1) Suppose a firm in a competitive market produces and sells 8 units of output and has a
marginal revenue of $8. What would be the firm‘s total revenue if it instead produced
and sold 4 units of output?
a.$4
b.$8
c.$32
d.$64
2) Suppose an economy produces two goods, food and machines. This economy always
operates on its production possibilities frontier. Last year, it produced 1000 units of
food and 47 machines. This year it experienced a technological advance in its
machine-making industry. As a result, this year the society wants to produce 1050 units
of food and 47 machines. Which of the following statements is correct?
a.Because the technological advance occurred in the machine-making industry, it will
not be possible to increase food production without reducing machine production below
47.
b.Because the technological advance occurred in the machine-making industry,
increases in output can only occur in the machine industry.
c.In order to increase food production in these circumstances without reducing machine
production, the economy must reduce inefficiencies.
d.The technological advance reduced the amount of resources needed to produce 47
machines, so these resources could be used to produce more food.
3) For a monopoly, the socially efficient level of output occurs where
a.marginal revenue equals marginal cost.
b.average revenue equals marginal cost.
c.marginal revenue equals average total cost.
d.average revenue equals average total cost.
4) When a firm hires labor up to the point where the wage is equal to the value of the
marginal product of labor, it is
a.minimizing labor costs.
b.guaranteeing that labor costs do not exceed fixed costs.
c.maximizing the number of workers it can hire and still experience a positive profit.
d.maximizing profit.
5) Technological advances can cause the labor demand curve to shift.
a.True
b.False
6) Harry is a computer company executive, earning $200 per hour managing the
company and promoting its products. His daughter Quinn is a high school student,
earning $6 per hour helping her grandmother on the farm. Harry’s computer is broken.
He can repair it himself in one hour. Quinn can repair it in 10 hours. Harry’s opportunity
cost of repairing the computer is lower than Quinn’s.
a.True
b.False
7) If advertising decreases the elasticity of demand for specific brand names of hard
liquor, we would expect firms to be able to charge a larger markup over marginal cost.
a.True
b.False
8) The Social Security tax is a tax on
a.capital.
b.labor.
c.land.
d.savings.
9) In which of the following games is it clearly the case that the cooperative outcome of
the game is good for the two players and good for society?
a.Two guilty criminals have been captured by the police, and each prisoner decides
whether to confess or to remain silent.
b.Two airlines dominate air travel between City A and City B, and each airline decides
whether to charge a
€high€ airfare or a €low€ airfare.
c.Two duopoly firms account for all of the production in a market, and each firm
decides whether to produce a
€high€ amount of output or a €low€ amount of output.
d.Two oil companies own adjacent oil fields over a common pool of oil, and each
company decides whether to drill one well or two wells.
10) Which of the following statements is not correct?
a.The government may use antitrust laws to prevent a merger if the government
believes the merger will reduce competition and increase prices.
b.By regulating a natural monopoly where price equals average total cost, the monopoly
earns zero profits.
c.An advantage of private ownership over public ownership is that private business
owners tend to fire inefficient managers.
d.The government should always intervene to improve monopoly inefficiency.
11) When technology spillover occurs,
a.it is the government’s responsibility to own firms that are engaged in high-tech
research.
b.a firm’s research yields technological knowledge that can then be used by society as a
whole.
c.those firms engaged in technology research should be taxed by the government.
d.firms invest in the latest production technology and the cost of that technology ‘spills
over” to the prices consumers must pay for the product.
12) In the long run, a profit-maximizing firm in a monopolistically competitive market
operates at
a.efficient scale.
b.a level of output at which average total cost is rising.
c.a level of output at which average total cost is falling.
d.the level of output at which total revenue is maximized.
13) Scenario 15-6
The concert promoters of a heavy-metal band, WeR2Loud, know that there are two
types of concert-goers: die- hard fans and casual fans. For a particular WeR2Loud
concert, there are 1,000 die-hard fans who will pay $150 for a ticket and 500 casual
fans who will pay $50 for a ticket. There are 1,500 seats available at the concert venue.
Suppose the cost of putting on the concert is $50,000, which includes the cost of the
band, lighting, security, etc.
How much profit will the concert promoters earn if they set the price of each ticket at
$150?
a. $75,000
b. $100,000
c. $150,000
d. $175,000