1) A decrease in population can be expected to
a.increase the marginal product of land.
b.decrease the supply of land.
c.decrease the rents on land.
d.increase the demand for land.
2) When a firm experiences economies of scale, long-run average total cost falls as the
quantity of output increases.
a.True
b.False
3) A family on a trip budgets $800 for meals and hotel accommodations. Suppose the
price of a meal is $40. In addition, suppose the family could afford a total of 8 nights in
a hotel if they don’t buy any meals. How many meals could the family afford if they
gave up two nights in the hotel?
a.1
b.2
c.5
d.8
4) Which of the following sets of circumstances is likely to provide the best evidence in
support of the theory of efficiency wages?
a.Workers in the market are unskilled and not represented by a union, and their wage
exceeds both the equilibrium wage and the minimum wage.
b.Workers in the market are highly skilled and not represented by a union, and their
wage exceeds the minimum wage.
c.Workers in the market are highly skilled and represented by a union, and their wage
exceeds the equilibrium wage.
d.Employers in the market are known for reducing the workers’ wage whenever they get
an opportunity to do so.
5) Market failure is the ability of a single person to have a substantial influence on
market prices.
a.True
b.False
6) Game theory is important for the understanding of
a.competitive markets.
b.monopolies.
c.oligopolies.
d.all market structures.
7) A 10 percent increase in gasoline prices reduces gasoline consumption by about
a.6 percent after one year and 2.5 percent after five years.
b.2.5 percent after one year and 6 percent after five years.
c.10 percent after one year and 20 percent after five years.
d.0 percent after one year and 1 percent after five years.
8) Which of the following statements is correct?
a.Taxes are more difficult to administer than regulations.
b.Taxes provide incentives for firms to adopt new methods to reduce negative
externalities.
c.Command-and-control policies provide incentives for private decisionmakers to solve
their problems on their own.
d.Corrective taxes distort incentives.
9) Table 17-29
Suppose that two firms, Wild Willy’s Wonderdrink (Firm W) and Hyper Hank’s
Hydration (Firm H), comprise the market for energy drinks. Each firm determines that
it could lower its costs and increase its profits if both firms reduced their advertising
budgets. But for the plan to work, each firm must agree to refrain from advertising.
Each firm believes that advertising works by increasing the demand for the firm’s
energy drinks, but each firm also believes that if neither firm advertises, the cost
savings will outweigh the lost sales. The table below lists each firm’s individual profits:
Firm W
Breaks agreement Maintains agreement
and advertises and does not advertise
Refer to Table 17-29. What is the outcome of this game?
a.Neither Firm W nor Firm H will advertise.
b.Both Firm W and Firm H will advertise.
c.Firm W will advertise but Firm H will not.
d.Firm W will not advertise but Firm H will.
10) The Sherman Antitrust Act
a.overturned centuries-old views of English and American judges on agreements among
competitors.
b.had the effect of discouraging private lawsuits against conspiring oligopolists.
c.strengthened the Clayton Act.
d.elevated agreements among conspiring oligopolists from an unenforceable contract to
a criminal conspiracy.
11) Scenario 16-2
Suppose market demand for a product is given by the equation P = 20 – Q. For this
market demand curve, marginal revenue is MR = 20 – 2Q.
If the marginal cost of producing this good is 0, what price would a profit-maximizing
monopolist charge for the product?
a.P = 0
b.P = 5
c.P = 10
d.P = 20
12) Figure 14-1
Suppose that a firm in a competitive market has the following cost curves:
The firm will earn a positive economic profit in the short run if the market price is
a.above $6.30.
b.less than $6.30 but more than $4.50.
c.less than $4.50.
d.exactly $6.30.
13) Between 1975 and 2011, the wage gap between men with a high school education
and men with a college education increased. In particular, in 2011 men with a college
degree earned about
a.10% more than men with a high school education.
b.25% more than men with a high school education.
c.75% more than men with a high school education.
d.90% more than men with a high school education.
14) Antitrust laws may
a.enhance the ability of firms to capture profits from a concentration of market power.
b.enhance the ability of firms to reduce economic losses.
c.restrict the ability of firms to operate at the socially efficient level of production.
d.restrict the ability of firms to merge.
15)
Total revenue when the price is P2 is represented by the area(s)
a.B + D
b.A + B
c.C + D
d.D
16) If the value of in-kind transfers are taken into account, the number of families living
in poverty in the United States would
a.increase by about 1 percent.
b.decrease by about 1 percent.
c.decrease by about 5 percent.
d.decrease by about 10 percent.
17) In the long run, when price is less than average total cost for all possible levels of
production, a firm in a competitive market will choose to exit (or not enter) the market.
a.True
b.False
18) Table 17-20
Nadia and Maddie are two college roommates who both prefer a clean common space
in their dorm room, but neither enjoys cleaning. The roommates must each make a
decision to either clean or not clean the dorm room’s common space. The payoff table
for this situation is provided below, where the higher a player’s payoff number, the
better off that player is. The payoffs in each cell are shown as (payoff for Nadia, payoff
for Maddie).
Refer to Table 17-20. What is Nadia’s dominant strategy?
a.Nadia has no dominant strategy.
b.Nadia should always choose Clean.
c.Nadia should always choose Don’t Clean.
d.Nadia has two dominant strategies, Clean and Don’t Clean, depending on the choice
Maddie makes.
19) Table 17-24
Two firms are considering going out of business and selling their assets. Each considers
what happens if the other goes out of business. The payoff matrix below shows the net
gain or loss to each firm.
Refer to Table 17-24. Which firms have a dominant strategy?
a.A and B
b.Neither A nor B
c.A but not B
d.B but not A
20) A firm operating in a perfectly competitive industry will shut down in the short run
but earn losses if the market price
is less than that firm‘s average variable cost.
a.True
b.False