Table 2-1
Production choices for Tomaso’s Trattoria
Refer to Table 2-1. Assume Tomaso’s Trattoria only produces pizzas and calzones. A
combination of 36 pizzas and 30 calzones would appear
A) along Tomaso’s production possibilities frontier.
B) inside Tomaso’s production possibilities frontier.
C) outside Tomaso’s production possibilities frontier.
D) at the horizontal intercept of Tomaso’s production possibilities frontier.
A firm’s total profit can be calculated as all of the following except
A) total revenue minus total cost.
B) average profit per unit times quantity sold.
C) (price minus average total cost) times quantity sold.
D) marginal profit times quantity sold.
Suppose the value of the price elasticity of demand is -3. What does this mean?
A) A 1 percent increase in the price of the good causes quantity demanded to increase
by 3 percent.
B) A 1 percent increase in the price of the good causes quantity demanded to decrease
by 3 percent.
C) A 3 percent increase in the price of the good causes quantity demanded to decrease
by 1 percent.
D) A $1 increase in price causes quantity demanded to fall by 3 units.
Table 1-3
Santiago runs a comic book store in the town of East Arbor. He is debating whether he
should extend his hours of operation. Santiago figures that his sales revenue will
depend on the number of hours the store is open as shown in the table above. He would
have to hire a worker for those hours at a wage rate of $18 per hour.
Refer to Table 1-3. Using marginal analysis, determine how many hours should
Santiago extend his store’s hours of operations?
A) 2 hours
B) 3 hours
C) 4 hours
D) 5 hours
E) 6 hours
Which of the following is a characteristic of a monopoly?
A) It is easy for new firms to enter the market.
B) There is only one seller in the market.
C) The product is not unique.
D) The firm has no control over price.
If Canada has a comparative advantage relative to Mexico in the production of timber,
then
A) the explicit cost of production for timber is lower in Canada than in Mexico.
B) the opportunity cost of production for timber is lower in Canada than in Mexico.
C) the implicit costs of production for timber are lower in Canada than in Mexico.
D) the average cost of production for timber is lower in Canada than in Mexico.
A monopolistically competitive firm maximizes profit where
A) price = marginal revenue.
B) price > marginal cost.
C) marginal revenue > average revenue.
D) total revenue > marginal cost.
Under the Patient Protection and Affordable Care Act (ACA), insurance companies will
be required to participate in a high-risk pool that will cover individuals with
pre-existing medical conditions.
Figure 14-1
Assume that Lexus (L) is the first automobile company to produce a luxury class hybrid
automobile and is the only such company for the past four years. BMW is now
considering producing its own luxury hybrid automobile and Lexus must decide
whether or not to lower the price of its luxury hybrid to counter BMW’s entry into the
luxury hybrid niche.
Refer to Figure 14-1. If Lexus lowers its price, will this deter BMW from entering the
market?
A) Yes, because BMW stands to lose $100 million if it competes with Lexus.
B) Yes, because BMW will make a smaller profit than Lexus if it chooses to compete.
C) No, because BMW will still make a profit of $120 if it competes with Lexus.
D) No, because BMW will be able to break Lexus’ first mover advantage.
Table 4-2
Refer to Table 4-2. The table above lists the highest prices five consumers are willing to
pay for a theater ticket. If the price of one ticket falls from $25 to $10
A) only three tickets will be sold.
B) consumer surplus decreases from $24 to $12.
C) consumer surplus increases from $0 to $31.
D) everyone will buy a ticket.
Which of the following is an example of a positive externality?
A) banning the sale of candy in elementary schools
B) planting trees along a sidewalk which add beauty and creates shade
C) forbidding the use of cell phones in public
D) prohibit street parking in all residential neighborhoods
Sparkle, one of many firms in the market for toothpaste, is in long-run equilibrium.
Sparkle has a small market share and has been in business for a long time.
a. Identify the market structure in which Sparkle operates. Explain your answer.
b. What is Sparkle’s profit or loss? Explain your answer. If you cannot determine the
profit or loss, explain what information is missing.
c. Draw a diagram showing Sparkle’s demand curve, marginal revenue curve, average
total cost curve and marginal cost curve. Label your diagram.
A cartel is
A) a temporary storage facility for automobiles.
B) a group of firms that enter into an informal agreement to fix prices to maximize joint
profits.
C) a group of firms that enter into a formal agreement to fix prices to maximize joint
profits.
D) an example of a group of firms that collectively regulate a competitive industry.
What type of business is the easiest to set up?
A) sole proprietorship
B) partnership
C) corporation
D) There is no difference in the ease of establishment.
Table 4.7
Refer to Table 4-7. The equations above describe the demand and supply for Bubba’s
Fried Jellybeans. The equilibrium price and quantity for Bubba’s Fried Jellybeans are
$40 and 5 thousand units. What is the value of economic surplus in this market?
A) $5 thousand
B) $12.5 thousand
C) $25 thousand
D) $37.5 thousand
The De Beers Company, one of the longest-lived monopolies, is facing increasing
competition. One source of competition comes from people who might resell their
previously owned diamonds. Why is De Beers worried that people might resell their
previously owned diamonds?
A) because De Beers will not be able to guarantee the quality of previously owned
diamonds and fears that its reputation might be harmed
B) because the availability of previously owned diamonds would increase the market
demand for diamonds and dilute De Beers’ monopoly
C) because previously owned diamonds would be a close substitute to newly mined
diamonds and therefore reduce De Beers’ market power
D) because the availability of previously owned diamonds would make the market
demand curve for diamonds more inelastic and force De Beers to lower its price
If the quantity of soccer balls demanded is represented by the equation QD = 80 – 2P
then the corresponding price of soccer balls is represented by the equation
A) P = 1.6QD + 80.
B) P = 80 – QD.
C) P = 40 – 0.5QD.
D) P = QD + 160.
A perfectly competitive firm in a constant-cost industry produces 1,000 units of a good
at a total cost of $50,000. The prevailing market price is $48. Assuming that this firm
continues to produce in the long run, what happens to output level in the long run?
A) The firm’s output falls.
B) The firm’s output increases.
C) The firm produces the same output level.
D) There is insufficient information to answer the question.
The tragedy of the commons was avoided in the Middle Ages by
A) selling common grounds to individuals.
B) the local police who monitored entry into the commons.
C) social pressure to uphold traditionally accepted limits on family use of the commons.
D) the government which imposed a tax for the use of the commons.
The process of rapidly adjusting prices based on information gathered on consumers’
preferences and their responsiveness to changes in price is called
A) yield management.
B) elasticity management.
C) brand management.
D) marketing.
Figure 12-9
Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly
competitive firm.
Refer to Figure 12-9. At price P1, the firm would produce
A) Q1 units
B) Q3 units.
C) Q5 units.
D) zero units.
Table 9-6
Production and
Consumption Production
Without Trade With Trade
Denmark and Belize can produce both clocks and hats. Table 9-6 shows the production
and consumption quantities without trade, and the production numbers with trade.
Refer to Table 9-6. If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are
traded, how many hats will Denmark consume?
A) 150
B) 180
C) 270
D) 400
Arbitrage
A) is the act of buying an item at a low price and reselling the item at a higher price.
B) is the act of selling an item on consignment and collecting a huge portion of the
proceeds to compensate for the seller’s time.
C) is the act of buying an item at a low price, bundling it with another and selling the
new package at a much higher price.
D) is any act of buying and selling that results in the seller earning an above normal
profit.
Figure 3-7
Refer to Figure 3-7. Assume that the graphs in this figure represent the demand and
supply curves for potatoes and that steak and potatoes are complements. What panel
describes what happens in this market when the price of steak rises?
A) Panel (a)
B) Panel (b)
C) Panel (c)
D) Panel (d)
Who controls a sole proprietorship?
A) stockholders
B) bondholders
C) the owner
D) all of these
Which of the following statements is true?
A) If transfer payments such as Social Security payments to the retired and disabled
were excluded from official statistics used to estimate the percentage of people with
incomes below the poverty line, the amount of poverty in the United States would be
much greater.
B) Because the federal income tax system is progressive, measuring poverty using
after-tax incomes results in a higher poverty rate than if poverty is measured using
before-tax incomes .
C) If non-cash benefits such as food stamps and rent subsidies were added to the
incomes of low-income families, poverty would be eliminated.
D) In the United States, income remaining after federal taxes are paid is more equally
distributed than income before taxes.
Figure 16-3
Chantal owns a hairdressing salon which caters to two main groups of customers:
residents of “The Chateau,” a retirement community, and other residents in the
neighborhood. Figure 16-3 shows the demand curves for the residents of the retirement
community, labeled Market A, and other residents in the neighborhood, labeled Market
B. The demand curves are not identical.
Refer to Figure 16-3. Suppose Chantal practices price discrimination. Which of the
following statements is true?
A) Chantal’s profits will be higher if she has uniform pricing instead of different prices
for different groups of customers.
B) By charging a higher price in market B, Chantal has transferred some of the
consumer surplus from customers in market B to customers in market A.
C) By charging different prices in markets A and B, Chantal can transfer some producer
surplus into economic profit.
D) By charging a higher price in market B, Chantal can convert some consumer surplus
into economic profit.
Which of the following is important in determining the extent of competition in an
industry?
A) the minimum level of short run average total costs of production
B) the minimum efficient scale of production relative to market demand
C) whether or not the industry product is differentiated or standardized
D) the level of market demand for the industry’s product
The profits a corporation keeps to finance future expansion are known as
A) retained earnings.
B) preferred stock.
C) dividends.
D) capital gains.
A bond is a financial security that represents
A) ownership in a corporation.
B) the portion of profits paid to shareholders.
C) the interest rate paid on a share of stock.
D) a promise to repay a fixed amount of funds.