1) Scenario 17-2.
Imagine that two oil companies, BQ and Exxoff, own adjacent oil fields. Under the
fields is a common pool of oil worth $144 million. Drilling a well to recover oil costs
$5 million per well. If each company drills one well, each will get half of the oil and
earn a $67 million profit ($72 million in revenue – $5 million in costs). Assume that
having X percent of the total wells means that a company will collect X percent of the
total revenue.
Refer to Scenario 17-2. If BQ were to drill a second well and Exxoff also drilled a
second well, what would BQ’s profit be?
a.$31 million
b.$62 million
c.$67 million
d.$86 million
2) In the long-run equilibrium of a competitive market, the number of firms in the
market adjusts until the market demand is satisfied at a price equal to the minimum of
a.average fixed cost for the marginal firm.
b.marginal cost of the marginal firm.
c.average total cost of the marginal firm.
d.average variable cost of the marginal firm.
3) Table 14-10
Suppose that a firm in a competitive market faces the following revenues and costs:
The marginal cost of producing the 4th unit is
a. $7.
b.$8.
c.$10.
d.$23.
4) Cartels are difficult to maintain because
a.antitrust laws are difficult to enforce.
b.cartel agreements are conducive to monopoly outcomes.
c.there is always tension between cooperation and self-interest in a cartel.
d.firms pay little attention to the decisions made by other firms.
5) When a country allows trade and becomes an exporter of a good,
a.domestic producers become better off, and domestic consumers become worse off.
b.domestic producers become worse off, and domestic consumers become better off.
c.domestic producers become better off, but the effect on the well-being of domestic
consumers is ambiguous.
d.domestic consumers become worse off, but the effect on the well-being of domestic
producers is ambiguous.
6) Tom and Eric went to trade school at the same time. Each graduated with an
associate’s degree. They have received similar performance evaluations. Eric’s employer
is not a good business manager, and the sales manager lost a major deal. Because of the
decrease in profits, the employees did not receive raises last year. Tom’s employer is a
savvy business manager and the sales manager is experienced and works hard. If Tom
has higher earnings than Eric, the difference is most likely a function of
a.chance.
b.differences in human capital.
c.differences in signaling.
d.discrimination.
7) Suppose the state of Wyoming passes a law that increases the tax on cigarettes. As a
result, smokers who live in Wyoming start purchasing their cigarettes in surrounding
states. Which of the following principles does this best illustrate?
a.People respond to incentives.
b.Rational people think at the margin.
c.Trade can make everyone better off.
d.Markets are usually a good way to organize economic activity.
8) Which of the following is an example of a less-than-highly-organized market?
a.the market for U.S. Treasury bonds
b.the market for corn
c.the market for soybeans
d.the market for ice cream
9) Which scenario describes the market for oil in the short run?
a.A
b.B
c.C
d.D
10) For which of the following problems can well-designed public policy enhance
economic efficiency?
a.both externalities and market power
b.externalities, but not market power
c.market power, but not externalities
d.neither externalities nor market power
11) Scenario 15-10
Vincent operates a scenic tour business in Boston. He has one bus which can fit 50
people per tour and each tour lasts 2 hours. His total cost of operating one tour is fixed
at $450. Vincent’s cost is not reduced if he runs a tour with a partially full bus. While
his cost is the same for all tours, Vincent charges each passenger his/her willingness to
pay: adults $18 per trip, children $10 per trip, and senior citizens $12 per trip. At those
rates, on a typical day Vincent’s demand is:
Assume that Vincent’s customers are always available for the tour¾ therefore, he can
fill his bus for each tour as long as there is sufficient total demand for the day.
What is Vincent’s profit on a typical day?
a.$660
b.$820
c.$1,350
d.$2,170
12) Which of the following is not considered human capital?
a.the golf clubs a professional golfer uses to play golf
b.the skills a professional golfer has gained by practicing on the driving range
c.the professional golfer’s knowledge of how to play a better game learned from talking
with other players
d.none of the above would be considered human capital
13) Which of the following is most likely an inferior good?
a.an antique car
b.gasoline
c.a bus ticket
d.an airline ticket
14) Which two of the Ten Principles of Economics are illustrated in this chapter?
a.A country’s standard of living depends on its ability to produce goods & People face
tradeoffs.
b.Prices rise when the government prints too much money & Governments can
sometimes improve market outcomes.
c.Governments can sometimes improve market outcomes & People face tradeoffs.
d.People face tradeoffs & Prices rise when the government prints too much money .
15) Table 16-4
This table shows the demand schedule, marginal cost, and average total cost for a
monopolistically competitive firm.
At the profitmaximizing level of output, what is this firm’s total cost?
a.$10
b.$40
c.$88
d.$100
16) When a country allows international trade and becomes an exporter of a good,
a.domestic producers of the good become better off.
b.domestic consumers of the good become worse off.
c.the gains of the winners exceed the losses of the losers.
d.All of the above are correct.
17) Which of the following is an example of informational asymmetry?
a.A seller of a house knows more about its true condition than does a potential buyer.
b.A salesperson knows more about her efforts than does her manager.
c.A child knows more about how much time he spent playing video games while he was
alone in his bedroom than do his parents.
d.All of the above are correct.
18) Table 22-16
The Johnson family is planning a vacation and, though Mr. and Mrs. Johnson will be
paying for the trip, they have decided to use a democratic voting process to choose their
destination. The family members’ preferences are reflected in the table below.
Refer to Table 22-16. If Mr. Johnson wants to ensure that his 1st choice becomes the
family’s winning destination, he should propose
a.using a vote by majority rule and first choosing between Opryland and the Grand
Canyon, then choosing between the winner of the first vote and Sea World, and finally
choosing between the winner of the second vote and Disneyland.
b.using a vote by majority rule and first choosing between Disneyland and Sea World,
then choosing between the winner of the first vote and the Grand Canyon and finally
choosing between the winner of the second vote and the Opryland.
c.using a vote by majority rule and first choosing between Sea World and the Grand
Canyon, then choosing between the winner of the first vote and Disneyland, and finally
choosing between the winner of the second vote and Opryland.
d.using a Borda count.
19) A monopolist’s supply curve is horizontal.
a.True
b.False