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According to a study of the U.S. demand for alcoholic beverages, the price elasticity of
demand for beer is -0.30. Which of the following could explain why the price elasticity
of demand for beer is low?
A) Beer is an inferior alcoholic beverage.
B) More and more people are switching to wine and cocktails rather than beer.
C) The price of beer is relatively low and for many people it is a habit forming product.
D) There are only a few major suppliers of beer.
Which of the following is true of a typical firm in a monopolistically competitive
industry?
A) Product differentiation allows a successful firm to emerge as a market leader in the
industry.
B) All firms have identical cost structures.
C) The more successful firms have an incentive to merge in order to exert greater
market power.
D) Each firm acts independently.
Which of the following is not a consequence of minimum wage laws?
A) Low-skilled workers are hurt because minimum wage reduces the number of jobs
providing low-skilled workers with training.
B) Employers will be reluctant to offer low-skilled workers jobs with training.
C) Producers have an incentive to offer workers non-wage benefits such as health care
benefits and convenient working hours rather than a higher wage.
D) Some workers benefit when the minimum wage is increased.
For a perfectly competitive firm, at profit maximization
A) market price exceeds marginal cost.
B) total revenue is maximized.
C) marginal revenue equals marginal cost.
D) production must occur where average cost is minimized.
Figure 11-13
Refer to Figure 11-13. The lines shown in the diagram are isocost lines. If the price of
labor is $50 per unit, then along the isocost AF, the total cost
A) is $500.
B) is $750.
C) is $1,250.
D) cannot be determined without the price of capital.
The substitution effect of a wage increase is observed when
A) the higher wage income causes workers to take more leisure and work less.
B) leisure's higher opportunity cost causes workers to take less leisure and work more.
C) the higher wage income causes workers to take more leisure and work more.
D) leisure's higher opportunity cost causes workers to take more leisure and work less.
Identify whether each of the following transactions will take place in the factor market
or in the product market.
a. Graciela buys a Tesla Motors Model X.
b. Lashan works 60 hours a week at a law firm.
c. Tito sells his family's farmland to a housing developer.
d. Tesla Motors increases employment at its Fremont, California plant.
Figure 17-2
Figure 17-2 shows the marginal revenue product for Becca's Baubles, a producer of
hand-beaded bracelets.
Refer to Figure 17-2. If Becca can sell her bracelets at $3 each, what is the marginal
product of the 4th worker?
A) $36
B) 12 bracelets
C) 36 bracelets
D) $144
Figure 12-5
Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost,
perfectly competitive industry.
Refer to Figure 12-5. What is the minimum price the firm requires to produce output?
A) $20
B) $14
C) $5
D) It cannot be determined
Economic discrimination takes place when an employer
A) pays workers the lowest wage possible.
B) pays workers different wages on the basis of some arbitrary characteristics of
workers that are irrelevant to the job performed.
C) pays lower wages to workers who are not as productive as other workers.
D) pays workers compensating wage differentials.
In the mid-1990s, cattle ranchers in the United States kept raising cattle even though
prices were at a ten-year low and below average total cost. What is the likely
explanation for this?
A) Continuing to operate resulted in smaller losses than would have been incurred by
shutting down.
B) The ranchers were hoping to receive government subsidies.
C) The exit costs were too high.
D) Cattle is an important source of protein and its production is essential for the United
States.
Assume that a monopolist practices perfect price discrimination. The firm's marginal
revenue curve will
A) be perfectly elastic.
B) be equal to its demand curve.
C) be perfectly inelastic.
D) lie below its demand curve.
Which of the following is an example of an activity undertaken by an entrepreneur?
A) designing your landscaping for your new home
B) holding a position as the president of a liberal arts college
C) running for the president of the United States
D) starting your own pet sitting business
Figure 11-1
Refer to Figure 11-1. In a diagram that shows the marginal product of labor on the
vertical axis and labor on the horizontal axis, the marginal product curve
A) never intersects the horizontal axis.
B) intersects the horizontal axis at a point corresponding to the 5th worker.
C) intersects the horizontal axis at a point corresponding to the 6th worker.
D) intersects the horizontal axis at a point corresponding to the 8th worker.
Figure 3-1
Refer to Figure 3-1. A decrease in the price of a complementary good would be
represented by a movement from
A) A to B.
B) B to A.
C) D1 to D2.
D) D2 to D1.
If the demand for labor is unchanged, an increase in the supply of labor will lead to
A) a decrease in the quantity of labor demanded and a decrease in the equilibrium
wage.
B) an increase in the quantity of labor demanded and a decrease in the equilibrium
wage.
C) an increase in the quantity of labor demanded and an increase in the equilibrium
wage.
D) a decrease in the quantity of labor demanded and an increase in the equilibrium
wage.
Which of the following is a transfer payment?
A) the food stamp program
B) a tax deduction
C) Social Security payments
D) an income tax credit
Increasing opportunity cost is represented by a ________ production possibilities
frontier.
A) linear
B) bowed in
C) bowed out
D) vertical
Table 14-7
The payoff matrix shown above assumes that Perfect Plants and Florabunda Florist
must decide whether to offer same-day delivery for their products. The matrix shows
how much profit each firm will earn if it does or does not offer same-day delivery. The
amount of profit for one firm depends on whether the other firm offers same-day
delivery.
Refer to Table 14-7. Which of the following statements is true?
A) Given that Florabunda offers same-day delivery, Perfect's best strategy is to not offer
same-day delivery.
B) Given that Perfect offers same-day delivery, Florabunda's best strategy is to offer
same-day delivery.
C) Perfect and Florabunda will agree to collude in order to maximize their profits.
D) Neither Perfect nor Florabunda will offer same-day delivery; this decision will
decrease their costs and allow each firm to earn more than $1,800 million in profits.
Table 9-1
Linda and Sandy own The Preppy Puppy, a dog grooming business. Table 9-1 lists the
number of dogs Linda and Sandy can each bathe and groom in one week.
Refer to Table 9-1. Select the statement that accurately interprets the data in the table.
A) Linda has a comparative advantage in dog bathing.
B) Sandy has an absolute advantage in dog bathing.
C) Sandy has a comparative advantage in dog bathing.
D) Linda has a comparative advantage in dog grooming and dog bathing.
Both buyers and sellers are price takers in a perfectly competitive market because
A) the price is determined by government intervention and dictated to buyers and
sellers.
B) each buyer and seller knows it is illegal to conspire to affect price.
C) both buyers and sellers in a perfectly competitive market are concerned for the
welfare of others.
D) each buyer and seller is too small relative to others to independently affect the
market price.
Assume that the LCD and plasma television sets industry is perfectly competitive.
Suppose a producer develops a successful innovation that enables it to lower its cost of
production. What happens in the short run and in the long run?
A) Initially, the firm will be able to increase its profit significantly, but in the long run
its profits will still be greater than zero but lower than its short-run profits because other
firms would also innovate.
B) The firm will probably incur losses temporarily because of the high cost of the
innovation, but in the long run it will start earning positive profits.
C) This firm will be able to earn above normal profits indefinitely if it obtains a patent
for its innovation.
D) The firm will be able to increase its profits temporarily, but in the long run its profits
will be eliminated as other firms copy the innovation.
Women typically earn less than men, even in the same occupation. Which of the
following is an explanation for this discrepancy?
A) Women do not work as hard as men because of cultural influences.
B) Women have, on average, less workforce experience than men of the same age.
C) Women are, on average, less motivated than men and therefore tend to avoid taking
on more responsibilities.
D) Women tend to take riskier jobs and earn compensating wage differentials.
Figure 12-2
Refer to Figure 12-2. What is the amount of profit if the firm produces Q2 units?
A) It is equal to the vertical distance c to g.
B) It is equal to the vertical distance c to Q2.
C) It is equal to the vertical distance g to Q2.
D) It is equal to the vertical distance c to g multiplied by Q2 units.
Marginal revenue product for a perfectly competitive seller is equal to
A) the output price multiplied by the total product of labor.
B) the output price multiplied by the number workers hired.
C) the change in total revenue that results from hiring another worker.
D) the marginal cost of production.
Figure 5-3
Refer to Figure 5-3. The private profit-maximizing output level is
A) Qm.
B) Qn.
C) Qo.
D) Qo - Qm.
To maximize profit, a perfectly competitive firm
A) should sell the quantity of output determined by the interaction between industry
demand and supply.
B) should sell the quantity of output that results in a value for total revenue that is equal
to total cost.
C) should produce the quantity of output that results in the greatest difference between
total revenue and total cost.
D) should produce the quantity of output that results in the greatest difference between
marginal revenue and marginal cost.
To calculate the price elasticity of supply we divide
A) the percentage change in price by the percentage change in quantity supplied.
B) the percentage change in quantity supplied by the percentage change in price.
C) rise by the run.
D) the average price by the average quantity supplied.
Marginal revenue product falls as more labor is hired because
A) the price of the product must fall for a perfectly competitive firm to sell more.
B) the wage rate rises as more workers work more hours.
C) the marginal product of labor is negative as additional units of labor are hired.
D) the marginal product of labor falls as a result of the law of diminishing returns.
Sally quit her job as an auto mechanic earning $50,000 per year to start her own
business. To save money she operates her business out of a small building she owns
which, until she started her own business, she had rented out for $10,000 per year. She
also invested her $20,000 savings (which earned a market interest rate of 5% per year)
in her business. You are given the following information about the first year of her
operations.
a. Calculate her economic costs.
b. Calculate her accounting costs.
c. Calculate her implicit costs.
d. Sally tells you that she would really like to move to a location closer to town but she
decided against it because "right now I don't pay any rent and it will cost me $10,000 a
year to rent near town." Do you agree with her reasoning?
The opportunity cost of going to an outdoor music festival is
A) the enjoyment you receive from going to the festival.
B) the value of the time spent at the festival.
C) equal to the highest value of an alternative use of the time and money spent on the
festival.
D) zero because there are no overhead costs for an outdoor festival.
E) the cost of the festival ticket only.
