Related to the Economics in Practice on page 179: In higher education
A) the average total cost of educating students equals the marginal cost of educating an
additional student.
B) the average total cost of educating students exceeds the marginal cost of educating
an additional student.
C) the average total cost of educating students is less than the marginal cost of
educating an additional student.
D) the total fixed cost of educating students is less than the marginal cost of educating
an additional student.
To determine their optimal strategy, oligopolists must ________ to their strategy.
A) anticipate the reaction of their customers
B) anticipate the reaction of their rivals
C) anticipate the reaction of government
D) both A and B are correct.
Figure 7.10
Refer to Figure 7.10. The firm’s isocost line would shift from CD to CE if
A) the price of capital falls.
B) the price of labor falls.
C) the firm’s total expenditure on inputs increases.
D) either the price of labor rises or the firm’s total expenditure on inputs increases.
Figure 4.1
Refer to Figure 4.1. At the world price of 30 cents per apple the United States imports
________ million apples per day.
A) 2
B) 4
C) 6
D) 10
Figure 3.14
Refer to Figure 3.14. A decrease in the price of pizza sauce will cause a movement from
Point B on supply curve S2 to
A) supply curve S3.
B) supply curve S1.
C) Point A on supply curve S2.
D) Point C on supply curve S2.
Hi Phi Sound Unlimited has a monopoly over the installation of surround sound
systems. Hi Phi Unlimited’s total revenue from installing 15 sound systems is $30,000
and its total revenue from installing 18 sound systems is $33,000. The marginal revenue
received from selling the 18th sound system is
A) equal to the price of the 16th sound system.
B) greater than the price of the 16th sound system.
C) less than the price of the 16th sound system.
D) Indeterminate from the given information.
Below are drawn cost curves for Clips Ahoy Barber Shop, a monopolistically
competitive firm.
Figure 15.1
Refer to Figure 15.1. If Clips Ahoy maximizes profits, it ________ of $80.
A) receives a total revenue
B) earns a profit
C) has a total cost
D) suffers a loss
Cross-price elasticity of demand measures the response in the
A) price of a good to a change in the quantity of another good demanded.
B) income of consumers to the change in the price of goods.
C) quantity of one good demanded when the quantity demanded of another good
changes.
D) quantity of one good demanded to a change in the price of another good.
Which of the following phenomena can be explained by the simple comparative
advantage theory?
A) A country that has a vast amount of farmland tends to export agricultural goods.
B) A country with little skilled labor tends to export highly technical goods.
C) A country tends to import the goods that it can produce at a lower opportunity cost.
D) A country imports and exports the same goods.
A fund that takes household savings and puts them into ________ projects in exchange
for a share of the profits if the new business succeeds is a venture capital fund.
A) government
B) zero-risk
C) low-risk
D) high-risk
There are 3,000 families in a small town that are affected by air pollution from a local
factory. The air pollution could be reduced if the company spent $10,000 on upgraded
ventilators. The company agrees to install the ventilators if the affected families
contribute the $10,000. However, because individuals will benefit from the reduction in
air pollution whether they contribute or not, most people will not contribute and the
firm will not install the ventilators. This outcome is an example of the
A) free rider problem.
B) drop-in-the-bucket problem.
C) Coase theorem.
D) collective action problem (that arises when there are too many parties involved).
The demand curve facing a monopolistic firm is ________.
A) upwardsloping
B) downwardsloping
C) horizontal
D) vertical
Investors put up $1,040,000 to construct a building and purchase all equipment for a
new restaurant. The investors expect to earn a minimum return of 10 per cent on their
investment. The restaurant is open 52 weeks per year and serves 900 meals per week.
The fixed costs are spread over the 52 weeks (i.e. prorated weekly). Included in the
fixed costs is the 10% return to the investors and $2,000 in other fixed costs. Variable
costs include $2,000 in weekly wages, and $600 per week in materials, electricity, etc.
The restaurant charges $8 on average per meal.
Total variable costs per week are
A) $600.
B) $1,000.
C) $2,600.
D) $4,000.
Figure 16.4
Refer to Figure 16.4. If this firm is maximizing profits and is not required to take into
account damages, it will produce
A) 0 units of output.
B) 6 units of output.
C) 15 units of output.
D) 20 units of output.
The adjustment of ________ is the rationing mechanism in market economies.
A) quantity
B) price
C) supply
D) demand
Figure 13.5
Refer to Figure 13.5. The profit-maximizing level of output for this monopolist is
________ units of output.
A) 20
B) 22
C) 24
D) 26
Related to the Economics in Practice on page 236: In 2010, Tesla Motors decided to
become a public company by offering shares of stock to the public on a stock exchange.
Like most other firms, Tesla relied on ________ to manage the sales of stock from its
Initial public offering.
A) inside management
B) investment banks
C) its board of directors
D) the Federal Reserve
A coffee manufacturer raises the price of its coffee by 12%, and the quantity demanded
of its coffee falls by only 5%. This firm has
A) no monopoly power in the output market.
B) some market power.
C) some output power.
D) not been able to prevent its competitors from competing with it on price.
You own a building that has four possible uses: a cafe, a craft store, a hardware store,
and a bookstore. The value of the building in each use is $2,000; $3,000; $4,000; and
$5,000, respectively. You decide to open a hardware store. The opportunity cost of
using this building for a hardware store is
A) $2,000, the value if the building is used as a cafe.
B) $3,000, the value if the building is used as a craft store.
C) $10,000, the sum of the values if the building is used for a cafe, a craft store, or a
bookstore.
D) $1,000, the difference in value if the building was used as a bookstore and its actual
use.
Figure 6
Refer to Figure 3.6. The number of DVDs Isabel rents per week increases from 4 to 7.
This is caused by
A) an increase in income if DVDs are a normal good.
B) a decrease in the price of popcorn, which is a complement to DVDs.
C) a decrease in the rental price of DVDs.
D) either A or B.
In general, oligopolists compete
A) on price alone.
B) on many dimensions except for price.
C) on price, R&D, and marketing and advertising.
D) None of the above. There is no competition in oligopolistic industries.
Assuming there are no externalities, if a firm is producing at an output level where the
benefits to consumers are less than the cost to the suppliers to produce it, then price
A) equals marginal cost.
B) is greater than marginal cost.
C) is less than marginal cost.
D) is less than marginal revenue.
Samurai Sushi produces sushi using one variable inputlabor. Samurai Sushi is a
________ in the labor market and a ________ in the sushi market.
A) producer; consumer
B) consumer; producer
C) consumer; consumer
D) producer; producer
In a monopolistic industry, entry of new firms is
A) free.
B) easy.
C) expensive but available.
D) blocked.
A medical student’s internship at a local hospital is an example of
A) an investment in human capital.
B) a compensating wage differential.
C) economic income.
D) income redistribution.
A household will buy a good as long as the
A) good’s price is greater than the maximum a consumer would be willing to pay for it.
B) marginal utility from its consumption is greater than or equal to its market price.
C) good still provides the consumer with average utility.
D) good’s use value is less than the price being charged for the good.
To conduct a general equilibrium analysis of a change in consumer preferences away
from beef and toward chicken, you must consider
A) changes in the equilibrium prices and quantities of beef and chicken.
B) changes in the amount of resources allocated to the production of beef and chicken.
C) changes in the price of resources allocated to the production of beef and chicken.
D) all of the above
Figure 10.3
Refer to Figure 10.3. The market wage is initially W1 and the firm is initially at Point B.
Labor supply increases from S1 to S0. The firm’s MRPL curve will shift from MRPL at
K2 to MRPL at K1 because
A) the factor substitution effect will cause the firm to substitute capital for the
lower-priced labor.
B) the supply of labor increased, and therefore the productivity of labor increased.
C) the output effect led to an increase in the demand for capital, which in turn increased
the productivity of labor.
D) the firm is no longer maximizing profits.
Sponsors invest $250,000 in a new deli on the promise that they will earn a return of
10% per year on their investment. The deli sells 52,000 sandwiches per year. The deli’s
fixed costs include the return to investors and $79,000 in other fixed costs. Variable
costs consist of wages ($1,000 per week) plus materials, electricity, etc. ($3,000 per
week). The deli is open 52 weeks per year.
The deli’s annual total costs sum to ________.
A) $79,000
B) $104,000
C) $208,000
D) $312,000
As new firms enter a monopolistically competitive industry, the demand
A) and marginal revenue curves facing each firm begin to shift to the right.
B) curve facing each firm begins to shift to the right but the marginal revenue curve
remains constant.
C) and marginal revenue curves facing each firm begin to shift to the left.
D) curve facing each firm shifts to the left, but the marginal revenue curve remains
constant.
Figure 3.17
Refer to Figure 3.17. If this market is unregulated and the price is currently $90, you
would expect that the price of sunglasses would
A) remain at $90, because firms would not want to reduce the price.
B) fall to $30, so the firm could sell its excess supply.
C) fall to $60, where quantity demanded equals quantity supplied.
D) fall, but the new price is indeterminate from the information provided.
For an economy to produce at a point ________ current production possibility frontier,
the economy must increase its resource base.
A) higher up on its
B) inside its
C) beyond its
D) which is optimally efficient on its
Figure 18.2
Refer to Figure 18.2. Efficiency is achieved
A) only at Point B.
B) only at Point D.
C) at Points A, C, and D.
D) all Points A, B, C, and D.
Fred enjoys smoking cigars, but his wife Wilma feels ill whenever she is around cigar
smoke. Use the Coase theorem to explain how this problem could be solved without
government involvement.
What is meant by operating profit or net operating revenue?
Affiliated Plastics Corporation sells bubble wrap for shipping in a competitive market.
The price of the bubble wrap is $3 each. Hourly output varies with the amount of labor
hired as follows:
Fill in the columns for marginal product of labor and marginal revenue product.
In a laissez-faire economy, what determines the distribution of output?
Assume you have an income of $200 and you can only purchase two goods ” good A
and good B. If the price of good A and B are $1 and $2 how much of each good can
purchase? Assume that the price of good A falls why would you now consider not only
consuming more of good A but also more of good B? What’s going on that might cause
this behavioral response?
On what economic principle is the concept of utilitarian justice developed? Explain.
Below represents a total utility function for someone that goes to the gym. Add a
second column in which you calculate the marginal utility of each visit to the gym. Use
this information to determine when diminishing marginal utility sets in.
The Lotsa Pasta Company sells pasta in a perfectly competitive market at a price of $2
per pound. Its marginal cost, average variable cost, and average total cost curves can be
seen below:
Find the profit-maximizing level of output and mark it q*. Shade in the area of profit
earned by the firm. Is it positive or negative? How do you know?
Suppose that you and your four siblings are given an opportunity to purchase a video
rental store. Each of you would put up $50,000. The revenue from the store is expected
to remain $350,000 per year for the next several years. The costs (not including the
opportunity costs of your investment) of operating the store are expected to remain
steady at $320,000 for the next several years. The current market rate of interest is 5
percent per year. Should you go in on this deal? Explain.
What is a firm?
What is the relationship between price and marginal revenue for firms in perfect
competition? Explain.
Why is microeconomic theory often referred to as price theory?
Suppose that there are two goods that a small island nation can produce ” coconuts and
breadfruit. If the inputs for both goods are perfectly interchangeable and there is never a
rise or fall in opportunity cost explain what the production possibilities frontier should
look like and why.
Assume there are three firms in an industry as depicted in the graphs below. Based on
this information construct the industry supply curve.
When the price of bread rises from $1.25 to $1.50 per loaf, quantity demanded falls
from 5,800 per week to 5,500. Calculate total revenue both before and after the price
change. What can we tell about the price elasticity of demand for bread?
According to the table above determine which country has the absolute advantage
in corn and which in soybeans. In addition, determine which country has the
comparative advantage in corn and which in soybeans. Make sure to support your
answer by deriving the opportunity costs of each.
What is a public good?