1) The local bakery makes such great cinnamon rolls that consumers do not respond
much at all to a change in the price. If the owner is only interested in increasing
revenue, she should
a.lower the price of the cinnamon rolls.
b.leave the price of the cinnamon rolls unchanged.
c.raise the price of the cinnamon rolls.
d.reduce costs.
2) In the early twentieth century, streetcars in many southern cities were segregated by
race. This racial segregation was the result of
a.laws that required such segregation.
b.long-standing southern traditions about which the law was silent.
c.streetcar firms trying to maximize profits.
d.streetcar firms trying to minimize costs.
3) Which of the following scenarios would serve to decrease the demand for unskilled
labor in the U.S.?
a.increased productivity gains among unskilled laborers
b.increased demand for goods produced by unskilled laborers
c.increased international trade with countries where unskilled labor is more plentiful
d.increased supply of migrant workers
4) Table 18-9
The following table shows the production function for a particular business. The
numbers represent the various labor and output combinations the firm may choose for
its output on a daily basis.
Refer to Table 18-9. Suppose this firm charges a price of $5 per unit of output and pays
workers a wage equal to $160 per day. How many workers should this firm hire to
maximize its profit?
a.2 workers
b.3 workers
c.4 workers
d.5 workers
5) Figure 18-5
The figure shows a particular profitmaximizing, competitive firm’s valueofmarginal-
product (VMP) curve. On the horizontal axis, L represents the number of workers. The
time frame is daily.
Refer to Figure 18-5. Assume that two points on the firm’s production function are (L
= 2, Q = 180) and (L = 3, Q = 228), where L = number of workers and Q = quantity of
output. The firm pays its workers $120 per day. The firm’s nonlabor costs are fixed, and
they amount to $250 per day. We can conclude that
a.the firm sells its output for $12 per unit.
b.if the firm is currently employing 2 workers per day, then profit could be increased by
$48 per day if a third worker is hired.
c.the marginal cost per unit of output is $2.50 when output is increased from 180 units
per day to 228 units per day.
d.the firm’s maximum profit occurs when it hires 3 workers per day.
6) Private ownership of a monopoly may benefit society because the monopoly will
have an incentive to
a.charge a price that is consistent with that of a benevolent social planner.
b.charge a price that prevents some people from buying.
c.price its good according to the intersection of marginal cost and average revenue.
d.lower its costs to earn a higher profit.
7) Economists who argue that advertising enhances market efficiency suggest that
celebrity advertising signals inferior product quality.
a.True
b.False
8) If a competitive firm is selling 500 units of its product at a price of $8 per unit and
earning a positive profit, then
a.its average revenue is greater than $8.
b.its marginal revenue is less than $8.
c.its total cost is less than $4,000.
d.All of the above are correct.
9) A situation in which firms choose their best strategy given the strategies chosen by
the other firms in the market is called
a.a competitive equilibrium.
b.an open-market solution.
c.a socially-optimal solution.
d.a Nash equilibrium.
10) Critics of advertising argue that in some markets advertising may
a.attract products of lower quality into the market.
b.attract less informed buyers into the market.
c.decrease elasticity of demand allowing firms to charge a larger markup over marginal
cost.
d.enhance competition in markets to an unnecessary degree.
11) Figure 10-11
Which of the following statements is correct?
a.The private value of the 240th unit of output is $24.
b.The social value of the 240th unit of output is $42.
c.The external benefit of the 240th unit of output is $18.
d.All of the above are correct.
12) Assume that Japan and Korea can switch between producing cars and producing
airplanes at a constant rate.
Japan’s opportunity cost of one airplane is
a.1/5 car and Korea’s opportunity cost of one airplane is 1/3 car.
b.1/5 car and Korea’s opportunity cost of one airplane is 3 cars.
c.5 cars and Korea’s opportunity cost of one airplane is 1/3 car.
d.5 cars and Korea’s opportunity cost of one airplane is 3 cars.
13) The practice of tying is used to
a.enhance the enforcement of antitrust laws.
b.encourage the enforcement of collusive agreements.
c.control the retail price of a collection of related products.
d.package products to sell at a combined price closer to a buyer’s total willingness to
pay.
14) Which of the following is likely to have the most price inelastic demand?
a.athletic shoes
b.running shoes
c.Nike running shoes
d.Nike Shox running shoes
15) Canada’s Production Possibilities FrontierMexico’s Production Possibilities
Frontier
At which of the following prices would both Canada and Mexico gain from trade with
each other?
a.9 units of Good Y for 6 units of Good X
b.8 units of Good Y for 20 units of Good X
c.70 units of Good Y for 30 units of Good X
d.Canada and Mexico could not both gain from trade with each other at any price.
16) An agreement among firms in a market about quantities to produce or prices to
charge is called
a.collusion.
b.Nash equilibrium
c.dominant strategy.
d.behavioral economics.