The additional utility obtained from consuming an extra unit of a good is called:
A) marginal utility.
B) marginal rate of substitution.
C) disutility.
D) population-averaged utility.
Which of the following are forms of framing bias?
I. nominal loss aversion
II. overconfidence
III. endowment effect
IV. anchoring
A) I, III, and IV
B) II only
C) III and IV
D) I and II
Which of the following are sources of market power?
I. government patents and copyrights
II. a Minnesota law that requires all new funeral homes to have an embalming room,
which costs upward of $30,000, regardless of whether it is functional or will be used
III. a Portland, Oregon, law that makes it a crime for limousine companies to charge
less than $50 per ride
A) I, II, and III
B) I only
C) II only
D) III only
Table 10.16
(Table 10.16) The table shows the consumer’s willingness to pay for a hotel stay and
airfare. Assume that marginal cost is zero for both goods.
a. If the hotel and airfare are priced separately, what prices maximize producer surplus?
What is the level of producer surplus?
b. If the hotel and airfare are bundled, what is the optimal bundle price? What is the
level of producer surplus?
c. Suppose the hotel and airfare are mixed-bundled such that the bundle price is $410
and the hotel and airfare are priced separately, each at $180. Why is this
mixed-bundling strategy NOT incentive-compatible?
Ryan’s Engel curve for potato chips is I = 300C, where I is weekly income and C
measures the number of bags of potato chips. Which of the following statements is
TRUE?
A) Ryan considers potato chips an inferior good.
B) Ryan considers potato chips a normal good.
C) Ryan considers potato chips an inferior good at income levels above $60,000.
D) Ryan considers potato chips an inferior good at income levels above $30,000.
Consider the market for vegan soup, where two firms, Kibble and Flesh Not, are in
Stackelberg competition. Flesh Not observes Kibble’s output level before choosing its
desired output level. The market inverse demand curve for vegan soup is P = 18 ” Q,
where Q measures cups of soup produced by Kibble and Flesh Not, qK and qF, and P is
the price per cup. Kibble and Flesh Not produce soup at a constant marginal cost of $2.
a. Derive Flesh Not’s reaction function.
b. Derive Kibble’s marginal revenue function.
c. How much output does Kibble produce?
d. How much output does Flesh Not produce?
e. What is the market price of vegan soup?
Suppose that U = min{2X, 5Y}, where X is units of good X and Y is units of good Y. The
price of good X is $1 and the price of good Y is $2. What is the minimum expenditure
necessary to achieve a utility level of 100?
A) $333.33
B) $550
C) $1,200
D) $450
Figure 10.4
(Figure 10.4) If the firm is unable to practice third-degree price discrimination and must
charge a single-profit maximizing price, it will earn producer surplus of approximately:
A) $3,521.05.
B) $2,990.
C) $980.
D) $4,555.20.
Suppose a firm’s total cost function is given by TC = 6,000 + 2Q + 0.25Q2, where MC =
2 + 0.5Q.
a. What is the output level that minimizes total cost?
b. What is the output level that minimizes average total cost?
Table 10.1
(Table 10.1) The table shows each consumer’s maximum willingness to pay for a
monthly subscription to MLB.TV. Each consumer is interested in purchasing a single
subscription per month. The marginal cost of a subscription is $10. If MLB.TV can
practice first-degree price discrimination, how much producer surplus will it earn from
these consumers?
A) $97
B) $40
C) $57
D) $107
The market for plywood is characterized by the following demand and supply
equations: QD = 800 ” 10P and QS = 50P ” 1,000, where P is the price per sheet of
plywood and Q measures the quantity of plywood. What is the size of the deadweight
loss if the government imposes a price ceiling of $25 per sheet of plywood?
A) $3,750
B) $4,418
C) $6,000
D) $8,900
Figure 5.14
(Figure 5.14) Good X is a(n) ______ good, and good Y is a(n) ______ good.
A) normal; inferior
B) normal; normal
C) inferior; inferior
D) inferior; normal
Table 10.4
(Table 10.4) The table shows consumer valuations (maximum willingness to pay per
month) for two cable television networks. In which of the scenarios would a cable
television company experience an increase in producer surplus from using a bundling
strategy as opposed to selling channel access separately?
A) Scenario A
B) Scenario B
C) Scenario C
D) Scenario D
In Louisiana, it was a crime to sell funeral caskets without a funeral director’s license.
This law was a source of ______ for licensed funeral directors and an example of
______.
A) market power; government-created barriers to entry
B) market power; a natural monopoly
C) product differentiation; scale economies
D) scale economies; a natural monopoly
The utility function U = Y/X violates the assumption(s) of:
A) rankability.
B) completeness.
C) more is better.
D) rankability and completeness.
The utility function for Morris is U = min{4M, T}, where M is pints of milk and T is
cans of tuna. Morris has $90 to spend on tuna (priced at $2 per can) and milk (priced at
$1 per pint). What is Morris’s utility-maximizing consumption bundle?
A) M = 30 and T = 30
B) M = 40 and T = 25
C) M = 10 and T = 40
D) M = 15 and T = 65
Suppose a firm’s total cost and marginal cost are given by TC = 150 + 0.50Q +1.5Q2.
What is the firm’s average variable cost of producing 10 units of output?
A) $5.55
B) $15.50
C) $15
D) $17
Beth has $200 of income to spend on ebooks (E), priced at $10 per book, and Zumba
(Z) classes, priced at $8 per class. Which of the following consumption bundles is
infeasible?
A) E = 20 and Z = 0
B) E = 2 and Z = 22
C) E = 10 and Z =13
D) E = 8 and Z =15
Table 16.2
(Table 16.2) In an unregulated market, the quantity produced is ______, while a subsidy
of ______ per unit will achieve the socially optimal quantity of ______.
A) 1; $150; 5
B) 3; $75; 6
C) 3; $150; 5
D) 2; $100; 3
There are two firms, Firm A and Firm B, competing in Bertrand competition with
differentiated goods. Firm A faces the demand curve qA = 40 ” PA + 0.50PB.What is
Firm A’s total revenue?
A) TRA= 40PA ” + 0.50PAPB
B) TRA= (40 ” PA + 0.50PA)PB
C) TRA= (40 ” PA + 0.50PA)qA.
D) TRA = (40 ” PB + 0.50PB)PA
Stu owns an ice cream parlor that is usually closed during the winter months. This
winter, however, Stu is considering opening his business in February instead of March.
If Stu opens his store in February, he will earn total revenue of $4,000 for the month,
while incurring variable costs of $3,500 and fixed costs of $1,500. If the store remains
closed during February, Stu will earn no revenues and incur fixed costs of $1,500. What
should Stu do?
A) Stu should keep the ice cream parlor closed in February because he would lose
$1,000 if he opens.
B) Stu should keep the ice cream parlor closed in February because the $500 of
operating profit is insufficient to cover the $1,500 of fixed costs.
C) Stu should open the ice cream parlor in February because the $4,000 of total revenue
exceeds the $1,500 of fixed costs.
D) Stu should open the ice cream parlor in February because the $4,000 of total revenue
exceeds the $3,500 of variable costs.
The Hagerstown Suns, a minor league baseball team, sells a single game-day ticket for
$9.00. If you buy the 35-game ticket package, the price per ticket falls to $8.34. The
Hagerstown Suns is using:
A) second-degree price discrimination in the form of quantity discounts.
B) third-degree price discrimination.
C) first-degree price discrimination.
D) a strategy of bundling.
Suppose the total cost of producing goods Q1 and Q2 jointly is given by TC = 100 +
50Q1Q2 ” (Q1Q2)0.5. The total cost of producing Q1 and Q2 in two separate facilities is
given by TC = 75 + 3,000Q1 + 1,000Q2 + + . If the firm produces Q1 = 40 and
Q2 = 100, the firm should produce the goods ______ because of ______ of scope.
A) jointly; economies
B) in separate facilities; diseconomies
C) jointly; diseconomies
D) in separate facilities; economies
Research by Acemoglu and Linn, which examined pharmaceutical drug development,
found that:
A) you would rather suffer a disease that afflicts a small number of people.
B) drug companies are more likely to develop a drug the larger its potential market size.
C) profits are not an important consideration for what drugs are developed.
D) pharmaceutical companies earn normal rates of return in the long run, despite
considerable market power in the short run.
Figure 8.12
(Figure 8.12) The perfectly competitive firm’s short-run supply curve is represented by
points:
A) BCD.
B) ABCD.
C) EBCD.
D) BCH.
The inverse market demand curve for American alligators is P = 4,000 ” 2Q, where Q is
the quantity of alligators and P is the market price. American alligators can be produced
at a constant marginal cost of $1,000, and all American alligators are identical.
a. Suppose the American alligator market is served by two firms that form a cartel and
evenly split the market output. What is the market output and price level?
b. Suppose the American alligator market is served by two firms that are engaged in
Bertrand competition. What is the market output and price level?
c. Suppose the American alligator market is served by two firms that are engaged in
Cournot competition. The inverse market demand curve P = 4,000 ” 2(q1 + q2), where
the market output, Q, is the sum of each firm’s output, q1 + q2. What is the market
output and price level?
d. Suppose the American alligator market is served by two firms that are engaged in
Stackelberg competition. The inverse market demand curve P = 4,000 ” 2(q1 + q2),
where the market output, Q, is the sum of each firm’s output, q1 + q2. What is the
market output and price level?
Debbie, a popular wedding photographer, is able to photograph a wedding every
Saturday of the year. She charges couples $4,000 for a complete set of photographs that
cost her $2,200 to print and develop. Suppose that on one Saturday Debbie photographs
her niece’s wedding without charge, but her niece insists on paying Debbie $2,200 to
cover her printing and developing costs. What is Debbie’s economic cost of
photographing her niece’s wedding?
A) $0
B) $1,800
C) $2,200
D) $4,000
The rational addiction model of Gary Becker and Kevin Murphy contends that:
A) addicts are irrational and do not consider the full costs of using addictive substances.
B) consumers weigh the benefits of using addictive substances along with their full
costs.
C) standard economic models are not equipped to address socially destructive behavior.
D) prices play no role in the decisions to use addictive substances.
Suppose that the equilibrium price of blackberries is $3 per pound, and the price of
black raspberries (a substitute good for blackberries) increases. What happens in the
market for blackberries?
A) There will be an excess supply of blackberries at $3 per pound, leading to an
increase in quantity demanded and a decrease in quantity supplied.
B) The demand curve for blackberries shifts to the right, increasing both the equilibrium
price and quantity.
C) There will be an excess demand of blackberries at $3 per pound, resulting in a new
equilibrium price that is less than $3 per pound.
D) The demand curve for blackberries decreases, decreasing the equilibrium price and
raising the equilibrium quantity.
Figure 16.15
(Figure 16.15) Suppose that the demand curves for two consumers of good X are
presented in the graph. The marginal cost of producing good X is MC = $9.
a. If good X is rival and excludable, what is the efficient quantity of good X?
b. If good X is nonrival and nonexcludable, what is the efficient quantity good X?
Figure 3.18
(Figure 3.18) Using Figure 3.18,answer the following questions:
a. For demand curve D1, what is the level of consumer surplus at a price of $40?
b. For demand curve D2, consumer surplus is $6,400 at a price of $40. What is the
demand choke price?
Which of the following statements is TRUE of price-taker firms?
I. ΔTR/ΔQ = P = MR
II. Price takers must lower their price to sell additional units of output because demand
curves slope downward.
III. If a price taker decides to increase output, the market price will decrease.
IV. Examples of price takers include McDonald’s, Burger King, Wendy’s, and SONIC
Drive-in.
A) II and III
B) I, II, III, and IV
C) I only
D) II and IV
Which of the following characteristics does Bertrand competition with differentiated
goods have in common with Bertrand competition with identical goods?
A) Price equals marginal cost.
B) Firms earn zero economic profit.
C) Firms set prices simultaneously.
D) Each firm’s product is a perfect substitute for the other firm’s product.
Donna purchased property and must now make an annual payment of $6,000 for the
next 30 years. What is the present discounted value of the payment stream at a 5%
interest rate?
A) $88,450.42
B) $110,682.21
C) $92,234.71
D) $105,320.57
Figure 7.11
(Figure 7.11) The short-run total cost curve is represented by the letters ______, and the
long-run total cost curve is represented by the letters ______.
A) WXA; ZXY
B) ZXA; WXY
C) WXY; ZXA
D) ZXY; WXA