1) A firm maximizes its profit by producing output up to the point where marginal
revenue equals marginal cost
a.only when the market is a monopoly.
b.only when the market is a monopoly or monopolistically competitive.
c.only when the market is monopolistically competitive or perfectly competitive.
d.when the market is perfectly competitive, monopolistically competitive, or
monopolistic.
2) Taxes can be justified if the government uses the revenue to
(i)provide public goods such as national defense.
(ii)clean up negative externalities such as water pollution.
(iii)regulate a common resource such as fish in a public lake.
(iv)provide goods with positive externalities such as medical research.
a.(ii) only
b.(ii) and (iii) only
c.(i), (ii), and (iii) only
d.(i), (ii), (iii), and (iv)
3) Which of these types of firms can earn a positive economic profit in the long run?
a.monopolies, but not competitive firms or monopolistically competitive firms
b.monopolies and monopolistically competitive firms, but not competitive firms
c.monopolies, monopolistically competitive firms, and competitive firms
d.No firms earn positive economic profit in the long run. Entry will reduce all firms’
economic profit to zero in the long run.
4) Figure 7-16
If the price of the good is $600, then producer surplus amounts to
a. $650.
b. $800.
c. $900.
d. $1,000.
5) If an older worker earns less than a younger worker for the same job, we have proof
of age discrimination.
a.True
b.False
6) The business cycle is measured by the
a.production of goods and services.
b.number of people employed.
c.the interest rate.
d.Both a and b are correct.
7) Policymakers are discussing various proposals regarding how to deal with natural
monopolies. Senator Huff wants to regulate natural monopolies by equating price with
average total cost. Huff contends that such a policy will ensure that monopolies make
every effort to reduce costs. Senator Puff wants the government to own natural
monopolies. Puff argues that government-owned monopolies usually do a better job of
holding down costs than privately owned monopolies. Which senator’s argument is
correct?
a.Senator Huff
b.Senator Puff
c.both senators
d.neither senator
8) In Singapore, littering fines are strictly enforced. This is an example of a policy that
a.relies on moral codes to reduce the pollution externality.
b.relies on the Coase Theorem.
c.discriminates against foreigners.
d.relies on incentives to reduce the pollution externality.
9) As the number of firms in an oligopoly increases, the magnitude of the
a.output effect increases.
b.output effect decreases.
c.price effect increases.
d.price effect decreases.
10) Oligopolies can end up looking like competitive markets if the number of firms is
a.large and they all cooperate.
b.large and they do not cooperate.
c.small and they all cooperate.
d.small and they do not cooperate.
11) In which of the following situations will total revenue increase?
a. is 1.2, and the price of the good decreases.
b. is 0.5, and the price of the good increases.
c. is 3.0, and the price of the good decreases.
d.All of the above are correct.
12) Figure 16-11
How much consumer surplus will be derived from the purchase of this product at the
monopolistically competitive price?
a. $250.
b. $500
c. $562.50.
d. $1250.
13) Figure 21-20
The following graph illustrates a representative consumer’s preferences for
marshmallows and chocolate chip cookies:
Refer to Figure 21-20. Assume that the consumer has an income of $40, the price of a
bag of marshmallows is $2, and the price of a bag of chocolate chips is $2. The
optimizing consumer will choose to purchase which bundle of marshmallows and
chocolate chips?
a.A
b.B
c.C
d.D
14) The utilitarian case for redistributing income is based on the assumption of
a.collective consensus.
b.a notion of fairness engendered by equality.
c.diminishing marginal utility.
d.rising marginal utility.