If the demand curve a firm faces shifts to the right, usually
a. it would be impossible to tell whether the marginal revenue curve shifts.
b. the marginal revenue curve would shift to the left.
c. the marginal revenue curve would shift to the right.
d. the marginal revenue curve would not shift.
An increase in an individual’s income without changing relative prices will
a. rotate the budget constraint about the Xaxis.
b. shift the indifference curves outward.
c. shift the budget constraint outward in a parallel way.
d. rotate the budget constraint about the Y axis.
Suppose that an individual has a constant MRS of shoes for sneakers of : (that is, he or
she is always willing to give up 3 pairs of sneakers to get 4 pairs of shoes). Then, if
sneakers and shoes are equally costly, he or she will
a. buy only sneakers.
b. buy only shoes.
c. spend his or her income equally on sneakers and shoes.
d. wear sneakers only 3/4 of the time.
The average productivity of labor reaches its maximum
a. at the point of inflection of the total product curve.
b. where the slope of the total product curve is steepest.
c. where the slope of the total product curve is zero.
d. where marginal and average productivity are equal.
In general, non-equilibrium prices occur because
a. information is imperfect and adjustment is costly.
b. supply curves shift along stationary demand curves.
c. demand curves shift along stationary supply curves.
d. monopolists charge prices above marginal cost.
In perfect competition, environmental externalities need not distort the allocation of
resources providing
a. transactions costs are zero.
b. average costs are constant for all output levels.
c. firms install pollution control equipment.
d. the government sets realistic pollution standards.
Each firm in a cartel has an incentive to chisel because market price exceeds
a. marginal cost.
b. average cost.
c. average variable cost.
d. average fixed cost.
Firms in longrun equilibrium in a perfectly competitive industry will produce at the low
points of their average total cost curves because
a. free entry implies that longrun profits will be zero no matter how much each firm
produces.
b. firms seek maximum profits and to do so they must choose to produce where average
costs are minimized.
c. firms maximize profits and free entry implies that maximum profits will be zero.
d. firms in the industry desire to operate efficiently.
If quantity supplied is either greater or less than the equilibrium quantity, then all of the
following are true except:
a. total loss of surplus will depend on the shape of the demand and supply curves.
b. the resulting loss of consumer surplus will depend on the price of the good.
c. total loss of surplus will depend on the price of the good.
d. there will be an inefficient allocation of resources.
A demand curve will shift out for any of the following reasons except
a. preference for a good increases.
b. price of a substitute falls.
c. income rises.
d. price of a complement falls.
The Nash equilibrium of the Cournot game in which two identical firms face market
demand and have costs is given by
a. 50.0.
b. 41.7.
c. 31.5.
d. 27.8.
The slope of an individual’s “consumptionleisure” budget constraint is
a. 24 hours minus the number of leisure hours.
b. total consumption divided by the wage rate.
c. the real wage rate.
d. the negative of the real wage rate.
The difference between a Nash equilibrium and a subgame-perfect equilibrium is
a. the former requires rational play both on and off the equilibrium path but the latter
requires rational play only on the equilibrium path.
b. the former requires rational play only on the equilibrium path but the latter
requires rational play both on and off the equilibrium path.
c. Nash equilibria are a subset of the subgame-perfect equilibria.
d. nothing; they are synonyms.
In the Hotelling model of spatial competition, profits arise from
a. monopoly power.
b. rents based on locational advantage.
c. the ability to price discriminate.
d. increasing returns to scale.
In the short run, a sales tax is
a. wholly absorbed by the producer.
b. shared between the consumer and the producer.
c. deferred until the market is able to re-establish an equilibrium price.
d. wholly absorbed by the consumer.
If an individual’s supply of labor curve is “backward bending,” then
a. the substitution effect always dominates the income effect.
b. the income effect always dominates the substitution effect.
c. the substitution effect dominates at low real wage levels and the income effect
dominates at high real wage levels.
d. the income effect dominates at low real wage levels and the substitution effect
dominates at high real wage levels.
How does the leader’s behavior in the quantity-leadership (Stackelberg) game compare
to that in the analogous price-leadership game?
a. It behaves as a “puppy dog” in both.
b. It behaves as a “top dog” in the quantity leadership game but a “puppy dog”
in the price leadership game.
c.It behaves as a “top dog” in the quantity leadership game but a “puppy dog”
in the price leadership game.
d. It behaves as a “top dog” in both.
When the monopoly insurer cannot observe the care taken by the insured party to avoid
an accident, the most profitable contract for it
a. offers full insurance at a higher price than the full-information policy.
b. offers full insurance at a lower price than the full-information policy.
c. offers partial insurance at a higher price than the full-information policy.
d. offers partial insurance at a lower price than the full-information policy.
The Stackelberg outcome differs from the Cournot equilibrium because
a. the games involve different strategic variables.
b. the first mover can commit to an output off of its best-response function.
c. quantity supplied is not equal to quantity demanded at the prevailing price.
d. it is not a perfectly competitive outcome.
If a fair game is played many times the monetary losses or gains will
a. approach zero.
b. be negative.
c. be positive.
d. result in an outcome that cannot be determined without more information.
The firm’s expansion path records
a. profitmaximizing output choices for every possible price.
b. costminimizing input choices for all possible output levels for when input rental rates
expand along with production.
c. costminimizing input choices for all possible output levels for a fixed set of input
prices.
d. costminimizing input choices for profitmaximizing output levels.
If utility is given by , this person’s indifference curves are
a. parabolas.
b. hyperbolas.
c. concentric circles.
d. straight lines.
A fall in interest rates leads to
a. an increase in the rental rate on a machine.
b. a decrease in the rental rate on a machine.
c. no change in the rental rate on a machine.
d. a fall in the marginal productivity of capital.
In a twogood world every allocation would be efficient only if
a. both individuals were identical.
b. both individuals regard the two goods as perfect substitutes.
c. both individuals were identical and regard the two goods as perfect
complements.
d. both individuals were identical and regard the two goods as perfect substitutes.
Under competitive conditions the relative price of a finite resource would be expected
to
a. rise at an increasing rate.
b. rise at a rate equal to the real interest rate.
c. rise at a rate equal to the nominal interest rate.
d. rise at a rate determined by demand conditions.
An allocation of resources is technically efficient if
a. it is impossible to increase the output of a particular good.
b. it is possible to increase the output of all goods.
c. it is impossible to increase the output of one good without cutting back on the
production of something else.
d. it is possible to increase the output of one good.
All of the following might explain a firm offering quantity discounts except:
a. lower costs of handling large orders.
b. an inelastic demand for the good.
c. monopoly power in this market.
d. adoption of a sales maximization strategy.
A price discriminating monopolist having identical costs in two separated markets
should charge a higher price in that market
a. which has a higher demand.
b. which has a more elastic demand.
c. which has a less elastic demand.
d. which has a higher marginal revenue.
A firm will hire additional units of any input up to the point where
a. the marginal productivity of the input is maximized.
b. the marginal cost of employing the input is minimized.
c. the expense of employing the last unit is equal to the revenue brought in by the last
unit.
d. the revenue brought in by the input is maximized.
Which feature of a market would contribute most to overall social welfare?
a. Low prices and high outputs.
b. Reduction in costs due to technological improvements.
c. The invention of new products.
d. Difficult to weigh the other answers without further information about
society’s preferences.
One way to minimize the excess burden resulting from a specific tax is to
a. tax only wealthy firms and individuals.
b. spread the tax over many goods and services.
c. tax goods for which either supply or demand is inelastic.
d. tax luxury items such as yachts and sports cars.