1) Which of the following statements is (are) true of a monopoly?
(i)A monopoly has the ability to set the price of its product at whatever level it desires.
(ii)A monopoly’s total revenue will always increase when it increases the price of its
product.
(iii)The more a monopoly increases output, the higher the profits.
a.(i) only
b.(ii) only
c.(i) and (ii) only
d.(ii) and (iii) only
2) The changes as we move along a
a.horizontal demand curve.
b.vertical demand curve.
c.linear, downward-sloping demand curve.
d.All of the above are correct.
3) An upward-sloping labor supply curve means that
a.workers prefer to buy more leisure time when their incomes increase.
b.workers prefer to supply less labor when wages are high.
c.an increase in the opportunity cost of leisure leads workers to increase the quantity of
labor they supply.
d.All of the above are correct.
4) Figure 8-12
Suppose a $3 per-unit tax is placed on this good. The tax causes the price paid by
buyers to
a.decrease by $3.
b.increase by $2.
c.decrease by $1.
d.increase by $6.
5) Table 17-26
Two prescription drug manufacturers (Firm A and Firm B) are faced with lawsuits from
states to recover the healthcare related expenses associated with side-effects from its
drugs. Each drug manufacturer has evidence that indicates that taking its prescription
drug causes liver failure. State prosecutors do not have access to the same data used by
drug manufacturers and thus will have difficulty recovering full costs without the help
of at least one of the drug manufacturer’s studies. Each firm has been presented with an
opportunity to lower its liability in the suit if it cooperates with attorneys representing
the states.
Refer to Table 17-26. If both firms follow a dominant strategy, Firm B’s profits (losses)
will be a. $-12m
b. $-24m
c. $-40m
d. $-100m
6) Table 17-13
Two home-improvement stores (Lopes and HomeMax) in a growing urban area are
interested in expanding their market share. Both are interested in expanding the size of
their store and parking lot to accommodate potential growth in their customer base. The
following game depicts the strategic outcomes that result from the game. Increases in
annual profits of the two home-improvement stores are shown in the table below.
Refer to Table 17-13. When this game reaches a Nash equilibrium, annual profit will
grow by
a.$1.5 million for HomeMax and by $1.0 million for Lopes.
b.$3.4 million for HomeMax and by $0.4 million for Lopes.
c.$0.6 million for HomeMax and by $3.2 million for Lopes.
d.$2.5 million for HomeMax and by $2.0 million for Lopes.
7) If the quantity supplied is the same regardless of price, then supply is
a.elastic.
b.perfectly elastic.
c.perfectly inelastic.
d.inelastic.
8) Which of the following demonstrates the law of demand?
a.After Jon got a raise at work, he bought more pretzels at $1.50 per pretzel than he did
before his raise.
b.Melissa buys fewer muffins at $0.75 per muffin than at $1 per muffin, other things
equal.
c.Dave buys more donuts at $0.25 per donut than at $0.50 per donut, other things equal.
d.Kendra buys fewer Snickers at $0.60 per Snickers after the price of Milky Ways falls
to $0.50 per Milky Way.
9) Figure 15-15
To maximize total surplus, a benevolent social planner would choose which of the
following outcomes?
a.Q = 30 and P = 30
b.Q = 30 and P = 60
c.Q = 45 and P = 45
d.Q = 60 and P = 30
10) Consider a small town with only three families, the Greene family, the Brown
family, and the Black family. The town does not currently have any streetlights so it is
very dark at night. The three families are considering putting in streetlights on Main
Street and are trying to determine how many lights to install. The table below shows
each family’s willingness to pay for each streetlight.
Suppose the cost to install each streetlight is $600 and the families have agreed to split
the cost of installing the streetlights equally. To maximize their own surplus, how many
streetlights would the Brown’s like the town to install?
a.0 streetlights
b.1 streetlight
c.2 streetlights
d.3 streetlights
11) Deadweight losses and administrative burdens are key factors considered when
determining the efficiency of the tax system.
a.True
b.False