Because the monopolistically competitive firm faces a ________ demand curve for its
product, it ________ the price of its output.
A) downward-sloping; cannot influence
B) horizontal; can influence
C) horizontal; cannot influence
D) downward-sloping; can influence
The marginal rate of technical substitution is
A) the rate at which a firm is able to substitute one input for another, while keeping
total cost constant.
B) the rate at which a firm is able to substitute one input for another, while keeping the
level of output constant.
C) the rate at which a firm is able to institute positive technological changes to its
production process.
D) the rate at which a firm is able to increase its output by replacing labor with
technology.
For a monopolistically competitive firm, marginal revenue
A) equals the price.
B) is greater than the price.
C) is less than the price.
D) and price are unrelated.
Figure 13-17
Refer to Figure 13-17. What is the amount of excess capacity?
A) Qh – Qf units
B) Qj – Qf units
C) Qj – Qh units
D) Qh – Qg units
The highest valued alternative that must be given up to engage in an activity is the
definition of
A) economic equity.
B) marginal benefit.
C) opportunity cost.
D) marginal cost.
When there is a negative externality, the private cost of production ________ the social
cost of production.
A) is greater than
B) is equal to
C) eliminates
D) is less than
Suppose in Finland a worker can produce either 32 cell phones or 4 kayaks while in
Canada a worker can produce either 40 cell phones or 10 kayaks.
a. Which country has an absolute advantage in cell phone production? In kayak
production?
b. What is the opportunity cost of 1 cell phone in Finland? In Canada?
c. What is the opportunity cost of 1 kayak in Finland? In Canada?
d. Which country has a comparative advantage in cell phone production? In kayak
production?
e. Suppose each country has 1,000 workers. Currently, each country devotes 40 percent
of its labor force to cell phone production and 60 percent to kayak production. What is
the output of cell phones and kayaks for each country and what is the total output of cell
phones and kayaks between the two countries?
f. Suppose each country specializes in the production of the good in which it has a
comparative advantage. What is the total output of cell phones and kayaks in the two
countries?
g. Provide a numerical example to show how Finland and Canada can both gain from
trade. Assume that the terms of trade are established at 6 cell phones for 1 kayak.
When a monopolist engages in perfect price discrimination, the quantity produced and
sold
A) is lower than the quantity produced and sold if it adopted a single price.
B) is larger than the quantity produced and sold if it adopted a single price.
C) is the same level as that produced and sold if it adopted a single price.
D) could be lower, higher, or the same as that produced and sold if it adopted a single
price.
Which of the following is a characteristic of a firm in a perfectly competitive market?
A) The firm cannot make a profit in the short run because it is too small a part of the
total market.
B) The firm can make a profit in the long run but not in the short run.
C) The firm can sell as much as it wants without having to lower its price.
D) The firm must lower its price in order to increase quantity demanded.
Which of the following is not a characteristic of long-run equilibrium in a
monopolistically competitive market?
A) Selling price equals average total cost.
B) Production is at minimum average total cost.
C) Marginal revenue equals marginal cost.
D) Selling price is greater than marginal cost.
Average fixed cost is equal to
A) the amount of total cost that does not change as output changes in the short run.
B) fixed cost divided by the quantity of output produced.
C) fixed cost multiplied by the quantity of output produced.
D) average total cost plus average variable cost.
Tom Searchinger, a senior attorney at the Environmental Defense Fund, observed that
generous farm subsidies have encouraged farmers to produce more corn and more
wheat. How does this affect the market for fertilizer?
A) The supply of fertilizer increases.
B) The supply of fertilizer decreases.
C) The demand for fertilizer increases.
D) The demand for fertilizer decreases.
Assume you set up a sole proprietorship and your lawyer tells you that as the owner,
you could stand to lose your personal wealth if the business goes bankrupt. This means
a sole proprietorship
A) faces limited liability.
B) faces unlimited liability.
C) has little chance of succeeding.
D) is not a good type of business to set up.
Table 14-3
Suppose OPEC has only two producers, Saudi Arabia and Nigeria. Saudi Arabia has far
more oil reserves and is the lower-cost producer compared to Nigeria. The payoff
matrix in Table 14-3 shows the profits earned per day by each country. “Low output”
corresponds to producing the OPEC assigned quota and “high output” corresponds to
producing the maximum capacity beyond the assigned quota.
Refer to Table 14-3. Which of the following statements is true?
A) The Nash equilibrium is a noncooperative, dominant strategy equilibrium.
B) The Nash equilibrium is a cooperative equilibrium.
C) The Nash equilibrium is a collusive equilibrium.
D) There is no Nash equilibrium in this game because each party pursues its dominant
strategy.
The demand for all carbonated beverages is likely to be ________ the demand for Dr.
Pepper.
A) more elastic than
B) perfectly elastic compared to
C) less elastic than
D) perfectly inelastic compared to
Table 2-6
Table 2-6 shows the output per week of two jewelers, Serena and Haley. They can either
devote their time to making bracelets or making necklaces.
Refer to Table 2-6. Which of the following statements is true?
A) Haley has an absolute advantage in making both products.
B) Serena has an absolute advantage in making both products.
C) Haley has an absolute advantage in making bracelets and Serena in making
necklaces.
D) Haley has an absolute advantage in making necklaces and Serena in making
bracelets.
How are corporate profits taxed in the United States?
A) Earnings are taxed first by state sales taxes and then as corporate profits at the
Federal level.
B) Earnings are taxed first as personal income then as corporate profits at the Federal
level.
C) Earnings are taxed first as corporate profits then as personal income after dividends
are paid.
D) Corporate profits are not taxed at all.
Which of the following statements about price elasticity of demand is false?
A) The value of the price elasticity of demand is the reciprocal of the value of the
demand curve’s slope.
B) If quantity demanded changes by a larger percentage than the percentage change in
price, demand is elastic.
C) The value of the price elasticity of demand along a downward-sloping demand curve
is always negative.
D) A linear downward-sloping demand curve has a varying price elasticity coefficient.
If, when a firm doubles all its inputs, its average cost of production increases, then
production displays
A) diminishing returns.
B) economies of scale.
C) diseconomies of scale.
D) declining fixed costs.
Consider the following statements:
a. Car owners purchase more gasoline from a gas station that sells gasoline at a lower
price than other rival gas stations in the area.
b. Banks do not take steps to increase security since they believe it is less costly to
allow some bank robberies than to install expensive security monitoring equipment.
c. Firms produce more of a particular DVD when its selling price rises.
Which of the above statements demonstrates that economic agents respond to
incentives?
A) a only
B) b only
C) c only
D) a and b
E) a, b, and c
In Walnut Creek, California, there are three very popular supermarkets: Safeway, Whole
Foods, and Lunardi’s. While Safeway remains open twenty-four hours a day, Whole
Foods and Lunardi’s close at 9 pm. Which of the following statements is true?
A) Safeway is a monopoly all day because it produces a service that has no close
substitutes.
B) Safeway has a monopoly at midnight but not during the day.
C) Safeway can ignore the pricing decisions of the other two supermarkets.
D) Safeway probably has a higher markup to compensate for its higher cost of
production.
Figure 15-10
Refer to Figure 15-10. Compared to a perfectly competitive market, consumer surplus
is lower in a monopoly by an amount equal to the
A) area FHE.
B) area FGE.
C) area P1P2EF.
D) area P1P2GF.
Figure 2-12
Refer to Figure 2-12. One segment of the circular flow diagram in the figure shows the
flow of goods and services from market C to economic agents A. What is market C and
who are economic agents A?
A) C = factor markets; A = households
B) C = product markets; A = households
C) C = factor markets; A = firms
D) C = product markets; A = firms
If a firm is a natural monopoly, competition from other firms cannot be counted on to
force price down to the level where the company earns zero economic profit. How are
prices usually set in natural monopoly markets in the United States?
A) Each natural monopoly is made a public franchise. The public franchise is then
required to set its price equal to its marginal cost.
B) Natural monopolies are privately owned, but prices proposed by the firms must be
approved by the Antitrust Division of the Department of Justice.
C) Natural monopolies are privately owned and are allowed to set their own prices.
Government regulation of the firms would result in greater deadweight losses.
D) Local or state regulatory commissions usually set prices for natural monopolies.
Which of the following statements is true?
A) The marginal revenue of a monopolistically competitive firm will be positive at high
prices and negative at low prices.
B) Because the demand curve for a monopolistically competitive firm is
downward-sloping its marginal revenue will be negative.
C) The marginal revenue of a monopolistically competitive firm will be always be
positive.
D) The marginal revenue of a monopolistically competitive firm will be positive at low
prices and negative at high prices.
The substitution effect of an increase in the price of Raisin Bran refers to
A) the decrease in the demand for Raisin Bran when its price rises.
B) the result that consumers will now switch to a substitute good such as Cheerios, and
the demand curve for Raisin Bran shifts to the left.
C) the fact that the higher price of Raisin Bran lowers consumer’s purchasing power,
holding money income constant.
D) the fact that the higher price of Raisin Bran relative to its substitutes, such as
Cheerios, causes consumers to buy less Raisin Bran.
The difference between the highest price a consumer is willing to pay for a good and
the price the consumer actually pays is called
A) producer surplus.
B) the substitution effect.
C) the income effect.
D) consumer surplus.
A nonmonetary opportunity cost is called a(n) ________, while a cost that involves
spending money is called a(n) ________.
A) accounting cost; explicit cost
B) implicit cost; explicit cost
C) accounting profit; economic profit
D) normal rate of return; asset
Paul goes to Sportsmart to buy a new tennis racquet. He is willing to pay $200 for a
new racquet, but buys one on sale for $125. Paul’s consumer surplus from the purchase
is
A) $325.
B) $200.
C) $125.
D) $75.
Suppose the price of capital and labor remain constant but that the average educational
level of workers has increased and therefore, productivity of labor increases. This
would lead a firm
A) to adopt a more capital-intensive production technology.
B) to adopt a more labor-intensive technology.
C) to keep its output and production technology unchanged, but to use fewer units of
labor.
D) to use only labor to produce the product.
In the city of Alvarez, with the exception of guide dogs for blind people, all dogs are
banned from its three public parks, regardless of whether the animals are leashed. Many
residents are pushing for a change in policy. Canine lover Sara Northridge observed,
“There are 800 or more homes here. There are three parks within 10 minutes, and
almost everyone has a dog, but we can’t take our dogs there.” Others fear that allowing
dogs would detract from their enjoyment of the parks. Tim Cortis retorted, “We’re not
preventing dog lovers from enjoying the park, just come without your dog.” Which of
the following is a way of dealing with the problem by assigning property rights to a
particular group?
A) impose a two-tier entry fee system a lower fee for non dog owners and a higher fee
for dog owners
B) impose a fee only for dog owners to use the public parks; non dog owners do not pay
a fee
C) dedicate some parks, or at least one park, exclusively for the use of visitors bringing
dogs to the park
D) allow dog owners to bring their dogs to the park but insist that they keep watch over
their dogs
The table below shows the demand and cost data facing “Velvet Touches,” a
monopolistically competitive producer of velvet throw pillows.
Use the data to answer the following questions.
a. Complete the Total Revenue (TR), Marginal Revenue (MR), and Marginal Cost (MC)
columns above.
b. What are the profit-maximizing price and quantity for Velvet Touches?
c. Is the firm making a profit or a loss? How much is the profit or loss? Show your
work.
d. Is this firm operating in the long run or in the short run? Explain your answer.
e. If the firm’s profit or loss is typical of all firms in the market for throw pillows, what
is likely to happen in the future? Will there be more firms or will some existing firms
leave the industry? Explain your answer.
f. What will happen to the typical firm’s profit or loss after all entry/exit adjustments?
If a decrease in income leads to an increase in the demand for sardines, then sardines
are
A) an inferior good.
B) a neutral good.
C) a necessity.
D) a normal good.
The market demand curve for labor
A) is determined by adding up the quantity of labor demanded by each firm at each
wage, holding constant the other variables that affect the willingness of firms to hire
workers.
B) is the same as the market demand curve for the product labor produces because it is
a derived demand.
C) is determined by adding up the demand for labor by each firm at each wage, holding
constant the other variables that affect the willingness of firms to hire workers.
D) is perfectly inelastic because there is a finite number of workers in the market for
labor.