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Figure 13-11
Refer to Figure 13-11. The diagram depicts a firm
A) in a constant-cost industry.
B) in an increasing-cost industry.
C) in long-run equilibrium.
D) that is making short-run losses.
When someone takes out a mortgage loan to buy a house, the mortgage lender can take
possession of the house and sell it if the borrower defaults by failing to make payments
on the loan because the house is being pledged as ________ for the loan.
A) goodwill
B) a liability
C) insurance
D) collateral
Figure 15-15
Figure 15-15 shows the cost and demand curves for the Erickson Power Company.
Refer to Figure 15-15. If the government regulates Erickson Power Company so that
the firm can earn a normal profit, the price would be set at ________ and the output
level is ________.
A) P1, Q4
B) P2, Q3
C) P2, Q2
D) P3, Q2
Some colleges now offer massive open online courses (MOOCs), where students do not
need to be in the same classroom as their instructors. The fixed cost of an online course
is relatively ________, but after the courses are placed online, the marginal cost of
providing instruction to an additional student is ________.
A) high; low
B) high; high
C) low; low
D) low; high
Consider this quote from an article in the Wall Street Journal: "The stock of educated
workers isn't increasing fast enough to keep up with rising demand.... Employers are
paying the typical four-year college graduate [without graduate school] 75% more than
they pay high-school grads. Twenty-five years ago, they were paying 40% more.
Employers insist on ever better-educated, skilled workers. "
Source: David Wessel, "Lack of Well-Educated Workers Has Lots of Roots, No Quick
Fix," Wall Street Journal, April 19, 2007, Page A2.
Which of the following best explains the rapid increase in the wage differential between
college graduates and high school graduates?
A) The demand for college educated workers shifted to the right while the supply of
college educated workers shifted to the left.
B) The supply of high-school educated workers shifted to the right faster than the
demand for college educated workers shifted to the right.
C) The demand for college educated workers shifted to the right faster than the supply
of college educated workers shifted to the right.
D) The demand for high-school educated workers shifted to the left faster than the
supply of college educated workers shifted to the right.
Figure 16-2
Plato Playhouse, a theatre company in the university town of Wegg, caters to two
groups of customers: students and the non-student population. Figure 16-2 shows the
demand curves for the two groups of customers.
Refer to Figure 16-2. What is the quantity sold to each group of customers and what is
the total quantity sold?
A) quantity sold to students = Qb; quantity sold to non-students = Qb; total sales = Qa
B) quantity sold to students = Qc; quantity sold to non-students = Qb; total sales =
Qb+Qc
C) quantity sold to students = Qc; quantity sold to non-students = Qe; total sales =
Qe+Qc
D) quantity sold to students = Qc; quantity sold to non-students = Qd; total sales =
Qd+Qc
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. What is Serena's opportunity cost of making a bracelet?
A) 2 necklaces
B) 1/2 of a bracelet
C) 1/2 of a necklace
D) 3/4 of a bracelet
Table 2-5
Refer to Table 2-5. The Shellfish Shack produces only shrimp and oysters. The table
above shows the maximum possible output combinations of the two types of shellfish
using all resources and currently available technology.
a. Suppose The Shellfish Shack is currently producing at point E. What is the
opportunity cost of producing an additional 11,000 pounds of oysters?
b. Suppose The Shellfish Shack is currently producing at point E. What happens to the
opportunity cost of producing more and more shrimp? Does it increase, decrease, or
remain constant? Explain your answer.
c. Suppose The Shellfish Shack is currently producing at point B. What happens to the
opportunity cost of producing more and more oysters? Does it increase, decrease, or
remain constant? Explain your answer.
d. Suppose The Shellfish Shack is plagued by a disease which destroys oyster beds but
not shrimp habitats. What would happen to its PPF?
Golda Rush quit her job as a manager for Home Depot to start her own hair dressing
salon, Goldilocks. She gave up a salary of $40,000 per year, invested her savings of
$30,000 (which was earning 5 percent interest) and borrowed $10,000 from a close
friend, agreeing to pay 5 percent interest per year. In her first year, Golda spent $18,000
to rent a salon, hired a part-time assistant for $12,000 and incurred another $15,000 in
expenses on equipment and hairdressing material. Based on this information, what is
the amount of her explicit costs?
A) $45,000
B) $45,500
C) $47,000
D) $87,000
A firm cannot control all of the factors that allow it to make economic profits. Which of
the following is an example of an uncontrollable factor?
A) product differentiation
B) input prices
C) producing at a lower average total cost than competing firms
D) hiring competent managers
The actual division of the burden of a tax between buyers and sellers in a market is
called
A) tax incidence.
B) tax liability.
C) tax bearer.
D) tax parity.
Figure 12-17
The graphs in Figure 12-17 represent the perfectly competitive market demand and
supply curves for the apple industry and demand and cost curves for a typical firm in
the industry.
Refer to Figure 12-17. Which of the following statements is true?
A) The current market price is $3 but the firm will be able to increase the price in the
future.
B) The current market price is $3 but the price will fall in the long run as a result of a
decrease in demand.
C) The current market price is $3 but the price will fall in the long run as new firms
enter the market.
D) The current market price is $3 but the price will increase in the future as the market
demand increases.
Table 17-2
Refer to Table 17-2. What is the profit-maximizing quantity of labor that the firm
should hire?
A) 5 units
B) 4 units
C) 3 units
D) 2 units
Figure 4-5
Figure 4-5 shows the market for apartments in Springfield. Recently, the government
imposed a rent ceiling of $1,000 per month.
Refer to Figure 4-5. What is the value of the portion of producer surplus transferred to
consumers as a result of the rent ceiling?
A) $40,000
B) $100,000
C) $125,000
D) $140,000
The equilibrium wage and quantity of labor in the market for skilled workers is
determined by
A) the strength of labor unions.
B) the monopsony power of firms.
C) the demand and supply of labor.
D) the market value created by the output of these skilled workers.
________ describes the actions a firm takes to maintain the differentiation of its product
over time.
A) Product differentiation
B) Brand management
C) Aggressive marketing
D) Advertising
If Marlowe obtains 9 units of utility per dollar spent on apples and 6 units of utility per
dollar spent on oranges, then Marlowe
A) is maximizing total utility.
B) should buy more apples and fewer oranges.
C) should buy more oranges and fewer apples.
D) should buy fewer oranges and fewer apples.
In a perfectly competitive market, there are ________ buyers and ________ sellers.
A) many; few
B) few; many
C) many; many
D) few; few
How has organizing a successful firm in a market economy changed over the last
century?
A) It has become easier as more and more firms discover how to do it.
B) As government intervention has decreased, firms now have more freedom.
C) There has been no change one way or the other over the last century.
D) It has become more difficult to organize an efficient and successful firm.
Holding everything else constant, the absolute value of the price elasticity of demand
for Saucony tennis shoes is ________ the price elasticity of demand for tennis shoes.
A) less than
B) equal to
C) twice as great as
D) greater than
A monopoly is a seller of a product
A) with many substitutes.
B) without a close substitute.
C) with a perfectly inelastic demand.
D) without a well-defined demand curve.
What is the difference between an "increase in demand" and an "increase in quantity
demanded"?
A) There is no difference between the two terms; they both refer to a shift of the
demand curve.
B) An "increase in demand" is represented by a rightward shift of the demand curve
while an "increase in quantity demanded" is represented by a movement along a given
demand curve.
C) There is no difference between the two terms; they both refer to a movement
downward along a given demand curve.
D) An "increase in demand" is represented by a movement along a given demand curve,
while an "increase in quantity demanded" is represented by a rightward shift of the
demand curve.
Which of the following statements regarding equilibrium in the markets for capital and
for a natural resource used in producing a good is true?
A) The marginal revenue product of capital will equal the marginal revenue product of
the natural resource.
B) The rental price of capital will equal the price of the natural resource.
C) The marginal product of capital will equal the rental price of capital and the marginal
product of the natural resource will equal the price of the natural resource.
D) The marginal revenue product of capital will equal the rental price of capital and the
marginal revenue product of the natural resource will equal the price of the natural
resource.
Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to
make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed
cost of $120 per day. Calculate Vipsana's average fixed cost per day when she produces
50 gyros using two workers?
A) $2.00
B) $2.40
C) $4.40
D) $6.80
Congressman Gallstone seeks support from his colleagues for a bill he sponsors that
will establish a new national park in his district. He offers to support Congresswoman
Disrail's proposal to build a new library in her district in exchange for her vote for his
national park bill. This is an example of
A) regulatory capture.
B) logrolling.
C) rational ignorance.
D) government failure.
If tolls on a toll road can be raised significantly before commuters will consider using a
free alternative, demand for using the toll road must be
A) inelastic.
B) elastic.
C) unit elastic.
D) perfectly elastic.
Assume that you own a small boutique hotel. In an attempt to raise revenue you reduce
your rates by 20 percent. However, your revenue falls. What does this indicate about the
demand for your boutique hotel rooms?
A) Boutique hotel rooms are inferior goods.
B) Demand is inelastic.
C) The demand curve for your hotel rooms is vertical.
D) Demand is elastic.
Figure 6-10
Refer to Figure 6-10. A perfectly inelastic supply curve is shown in
A) Panel A.
B) Panel B.
C) Panel C.
D) Panel D.
Suppose at the current price, the demand for copper is estimated at -3.14. What happens
to sales revenue if the government imposes a price ceiling below the free market
equilibrium price in the copper market?
A) Sales revenue falls.
B) Sales revenue rises.
C) Sales revenue remains unchanged because copper is a necessity for most industries.
D) It cannot be determined without information on prices.
Figure 13-7
Figure 13-7 shows short-run cost and demand curves for a monopolistically competitive
firm in the footwear market.
Refer to Figure 13-7. Which of the following statements describes the best course of
action for the firm depicted in the diagram?
A) The firm should exit the industry because its price is less than its average total cost.
B) The firm should minimize its losses by producing Qy units and charging a price of
P0.
C) The firm should minimize its losses by producing Qy units and charging a price of
P2.
D) The firm should minimize its losses by producing Qy units and charging a price of
P1.
Peet's Coffee and Teas produces some flavorful varieties of Peet's brand coffee. Is Peet's
a monopoly?
A) Yes, there are no substitutes to Peet's coffee.
B) No, although Peet's coffee is a unique product, there are many different brands of
coffee that are very close substitutes.
C) Yes, Peet's is the only supplier of Peet's coffee in a market where there are high
barriers to entry.
D) No, Peet's is not a monopoly because there are many branches of Peet's.
In each of the following situations, list what will happen to the equilibrium price and
the equilibrium quantity for a particular product, which is an inferior good.
a. The population increases and productivity increases.
b. Income increases and the price of inputs decrease.
c. The number of firms in the market decreases and income increases.
d. Consumer preference increases and the price of a complement decreases.
e. The price of a substitute in consumption decreases and the price of a substitute in
production decreases.
