If the opportunity costs of producing a good increase as more of that good is produced,
the economy’s production possibility frontier will be
A) negatively sloped and “bowed inward” toward the origin.
B) negatively sloped and “bowed outward” from the origin.
C) a negatively sloped straight line.
D) a positively sloped straight line.
During the Iraq War, many of Iraq’s oil refineries were destroyed. This would best be
represented by a
A) movement down Iraq’s production possibility frontier.
B) movement off Iraq’s production possibility frontier to some point inside the frontier.
C) shift of Iraq’s production possibility frontier toward the origin.
D) movement up Iraq’s production possibility frontier.
When a monopolist sells two units of output its total revenue is $600. When a
monopolist sells three units of output its total revenue is $630. When the monopolist
sells three units of output, the price per unit is
A) $210.
B) $230.
C) $300.
D) $630.
NOTE: The MEI (marginal efficiency of investment) curve represents the demand for
investment.
Figure 11.1
Refer to Figure 11.1. If the market rate of interest is 5%, this firm’s investment will total
A) $5,000.
B) $8,000.
C) $15,000.
D) $27,000.
The government uses market share figures contained in the ________to help determine
whether or not it will challenge a proposed merger.
A) Herfindahl-Hirschman Index
B) concentration ratio
C) Cellar-Kefauver Index
D) antitrust prohibition ratio
In terms of the production possibility frontier, ________ would best be shown by the
production possibility frontier shifting outward.
A) an increase in productivity attributable to new technology
B) a decrease in the unemployment rate
C) a shift in resources from capital goods to consumer goods
D) a change in consumer tastes
The share of ________ by the top firms is known as the concentration ratio.
A) industry output in sales or employment accounted for
B) resources used in production
C) the labor force employed
D) outstanding shares of stock issued
Figure 7.4
Refer to Figure 7.4. The average product of six workers is
A) -8.33.
B) -5.
C) 5.
D) 8.33.
Figure 1.3
Refer to Figure 1.3. The slope of the line is
A) positive.
B) negative.
C) increasing at an increasing rate.
D) decreasing at an increasing rate.
If Tie-Dyed T-Shirts is currently employing labor so that the wage is less than the
marginal revenue product of labor, it must also be true that
A) total revenues would be greater than total costs.
B) the wage is greater than marginal cost.
C) the price of the product must be less than marginal cost.
D) the price of the product must be greater than marginal cost.
The music production industry is an example of a(n) ________ industry.
A) perfectly competitive
B) monopolistic
C) monopolistically competitive
D) oligopolistic
If the marginal product of a worker for a calculator manufacturer is 10 calculators, and
the price of a calculator is $10, the firm’s marginal revenue product is
A) $1.00.
B) $10.00.
C) $100.00.
D) $1,000.00.
If the market price of coffee is $3.00 per pound but the government will not allow
coffee growers to charge more than $2.00 per pound of coffee, which of the following
will happen?
A) Demand must eventually decrease so that the market will come into equilibrium at a
price of $2.50.
B) There will be a shortage of coffee.
C) Supply must eventually increase so that the market will come into equilibrium at a
price of $2.50.
D) The market will be in equilibrium at a price of $2.00.
Mustard and mayonnaise are substitutes. Mustard and relish are complements. Mustard
is a normal good. During the summer, about 50% of all mustard was recalled by
manufacturers and removed from store shelves.
Refer to Scenario 3.2. As a result of the recall, you would expect that
A) the supply of mustard would decrease, the price of mustard would increase, and the
demand for mustard would decrease.
B) the price of mustard would increase, the supply of mustard would increase, and the
quantity demanded of mustard would decrease.
C) the supply of mustard would decrease, the price of mustard would increase, and the
quantity demanded of mustard would decrease.
D) the price of mustard would increase, and both the quantity of mustard supplied and
the quantity of mustard demanded would increase.
Perfect competition differs from monopolistic competition primarily because
A) in monopolistic competition, firms can differentiate their products.
B) in perfect competition, firms can differentiate their products.
C) in perfect competition, entry into the industry is blocked.
D) in monopolistic competition, there are relatively few barriers to entry.
Figure 13.5
Refer to Figure 13.5. If this firm produces the profit-maximizing quantity and sells it at
the profit-maximizing price, the firm’s ________ will be $88.
A) loss
B) profit
C) total cost
D) total revenue
According to the law of demand there is negative relationship between ________ and
________.
A) price; demand
B) quantity; income
C) price; income
D) price; quantity demanded
In output markets, the elasticity of supply tends to be
A) negative.
B) zero.
C) positive.
D) decreasing at an increasing rate.
Salaries of NFL quarterbacks, like Tom Brady, are
A) too high.
B) related to the additional revenues team owners expect to enjoy as a result of having
them on the team roster.
C) the result of perfectly competitive markets.
D) All of the above are correct.
The progressive income tax is a tax based on the
A) benefits-received principle.
B) tax equity principle.
C) efficiency tax principle.
D) ability-to-pay principle.
Table 8.2
Refer to Table 8.2. If Danica produces one pair of earrings, her total variable costs are
A) $25.
B) $50.
C) $75.
D) indeterminate from this information.
Figure 12
The market is initially in equilibrium at Point B. If demand shifts from D2 to D1 and the
price of burritos remains constant at $4.00, there will be
A) an excess supply of 200 million pounds of burritos.
B) an excess demand of 200 million pounds of burritos.
C) an excess supply of 100 million pounds of burritos.
D) an excess demand of 100 million pounds of burritos.
Equilibrium in this market occurs at the intersection of curves S and D.
Figure 4.6
In figure 4.6 if price goes from equilibrium to P1, producer surplus changes by the area
A) E-C.
B) C+E
C) E+F.
D) B-F.
Table 16.1
Refer to Table 16.1. This salt processing firm is perfectly competitive and is not forced
to take damage costs into account. If the market price of salt is $30 a ton and the firm
behaves as a profit-maximizer, how much total damage will result?
A) $10
B) $30
C) $40
D) $90
Table 9.1
Refer to Table 9.1. If the market price is $34, then in the long run the firm will
A) operate and expand.
B) operate but not expand.
C) shut down, but not go out of business.
D) go out of business.
You read that 25 firms that grow and export peanuts to the United States decide to form
a cartel. The cartel aims to raise the price of peanuts and reduce output to increase
profits for the peanut growers. You predict that this cartel will probably
A) not be successful because the number of firms is unmanageable and there are a
number of good substitutes for peanuts.
B) not be successful because there are too few firms that are trying to organize the
cartel.
C) be successful because the demand for peanuts is very elastic.
D) be successful because it will be very easy to enforce the rules among only 25 firms.
In which of the following ways is mechanism design used?
A) to align the interests of two parties in a transaction
B) to give individuals the incentive to reveal the truth about themselves
C) to correct inefficiencies associated with asymmetric information
D) All of the above are correct.
For each of the following, list whether the topic is microeconomic or macroeconomic in
nature:
(a.) The price of gasoline.
(b.) The national unemployment rate.
(c.) The quantity of new cars sold each year.
(d.) The wage rate paid to steel workers.
(e.) The amount of national output in an economy.
The term investment as it is used by an economist refers to
A) the creation of new capital.
B) the act of buying a share of stock or a bond.
C) a household’s savings.
D) the net worth of a company’s financial assets.
A deadweight loss occurs ________ in a market.
A) only when there is overproduction
B) only when there is underproduction
C) when there is efficient production
D) when there is underproduction or overproduction
A profit-maximizing strategy becomes a loss minimization strategy when a firm in a
perfectly competitive industry is producing where
A) AVC < P < ATC.
B) P > ATC.
C) P = ATC.
D) MR = MC < P.
In the United States, most people’s ________ comes from saving.
A) income
B) profit
C) wealth
D) capital
The fallacy of composition is
A) the belief that if Event A happens before Event B happens, then Event A causes
Event B to occur.
B) the belief that what is true for the whole is necessarily true of the parts.
C) the belief that what is true for a part is necessarily true for the whole.
D) the belief that it is impossible to draw generalizations about cause and effect.
Figure 8.1
Refer to Figure 8.1 above. The total fixed costs for Cyndy’s Floral Arrangements are
$1,000. If Cyndy’s Floral Arrangements produces 200 silk flower arrangements, the
average fixed costs are
A) $0.20.
B) $5.
C) $20.
D) $200.
The decline in the economic value of an asset over time is called
A) disinvestment.
B) a financial loss.
C) depreciation.
D) intangible capital.
Assume that a lawyer and a secretary have been working together for two years. The
lawyer suddenly realizes that he prepares legal briefs and types faster than the secretary.
Upon learning this he decides to let his secretary go. Why might this be a mistake?
What is the difference between income and wealth?
Assume that fixed costs for a firm are $1,000. Draw a graph for the fixed cost of this
firm accompanied by a graph of the average fixed cost. Explain the shape of the
average fixed cost graph.
Afirm purchasing labor in a competitive market has the following marginal revenue
product curve:
The market equilibrium wage is $14 and the firm currently employs 12 workers. Is the
firm maximizing profit? Explain.
What are the implications for economic growth for countries specializing in consumer
goods rather than capital goods? Assume the countries consume what they produce.
How is average variable cost calculated? If a firm has total variable costs of $19,200
when producing 575 units, what is the firm’s average variable cost?
What three pieces of information do firms need to know to make production decisions?
Why does it seem to be more difficult for investors to measure the capital stock of a
firm like eBay rather than a firm like Ford Motor Company? Explain.
ABC, Incorporated has a local monopoly in the sale of automatic paper towel
dispensers. The table below shows the demand for these towel dispensers at various
prices. The total cost of production of the various levels of output is also shown.
Calculate total revenue and profit for the firm. What level of output maximizes profit?
What price should the firm charge?
Would you expect the income elasticity of demand for Cadillacs to be positive or
negative? Why is this true?
How is average total cost calculated? If the total cost of producing 190 units of output is
$355, what is the average total cost?
Why is it that pure monopoly would not likely exist without government?
McDonalds and many supermarkets offer vending machines in their stores that rent new
movie releases for as low as $1.00 per day provided that they are returned in 24 hours
before incurring a late fee. How can Netflix and Blockbuster compete against this type
of service? Or is their something else going on there that doesn”t first meet the eye?
The table below shows how the total utility that Alan derives from watching basketball
games changes as he watches more and more games each week:
Fill in the table above. Do the numbers in the table support the law of diminishing
marginal utility? Explain.
Scenario 1
Assume there are two steel plants in a city. The first one operates a plant that is fifty
years old and the second one is an ultra modern facility. Each dumps thermal water into
the same river. Both firms add 5 million gallons of thermal water to the river each. The
government has mandated that each steel company only dump 1 million gallons. The
cost of abating the thermal water for the old plant is 25 cents per gallon. By contrast the
modern plant only costs 5 cents per gallon.
Using Scenario 1, calculate the total cost of pollution when both steel companies are
allowed to pollute only one million gallons of thermal water each and the right is not
transferable or tradable.
If the marginal product of labor is equal to 5 and the marginal product of capital is 2,
what is the marginal technical rate of substitution?
Explain why the average total cost curve and the average variable cost curve get closer
to each other as output expands.