Nash equilibrium occurs when both companies choose the Low-Price strategy.
D) There are two Nash equilibria: (80, 80) and (65, 65).
Answer:
Figure 3.10
(Figure 3.10) At a price floor of $750, there is an excess supply of:
A) 18 million tons of peanuts.
B) 12 million tons of peanuts.
C) 15 million tons of peanuts.
D) 37 million tons of peanuts.
Answer:
Figure 3.12
(Figure 3.12) What is the effect of the quota on consumer surplus?
A) The quota causes consumer surplus to increase from $8 to $16.
B) The quota causes consumer surplus to decrease from $8 to $2.
C) The quota causes consumer surplus to decrease from $16 to $12.
D) The quota causes consumer surplus to decrease from $12 to $4.
Answer:
The short-run production function for a firm is given by Q = 10L0.5. What is the
marginal product?
A)
B)
C)
D)
Answer:
Which of the following statements is TRUE?
I. The firm’s total cost is the sum of its fixed and variable costs.
II. Over longer time horizons, the costs of the firm’s inputs tend to become fixed.
III. In the long run, the firm can adjust the use of all of its inputs.
A) II only
B) I only
C) I and III
D) I, II, and III
Answer:
Which of the following statements is consistent with rational addiction?
I. Most addicts are myopic because they don’t consider the future when making
decisions.
II. Addicts use hyperbolic discounting, placing too much emphasis on the immediate
future.
III. Consumers of addictive substances consider the lifetime benefits of consumption as
well as the lifetime costs.
A) I only
B) II only
C) I and II
D) III only
Answer:
In a study to examine altruistic behavior, an economics professor recruits college
students to participate in a game. The game consists of teams of two, where one person
is the proposer and the other the responder. The proposer receives a sum of money and
must decide how to split the money with the responder. If the responder likes how the
money was split, each person receives the determined split of money. If the responder
rejects how the money was split, neither player receives any money. This study is an
example of a:
A) Pigouvian conjecture.
B) lab experiment.
C) natural experiment.
D) path-dependent experiment.
Answer:
Table 12.6
(Table 12.6) Suppose that the interest rate is 9% and the firm requires a payback period
of three years. Which of the following statements is TRUE?
I. Based on the payback period, the firm would undertake this investment.
II. The net present value of this investment is greater than zero.
III. Based on the net present value, the firm should undertake this investment.
A) I, II, and III
B) II and III
C) I only
D) I and III
Answer:
Consider the production function Q = (0.5K1/3 + 0.5L1/3)3 with a corresponding MRTS
= K2/3/L2/3.
a.Prove that this production function exhibits constant returns to scale.
b.Suppose the firms want to minimize the cost of producing 8 units of output, and pays
a wage rate of W = $40 and rental rate of capital of $10. How many units of labor and
capital should the firm use?
Answer:
The demand and supply curves for a good are given by QD = 50 ” 2P and QS = P “
a. Calculate the price elasticity of demand at the equilibrium price.
b. Calculate the price elasticity of supply at the equilibrium price.
c. What would happen to consumer expenditures on the good if firms must pay higher
prices for their inputs in production?
Answer:
Using well-labeled supply and demand curves, show how the following events will
affect the market for the metal lead.
a. A large deposit of lead is found in Australia.
b. Millions of Chinese who were recently lifted out of poverty buy new cars that use
lead acid batteries.
c. The EPA bans the use of lead ammunition because of environmental concerns.
d. A new production technology reduces the cost of removing lead from ore.
Answer:
Altruism is:
A) making decisions using heuristic reasoning.
B) self-interested acts that minimize a person’s objective function.
C) self-interested acts that maximize a person’s objective function.
D) the unselfish concern for the welfare of others.
Answer:
In the maple syrup market, what are the likely effects on the equilibrium price and
equilibrium quantity because of the following events?
a. The price of pancake mix doubles.
b. Academic scientists claim that consuming maple syrup raises good cholesterol.
c. Sap streak disease becomes widespread, killing tens of thousands of maple trees.
d. The price of Aunt Jemima pancake syrup (made with corn syrup, not maple syrup)
increases.
Answer:
Which of the following statements is TRUE?
I. Accounting profit = total revenue ” accounting cost.
II. Economic cost = accounting cost ” opportunity cost.
III. Economic profit = accounting profit + opportunity cost.
IV. Economic profit = total revenue ” economic cost.
A) I and IV
B) I, II, III, and IV
C) II and IV
D) I, III, and IV
Answer: