1) If the average cost of transporting a passenger on the train from Chicago to St. Louis
is $75, it would be irrational for the railroad to allow any passenger to ride for less than
$75.
a.True
b.False
2) In a competitive market the current price is $5. The typical firm in the market has
ATC = $5.00 and AVC = $4.50.
a.In the short run firms will shut down, and in the long run firms will leave the market.
b.In the short run firms will continue to operate, but in the long run firms will leave the
market.
c.New firms will likely enter this market to capture any remaining economic profits.
d.The firm will earn zero profits in both the short run and long run.
3) Which of the following is true?
a.Efficiency refers to the size of the economic pie; equality refers to how the pie is
divided.
b.Government policies usually improve upon both equality and efficiency.
c.As long as the economic pie continually gets larger, no one will have to go hungry.
d.Efficiency and equality can both be achieved if the economic pie is cut into equal
pieces.
4) Bintu’s Production Possibilities FrontierJuba’s Production Possibilities Frontier
Bintu has an absolute advantage in the production of
a.bowls and Juba has an absolute advantage in the production of cups.
b.cups and Juba has an absolute advantage in the production of bowls.
c.both goods and Juba has an absolute advantage in the production of neither good.
d.neither good and Juba has an absolute advantage in the production of both goods.
5) Jane spends 85% of her income each year, even though she knows she should be
saving 20% for retirement. Jane’s behavior indicates that her behavior tends to be
a.irrational.
b.inconsistent over time.
c.satisficing rather than maximizing.
d.undefined.
6) Figure 8-2
The vertical distance between points A and B represents a tax in the market.
The imposition of the tax causes the price paid by buyers to
a.decrease by $2.
b.increase by $3.
c.decrease by $4.
d.increase by $5.
7) A monopoly can earn positive profits because it
a.can sell unlimited quantities at any price it chooses.
b.takes the market price as given and can sell unlimited quantities.
c.can set the price it charges for its output but faces a horizontal demand curve.
d.can maintain a price such that total revenues will exceed total costs.
8) An oligopoly
a.has a concentration ratio of less than 50 percent.
b.is a price taker.
c.is a type of imperfectly competitive market.
d.has many firms rather than just one firm or a few firms.
9) A firm operating in a monopolistically competitive market can earn economic profits
in
a.the short run but not in the long run.
b.the long run but not in the short run.
c.both the short run and the long run.
d.neither the short run nor the long run.
10) When a monopolist increases the amount of output that it produces and sells,
average revenue
a.increases, and marginal revenue increases.
b.increases, and marginal revenue decreases.
c.decreases, and marginal revenue increases.
d.decreases, and marginal revenue decreases.
11) Let L represent the quantity of labor, and let Q represent the quantity of output.
Suppose a certain production function includes the points (L = 7, Q = 27), (L = 8, Q =
35), and (L = 9, Q = 45). Based on these three points, this production function exhibits
diminishing marginal product.
a.True
b.False
12) Suppose two companies own adjacent oil fields. Under the two fields is a common
pool of oil worth $60 million. For each well that is drilled, the company that drills the
well incurs a cost of $4 million. Each company can drill up to two wells. What is the
likely outcome of this game if each company pursues its own self-interest?
a.Each company drills one well and experiences a profit of $26 million.
b.Each company drills one well and experiences a profit of $22 million.
c.Each company drills two wells and experiences a profit of $22 million.
d.One company drills two wells and experiences a profit of $32 million; the other
company drills one well and experiences a profit of $16 million.
13) When economists assume that people are rational, they assume that
a.consumers maximize profits.
b.firms maximize revenues.
c.consumers maximize utility.
d.firms maximize output.
14) Panel (a)
Panel (b)
Panel (c)
Panel (d)
Which of the four panels illustrates a decrease in quantity supplied?
a.Panel (a)
b.Panel (b)
c.Panel (c)
d.Panel (d)
15) Figure 21-2
The downwardsloping line on the figure represents a consumer’s budget constraint.
Refer to Figure 21-2. A consumer who chooses to spend all of her income could be at
which point(s) on the figure?
a.V only
b.Z only
c.V, W, X, or Y only
d.W, X, or Y only
16) Daryn is raking leaves to earn money for his university’s economics club. In the
first hour, he rakes 8 bags of leaves. In the second hour, he rakes 6 bags of leaves. If he
earns $8 per hour, the value of the marginal product of the second hour of labor is $48.
a.True
b.False
17) Figure 9-5
The figure illustrates the market for tricycles in a country.
Without trade, producer surplus amounts to
a. $810.
b. $1,620.
c. $3,240.
d. $6,480.