Figure 15-9
Figure 15-9 shows the demand and cost curves for a monopolist.
Refer to Figure 15-9. At the profit-maximizing quantity, what is the difference between
the monopoly’s price and the marginal cost of production?
A) $8
B) $11.50
C) $21
D) There is no difference.
Only one of the following statements is correct. The statements compare perfectly
competitive (PC) markets and monopolistically competitive (MC) markets. Which
statement is correct?
A) Productive efficiency is achieved in both PC and MC markets. Allocative efficiency
is achieved only in MC markets.
B) Allocative efficiency is achieved in both PC and MC markets. Productive efficiency
is achieved only in PC markets.
C) Productive efficiency and allocative efficiency are both achieved in PC markets.
Neither is achieved in MC markets.
D) Allocative efficiency is achieved only in PC markets. Productive efficiency is
achieved only in MC markets.
Figure 3-5
Refer to Figure 3-5. At a price of $20
A) there would be a surplus of 8 units.
B) there would be a shortage of 8 units.
C) there would be a surplus of 0 units.
D) there would be a shortage of 4 units.
Figure 5-6
Figure 5-6 shows the market for measles vaccinations, a product whose use generates
positive externalities.
Refer to Figure 5-6. What does D1 represent?
A) the demand curve reflecting social benefit
B) the positive externalities curve
C) the demand curve reflecting private benefit
D) the social welfare curve
The marginal utility per dollar that Harold Stratton receives from oranges is greater than
the marginal utility per dollar Harold receives from pears. To maximize his utility, what
should Harold do?
A) He should acquire more income so that he can afford to buy more oranges and pears.
B) He should reduce his consumption of both oranges and pears so that he can buy a
greater variety of goods.
C) He should buy fewer pears and more oranges.
D) He should buy fewer oranges and more pears.
Figure 5-4
Suppose there are several paper mills producing paper for a market. These mills,
located upstream from a fishing village, discharge a large amount of wastewater into the
river. The waste material affects the number of fish in the river, and the use of the river
for recreation and as a public water supply source. Figure 5-4 shows the paper market.
Use this Figure to answer the following question(s).
Refer to Figure 5-4. What does S1 represent?
A) the market supply curve that reflects social cost
B) the market supply curve that reflects only external cost
C) the market supply curve that reflects only private benefit
D) the market supply curve that reflects private cost
In the long run which of the following is true?
A) Total cost = fixed cost + variable cost.
B) The size of a firm’s physical plant can be changed but the firm cannot adopt new
technology.
C) There are no fixed costs.
D) The firm can vary its explicit costs but not its implicit costs.
Consider the following items:
a. the novel “The DaVinci Code” by Dan Brown
b. the “The Spirited Shipper,” an innovative wine shipping box
c. a Swiss chef’s award-winning recipe
d. an original fabric design, for example, the fabric used for “Coach” bags and luggage
Which of the items listed is an example of intellectual property?
A) a and b only
B) a, b, and c
C) a and d only
D) all of the items listed
Jeremy is thinking of starting up a small business selling NASCAR memorabilia. He is
considering setting up his business as a corporation. What is one advantage to Jeremy
of setting up his business as a corporation?
A) By setting up the business as a corporation, Jeremy would not face double taxation.
B) By setting up the business as a corporation, Jeremy would have the ability to share
risk with shareholders.
C) By setting up the business as a corporation, Jeremy would have both ownership and
control over the business.
D) All of the above would be advantages of setting up his business as a corporation.
Some economists believe that the economy benefits from firms having market power.
Which of the following is an argument that has been made to support this position?
A) Large firms are better able than small firms to spend funds on research and
development required to develop new products.
B) Competition is very rare in the U.S. economy and few new products are produced by
smaller, competitive firms.
C) Research has shown that the deadweight loss from monopolies is a small percentage
of the value of production in the United States.
D) Large firms can afford to lobby the U.S. government in order to impose restrictions
on imports and reduce the outsourcing of jobs to other countries.
When Wal-Mart decides to build a new retail store in a town, it will decide to build a
large store rather than a small store if the large store is expected to earn a greater
economic profit. What other motive would Wal-Mart have for choosing to build a large
store?
A) A larger store will help Wal-Mart maintain its position as the leading retail company
in the world more than a smaller store would.
B) A larger store will give Wal-Mart greater political influence in the community.
C) A larger store may deter entry into the town by a rival firm.
D) Because of economies of scale, the average total cost of production is less for a
larger store than a smaller store.
Table 2-8
Table 2-8 shows the number of labor hours required to produce a digital camera and a
pound of wheat in China and South Korea.
Refer to Table 2-8. If the two countries specialize and trade, who should export wheat?
A) There is no basis for trade between the two countries.
B) China
C) South Korea
D) They should both be exporting wheat.
Which of the following is a factor of production that generally is fixed in the short run?
A) raw materials
B) labor
C) a factory building
D) water
An isocost line shows
A) combinations of two inputs that result in the same total cost for a firm.
B) combinations of two inputs that result in the same total output for a firm.
C) combinations of the two inputs that result in the same profit for a firm.
D) the different levels of total cost that result from various combinations of two inputs.
As a business type, corporations ________ in the United States.
A) earn the majority of profits
B) are the most common
C) are the least common
D) are subject to the least amount of taxes
Which of the following statements is true about marginal revenue?
A) If marginal revenue is zero, it means that quantity demanded falls to zero when a
firm changes its price.
B) If marginal revenue is negative, the additional revenue received from selling 1 more
unit of the good is smaller than the revenue lost from receiving a lower price on all the
units that could have been sold at the original price.
C) If marginal revenue is positive, the additional revenue received from selling 1 more
unit of the good is smaller than the revenue lost from receiving a lower price on all the
units that could have been sold at the original price.
D) Marginal revenue increases as price falls and quantity sold increases.
Consumers are willing to purchase a product up to the point where
A) the marginal benefit of consuming the product is equal to the marginal cost of
consuming it.
B) the consumer surplus is equal to the producer surplus.
C) the marginal benefit of consuming the product equals the area below the supply
curve and above the market price.
D) the marginal benefit of consuming a product is equal to its price.
Figure 7-2
Figure 7-2 represents the market for medical services with and without insurance, and
the effect of a third-party payer system on the demand for medical services.
Refer to Figure 7-2. With insurance and a third-party payer system, what price do
consumers pay for medical services?
A) $25
B) $40
C) $55
D) >$55
The labor market in Major League Baseball features
A) a monopoly by the League in employing professional baseball players that is offset
by the players’ membership in a labor union.
B) a monopsony by the League in employing professional baseball players that is offset
by the players’ membership in a labor union.
C) an oligopoly by the League in employing professional baseball players that is offset
by an oligopsony by the players in the labor market.
D) monopolistic competition between the teams and professional baseball players.
David Card and Alan Kruger conducted a study of fast-food restaurants in New Jersey
and Pennsylvania. The study found that
A) there was a large reduction in employment of low-skilled workers when the
minimum wage was raised in these states.
B) the earned income tax credit is more effective in raising the incomes of low-skilled
workers than increases in the minimum wage.
C) increases in the minimum wage had a very small impact on employment.
D) increases in the prices of food have a greater effect on wage increases in New Jersey
than in Pennsylvania.
Economic decline (negative growth) is represented on a production possibilities frontier
model by the production possibility frontier
A) shifting outward.
B) shifting inward.
C) becoming steeper.
D) becoming flatter.
The demand curve of a monopolistically competitive firm
A) is horizontal because the firm must cut its price to sell more.
B) is perfectly elastic.
C) is downward-sloping because it sells an identical product.
D) is downward-sloping because it must cut its price to sell more.
Which of the following is a fixed cost?
A) payment to hire a security worker to guard the gate to the factory around the clock
B) wages to hire assembly line workers
C) payments to an electric utility
D) costs of raw materials
The demand curve for a Giffen good is
A) non-linear but downward-sloping.
B) vertical.
C) upward-sloping.
D) non-existent.
Economic rent is defined as
A) what you pay to rent your apartment or house.
B) the revenue received by a factor of production with an upward sloping supply curve.
C) the price of a factor of production that is fixed in supply.
D) the surplus received by employing a factor of production in its highest valued use.
Average variable cost can be calculated using any of the formulas below except
A) TVC/Q.
B) (TC – FC)/Q.
C) Δ(TC – FC)/ΔQ.
D) (TC/Q) – AFC.
OPEC periodically meets to agree to restrict the cartel’s oil output, and yet almost every
member of OPEC produces more than its own output quota. This suggests that OPEC
has
A) a cooperative equilibrium.
B) a noncooperative equilibrium.
C) new potential entrants.
D) a threat of substitute goods.
Figure 5-2
Figure 5-2 shows a market with a negative externality.
Refer to Figure 5-2. The deadweight loss due to the externality is represented by the
area
A) abc.
B) abf.
C) abd.
D) ade.
Figure 15-16
Figure 15-16 shows the market demand and cost curves facing a natural monopoly.
Refer to Figure 15-16. If the regulators of the natural monopoly allow the owners of
the firm to break even on their investment the firm will produce an output of ________
and charge a price of ________.
A) Q1 units; P4
B) Q1 units; P1
C) Q5 units; P3
D) Q3 units; P3
The production possibilities frontier model assumes which of the following?
A) Labor, capital, land and natural resources are unlimited in quantity.
B) The economy produces only two products.
C) Any level of the two products that the economy produces is currently possible.
D) The level of technology is variable.
Suppose there is no unemployment in the economy and society decides that it wants
more of one good. Which of the following statements is true?
A) It can only achieve this with an advance in technology.
B) It can increase output without giving up another good.
C) It can only achieve this with an increase in resource supplies.
D) It will have to give up production and consumption of some other good.