1) A firm is currently producing 100 units of output per day. The manager reports to the
owner that producing the 100th unit costs the firm $5. The firm can sell the 100th unit
for $4.75. The firm should continue to produce 100 units in order to maximize its
profits (or minimize its losses).
a.True
b.False
2) Government can be used to solve externality problems that are too costly for private
parties to solve.
a.True
b.False
3) Suppose a tax is imposed on the sellers of fast-food French fries. The burden of the
tax will
a.fall entirely on the buyers of fast-food French fries.
b.fall entirely on the sellers of fast-food French fries.
c.be shared equally by the buyers and sellers of fast-food French fries.
d.be shared by the buyers and sellers of fast-food French fries but not necessarily
equally.
4) A person’s average tax rate equals her
a.tax obligation divided by her marginal tax rate.
b.increase in taxes if her income were to rise by $1.
c.tax obligation divided by her income.
d.increase in taxes if her marginal tax rate were to rise 1percent.
5) Kim owns a small business in Denver. She travels frequently, meeting with important
customers, and attending conferences. Kim hired Matt to work in the Denver office as
the day-to-day general manager of the business.
a.This is a moral hazard problem since Matt may not work as hard as Kim would like
when he is not monitored.
b.Kim choosing to hire Matt is an example of adverse selection since it is possible that
Matt will not work as hard as Kim expects.
c.Kim will most likely pay Matt a lower salary than normal since Kim will not be there
to monitor Matt’s work effort, and since Matt will not likely work hard knowing Kim
cannot monitor his effort.
d.Kim is the agent and Matt is the principal.
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. Suppose the owners of Lopes and HomeMax meet for a friendly
game of golf one afternoon and happen to discuss a strategy to optimize growth related
profit. If they both agree to cooperate on a strategy that maximizes their joint profits,
annual profit will grow by
a.$1.0 million for Lopes and by $1.5 million for HomeMax.
b.$0.4 million for Lopes and by $3.4 million for HomeMax.
c.$3.2 million for Lopes and by $0.6 million for HomeMax.
d.$2.0 million for Lopes and by $2.5 million for HomeMax.
7) Figure 13-9
The figure below depicts average total cost functions for a firm that produces
automobiles.
The firm experiences constant returns to scale at which output levels?
a.output levels less than M
b.output levels between M and N
c.output levels greater than N
d.All of the above are correct as long as the firm is operating in the long run.
8) If a 20% change in price results in a 15% change in quantity supplied, then the price
elasticity of supply is about
a.1.33, and supply is elastic.
b.1.33, and supply is inelastic.
c.0.75, and supply is elastic.
d.0.75, and supply is inelastic.
9) Which of the following statements best expresses a firm‘s profitmaximizing decision
rule?
a.If marginal revenue is greater than marginal cost, the firm should increase its output.
b.If marginal revenue is less than marginal cost, the firm should decrease its output.
c.If marginal revenue equals marginal cost, the firm should continue producing its
current level of output.
d.All of the above are correct.
10) Figure 8-6
The vertical distance between points A and B represents a tax in the market.
When the tax is imposed in this market, consumer surplus is
a. $600.
b. $900.
c. $1,500.
d. $3,000.
11) Figure 10-19
How many units of the good are produced in a market equilibrium?
a.fewer than 58
b.58
c.73
d.94
12) After an employer pays the cost of educating a worker,
a.the worker has a higher level of human capital.
b.the worker should become more productive.
c.the worker might look for another job unless his employer pays him more.
d.All of the above are correct.
13) If buyers and sellers in a certain market are price takers, then individually
a.they have no influence on market price.
b.they have some influence on market price but that influence is limited.
c.buyers will be able to find prices lower than those determined in the market.
d.sellers will find it difficult to sell all they want to sell at the market price.
14) Excludability is the property of a good whereby
a.one person’s use diminishes other peoples’ use.
b.a person can be prevented from using it.
c.the government rations the quantity of a good that is available.
d.the resource is congestible.
15) A law that restricts the ability of hotels/motels to advertise on billboards outside of a
resort community would likely lead to
a.no change in profits for all hotels/motels.
b.reduced efficiency of local lodging markets.
c.a request by consumers to increase the number of billboards.
d.increased price competition among hotels/motels in the community.
16) Which theory is supportive of the idea that increasing educational levels for all
workers would raise all workers’ productivity and therefore their wages?
a.the theory of compensating differentials
b.the efficient-market hypothesis
c.human-capital theory
d.signaling theory
17) Which of the following statements is not correct?
a.The typical monopolistically competitive firm could reduce its average total cost if it
produced more output.
b.Monopolistically competitive firms advertise in order to increase the elasticity of the
demand curve they face.
c.Expensive advertising might help consumers if it is a signal that the product is good.
d.Brand names acquired at great cost might help consumers by assuring quality.