Krista’s dry-cleaning business incurs $900 per month in fixed costs. Last month her
total output was 3,000 pounds of clothes. This month her total output fell to 2,700
pounds. This means her average fixed cost _____ by a little more than _____.
A) fell; 3.33 cents
B) increased; 3.33 cents
C) fell; 2.50 cents
D) increased; 2.50 cents
(Table: Choice with Uncertainty) Look at the table Choice with Uncertainty. Suppose
the probability that the sitcom does not make it to television is 50%, that it makes it to
television but is not the most viewed show in its time slot is 30%, and that it makes it to
television and is the most viewed show in its time slot is 20%. Given this information,
Norman’s expected total utility is _____ utils.
A) 2,000
B) 2,150
C) 2,350
D) 2,650
Product differentiation is most likely to occur when firms:
A) engage in price wars.
B) have tacit agreements not to engage in price wars.
C) behave in a Bertrand model environment.
D) follow a kinked demand curve model.
Figure: The Gasoline Market
(Figure: The Gasoline Market) Look at the figure The Gasoline Market. The pretax
equilibrium price is $3, and the equilibrium quantity before tax is 20,000 gallons. An
excise tax has been levied on each gallon of gasoline supplied by producers, shifting the
supply curve upward. The total tax revenue collected by the government is equal to:
A) $1.50.
B) $15,000.
C) $26,250.
D) $30,000.
Suppose you pay $8 to see Tom Cruise in his next movie. Suppose Mr. Cruise receives
$21 million to work in this movie. This means that:
A) you would have been better off being more self-reliant in the movie market.
B) Tom Cruise received a producer surplus of $21 million.
C) you received a consumer surplus of $8.
D) you and Tom Cruise benefited from this transaction.
The governor wants to levy a $1 excise tax on some goodhe doesn’t care whichbut he
does want to minimize the deadweight loss. The deadweight loss will be least when the
demand curve is _____ and the supply curve is _____.
A) elastic; elastic
B) elastic; inelastic
C) inelastic; elastic
D) inelastic; inelastic
At the current level of output, Becca Furniture’s marginal cost curve is above the
average total cost curve. This means Becca Furniture’s average total cost curve:
A) must be rising.
B) must be flat.
C) must be falling.
D) may be rising, falling, or flat depending on other things.
If the government levies an excise tax in a market whose supply curve is perfectly
inelastic, the burden of the tax will fall completely on the _____, and the deadweight
loss will equal _____.
A) consumers; zero
B) producers; zero
C) consumers; the tax revenue
D) producers; the tax revenue
The opportunity cost of an extra hour of leisure is:
A) $1.
B) the hourly wage rate.
C) the same as the price of money.
D) always less than the value of the marginal product of labor.
(Table: Costs of Birthday Cakes) Look at the table Costs of Birthday Cakes. Assume
that fixed costs are $10. What is the average variable cost of 2 cakes?
A) $40.00
B) $35.00
C) $25.00
D) $12.50
There is considerable _____ among the quintiles of the distribution of income, with
many families moving from _____ quintiles and others moving from _____ quintiles.
A) immobility; lower to higher; higher to lower
B) mobility; higher to lower; lower to higher
C) immobility; lower to even lower; higher to even higher
D) stability; lower to higher; higher to higher
Figure: The Wireless Mouse Market
(Figure: Wireless Mouse Market) Look at the figure Wireless Mouse Market. Calculate
producer surplus when the market is in equilibrium.
A) $4,000
B) $2,000
C) $8,000
D) $1,000
If a firm operating in monopolistic competition is producing a quantity at which MC <
MR, then profit can be _____ by _____.
A) increased; decreasing production
B) increased; increasing production
C) increased; increasing the price
D) maximized; decreasing production
If a stock analyst believes there is a 25% probability that the stock price of Dymonatis
will be $30 at the end of the year, a 50% probability that it will be $40, and a 25%
probability that it will be $50, then the expected value of the stock at the end of the year
is:
A) $30.
B) $35.
C) $40.
D) $50.
Joseph chooses a combination of apples and oranges along his budget line. The
marginal rate of substitution of apples for oranges is 2, the price of an apple is $0.50,
and the price of an orange is $0.25. Joseph:
A) is maximizing total utility.
B) should consume more apples and fewer oranges to maximize total utility.
C) should consume fewer apples and more oranges to maximize total utility.
D) may or may not be maximizing total utility.
(Table: Market for Pizza) If income changes from $1,000 to $1,400 per month, by the
midpoint method, the income elasticity of demand at a price of $10 per pizza is:
A) 1.2
B) “1.2
C) 0.825
D) 0.40
(Table: Income and Utility for Whitney) Look at the table Income and Utility for
Whitney. Whitney’s income next year is uncertain: there is a 40% probability she will
make $40,000 and a 60% probability she will make $80,000. Whitney’s expected utility
is _____ utils.
A) 135
B) 124
C) 120
D) 130
Figure: The Market for Laptop Sleeves
(Figure: The Market for Laptop Sleeves) Look at the figure The Market for Laptop
Sleeves. Assume that S and D are the domestic supply and demand curves and the
world price is PW. Identify the area of consumer surplus when a tariff raises the
domestic price from the world price to PT.
A) A + B
B) A + B + C + D + E + F
C) A + C + G
D) D + F
Figure: Monopoly Model
(Figure: Monopoly Model) Look at the figure Monopoly Model. When the firm is in
equilibrium (that is, maximizing its economic profit), its total cost is the area of
rectangle _____ and its total revenue is the area of rectangle _____.
A) 0PDJ; SPDB
B) 0IHJ; IPDH
C) IPDH; 0SBJ
D) 0SBJ; 0PDJ
Suppose the elasticity of demand for tickets to Broadway shows is 2.0 for men and 0.3
for women. To use price discrimination to increase profits, the producers should charge
higher prices to _____ because their demand is _____.
A) men; elastic
B) men; inelastic
C) women; elastic
D) women; inelastic
Figure: The Marginal Analysis of Cell Phones
(Figure: The Marginal Analysis of Cell Phones) Look at the figure The Marginal
Analysis of Cell Phones. You are considering purchasing cell phones for your
department. If you buy the fifth cell phone, your change in total profit will be equal to:
A) $0.
B) “$2.
C) $2.
D) $4.
When an individual knows more about his or her own actions than other people do,
incentives are distorted, which causes:
A) moral hazard.
B) adverse selection.
C) screening.
D) signaling.
Figure: The Supply of DVD Rentals
(Figure: The Supply of DVD Rentals) Look at the figure The Supply of DVD Rentals.
A decrease in the price of DVD rentals would result in a change illustrated by the move
from:
A) n to o in panel A.
B) p to q in panel B.
C) s to t in panel C.
D) u to v in panel D.
Figure: The Production Possibility Frontiers for Jackson and Tahoe
(Figure: The Production Possibility Frontiers for Jackson and Tahoe) Look at the figure
The Production Possibility Frontiers for Jackson and Tahoe. In autarky, Jackson
produces and consumes 30 head of cattle and 80 bushels of wheat, while Tahoe
produces and consumes 80 head of cattle and 60 bushels of wheat. Each nation
specializes completely, based on comparative advantage, and the price of 1 head of
cattle equals the price of 2 bushels of wheat. If Jackson exports 120 bushels of wheat to
Tahoe, then the new consumption point for Tahoe after trade is _____ bushels of wheat
and _____head of cattle.
A) 120; 140
B) 120; 60
C) 60; 120
D) 400; 200
The change in total cost resulting from a one-unit change in quantity is _____ cost.
A) average fixed
B) average variable
C) marginal
D) average total
If the market for concert tickets is in equilibrium and the fire marshal tries to reduce the
number of tickets sold, all other things equal, total surplus will decrease.