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An economist has estimated that the maintenance of a public park costs $25,000 a year
and that the public park generates $30,000 a year in revenue for merchants near the
park. From society's point of view, the maintenance of this park is
A) inefficient because everyone in the community pays taxes to support the park, but
only the merchants near the park benefit.
B) inefficient because the additional revenues generated by the park are so low.
C) potentially efficient because the value of the gains exceed the value of the costs.
D) potentially efficient because no one would be made worse off as a result of
maintaining the park.
Table 8.2
Refer to Table 8.2. Assume that Sherry's Earrings is producing in a perfectly
competitive market and the market price for earrings is $60. To maximize profits Sherry
should produce ________ pairs of earrings.
A) two
B) three
C) four
D) five
If the slope of a straight line is -2, and if X (the variable on the horizontal axis)
decreases by 8, then Y (the variable on the vertical axis) will
A) increase by 4.
B) decrease by 4.
C) increase by 16.
D) decrease by 16.
Investors put up $52,000 to construct a building and purchase all equipment for a new
restaurant. The investors expect to earn a minimum return of 10 percent on their
investment. The restaurant is open 52 weeks per year and serves 900 meals per week.
The fixed costs are spread over the 52 weeks (i.e. prorated weekly). Included in the
fixed costs is the 10% return to the investors and $1,000 per week in other fixed costs.
Variable costs include $1,000 in weekly wages and $600 per week for materials,
electricity, etc. The restaurant charges $3 on average per meal.
In the long run, the restaurant will want to
A) operate and expand.
B) operate but not expand.
C) shut down but not go out of business.
D) go out of business.
Once a public good is produced, everyone
A) can consume a different amount depending on their willingness to buy the good.
B) consumes the same amount and everyone's willingness to pay is the same.
C) consumes the same amount, but the willingness to pay will be different for different
individuals.
D) can consume a different amount and pay different prices for the product.
Figure 13.6
Refer to Figure 13.6. The Silver Exchange has a monopoly over the sale of solid silver
walking sticks. This company should
A) produce 20 walking sticks and charge a selling price of $12,000.
B) produce 20 walking sticks and charge a price greater than $12,000.
C) produce more than 20 walking sticks and charge a price greater than $12,000.
D) shut down in the short run and exit the industry in the long run.
In perfect competition, when firms are maximizing profits and households are
maximizing utility,
A) Pareto optimality has been obtained.
B) voluntary exchange can be used to make both firms and households better off.
C) the outcome is inefficient.
D) individual welfare is maximized, but social welfare is not.
Assume the current interest rate is 25%. The present value of $1,000 in one year would
be
A) $180.
B) $450.
C) $750.
D) $800.
Demand for the services of Yu Darvish is
A) horizontal.
B) unrelated to his true productivity.
C) an output demand.
D) derived from the demand for Texas Ranger's tickets when Darvish plays.
Figure 7.11
Refer to Figure 7.11. At Point C, the slope of the q2 = 200 isoquant is
A) -2.
B) -1/2.
C) -1.
D) indeterminate from this information.
If information is less costly and more easily available, then usually this
A) makes markets more efficient.
B) makes markets less efficient.
C) increases profit opportunities.
D) increases the opportunity cost of acquiring more information.
ABC Corp. is considering an investment project that costs $500 today. It expects the
project will yield income of $200 at the end of years 1, 2, and 3. The interest rate must
be ________ for the firm to undertake the project.
A) at least 11%
B) no more than 9%
C) exactly equal to 10%
D) It is indeterminate from the given information.
Average total cost is
A) AFC - AVC.
B) AFC/AVC.
C) AFC + AVC.
D) TFC + TVC.
Figure 2.1
Refer to Figure 2.1. The shape of the economy's production possibility frontier shows
A) decreasing opportunity costs.
B) constant opportunity costs.
C) increasing opportunity costs.
D) random opportunity costs.
Studying how Joshua allocates his time between school and video games is an example
of
A) macroeconomics.
B) microeconomics.
C) industrial organization.
D) descriptive economics.
Philosophical issues regarding income redistribution deal with all of the following
EXCEPT:
A) What is and is not possible?
B) What is fair?
C) What is just?
D) What is the ideal distribution of income?
The process of using resources to produce new capital is
A) research and development.
B) investment.
C) consumption.
D) economic growth.
If at the current output of X the PX > MCX, then society gains by
A) producing more X.
B) producing less X.
C) raising the price of X.
D) increasing the cost of producing X.
In the short run, a monopoly
A) will usually earn zero economic profits.
B) may earn positive economic profits due to entry barriers.
C) will often suffer economic losses.
D) results in an efficient outcome.
The United States imports DVD recorders from China and China imports computer
chips from the United States. If the theory of comparative advantage guides trade
between the two countries, it must be true that
A) the United States has comparative advantage in producing computer chips.
B) the opportunity cost of producing computer chips in the United States is higher than
that in China.
C) the opportunity cost of producing DVD recorders in China is higher than that in the
United States.
D) the United States has comparative advantage in producing DVD recorders.
Figure 8.5
Refer to Figure 8.5. The average fixed cost of producing two units of output is
A) $125.
B) $250.
C) $450.
D) indeterminate from this information.
Related to the Economics in Practice on page 295: The smart phone industry is best
characterized as
A) monopolistic.
B) highly concentrated.
C) moderately concentrated.
D) not at all concentrated.
________ is a group of firms colluding to make price and output decisions.
A) A concentrated industry
B) An oligopoly
C) A cartel
D) Price leadership
Tony's Taco Casa has total revenue of $12,500. It has total fixed costs of $2,400 and
total variable costs of $4,600. Tony's Taco Casa's profit is
A) $2,200.
B) $5,500.
C) $7,900.
D) $10,100.
A profit-maximizing monopolist will produce the level of output where
A) marginal revenue is zero.
B) marginal cost is minimized.
C) price equals marginal cost.
D) marginal revenue equals marginal cost.
The concept of opportunity cost
A) is relevant only to economics.
B) can be applied to the analysis of any decision-making process.
C) applies to consumers but not to firms.
D) refers only to actual payments and incomes.
The XYZ Computer Company has a monopoly over the production of a specialized
color printer. The XYZ Computer Company will find it profitable to increase the
production of specialized color printers as long as marginal cost
A) is less than marginal revenue.
B) equals marginal revenue.
C) is greater than marginal revenue.
D) is positive.
When the price of tea increases 7%, quantity demanded decreases 12%. The price
elasticity of demand for tea is ________, and total revenue from tea sales will
________.
A) inelastic; increase
B) inelastic; decrease
C) elastic; increase
D) elastic; decrease
Los Angeles International Airport (LAX) is located next to Playa Del Rey. The noise
from air traffic negatively affects individuals living in Playa Del Rey, however, this cost
is not considered by airlines or air travelers. The airlines feel they have a right to use the
airspace while the individuals living in Playa Del Rey feel they have the right to quiet.
The following diagram depicts the marginal costs and marginal benefits associated with
air travel.
Figure 16.5
Refer to Figure 16.5. Suppose the government assigns property rights to the airlines. No
negotiations occur between the parties. The marginal damage cost associated with the
resulting level of air travel is ________.
A) $25
B) $120
C) $265
D) $385
Research conducted in border states suggests that speaking a second language increases
the prospects for employment. Therefore, we should require all citizens to speak a
second language. This statement is an example of
A) fallacy of composition.
B) ceteris paribus fallacy.
C) fallacy of inductive reasoning.
D) post hoc, ergo propter hoc fallacy.
If labor and capital are complementary in production and a technological problem
decreases the productivity of capital, then, ceteris paribus,
A) labor productivity is likely to fall.
B) labor productivity is likely to rise.
C) wages are likely to rise.
D) Both A and C are correct.
Investors put up $520,000 to construct a building and purchase all equipment for a new
restaurant. The investors expect to earn a minimum return of 10 per cent on their
investment. The restaurant is open 52 weeks per year and serves 900 meals per week.
The fixed costs are spread over the 52 weeks (i.e. prorated weekly). Included in the
fixed costs is the 10% return to the investors and $1,000 per week in other fixed costs.
Variable costs include $1,000 in weekly wages and $600 per week for materials,
electricity, etc. The restaurant charges $5 on average per meal.
Total fixed costs per week are
A) $1,000.
B) $2,000.
C) $3,000.
D) $4,500.
We know that monopolistically competitive firms prevent the efficient use of resources
because they produce where
A) P > ATC.
B) P > MC.
C) MR > P.
D) P = MC.
