The inverse demand curve for a firm with market power is P = 60 ” Q, and its marginal
cost is given by MC = 2Q. If the firm decides to practice first-degree price
discrimination, the deadweight loss will:
A) decrease from $37.50 to $0.
B) decrease from $45 to $15.
C) increase from $0 to $65.
D) increase from $30 to $45.
On the basis of the Carmgeddon study, which of the following statements is TRUE
about adding another traffic lane to a highway?
I. Partial equilibrium analysis predicts that traffic flow should increase, since drivers
would have more usable road space.
II. General equilibrium analysis predicts that traffic flow will remain unchanged, as
more businesses and people move to the area.
III. Partial and general equilibrium analysis reach the same conclusion: expanding
roadways reduces traffic congestion.
A) I only
B) II only
C) III only
D) I and II
Figure 4.8
(Figure 4.8) Which of the following statements is FALSE?
I. At point A, the consumer is willing to give up 3 winter coats for 1 wool sweater.
II. At point B, the consumer is willing to give up 1 winter coat for 4 wool sweaters.
III. At point A, the consumer is willing to give up 3 wool sweaters for 1 winter coat.
IV. At point B, the consumer is willing to give up 4 wool sweaters for 1 winter coat.
A) I only
B) I and II
C) III only
D) IV only
Figure 5.29
(Figure 5.29) The price of good Y decreased from $20 to $10.
a. Explain whether goods X and Y are complements or substitutes.
b. Calculate the cross-price elasticity of demand for good X with respect to good Y.
Every dollar that Paula earns working overtime she saves for her retirement. This week
she has added $80 to her retirement account by working overtime. On her way home
from work on Friday, Paula wins $80 in a radio contest and drives to Janice Jewelers to
buy a pair of $80 earrings. Paula is displaying:
A) marketing vacillation.
B) brain oscillation.
C) mental accounting.
D) passerby fixation.
CellBat and DuraBat are the only two makers of lawn mower batteries. Their batteries
are identical and produced at a constant marginal cost of $25. The market inverse
demand curve for lawn mower batteries is P = 145 ” 0.5Q, where Q is the total output
produced by CellBat and DuraBat, qC + qD.How many batteries will each firm produce
in Cournot equilibrium?
A) CellBat and DuraBat will each produce 60 batteries.
B) CellBat will produce 40 batteries, and DuraBat will produce 80 batteries.
C) CellBat and DuraBat will each produce 80 batteries.
D) CellBat and DuraBat will each produce 30 batteries.
Table 6.2
A) At L = 1, marginal product is greater than average product.
B) At L = 3, the quantity of output produced per unit of labor is 82.2.
C) The additional output produced by using the second unit of labor is 86.6.
D) At L = 2, the APL = L/Q = 0.011.
Mark is currently considering spending $25,000 on a farm tractor that will increase his
crop yield and bring additional revenues of $4,000 for each of the next seven years.
Mark should:
A) buy the tractor because its benefits of $28,000 outweigh its costs of $25,000.
B) buy the tractor because inflation will reduce the value of future cash flows.
C) use present discounted value analysis to decide whether the tractor is good
investment.
D) not buy the tractor because the payback period extends beyond three years.
Peter says, “It’s time to bring all our troops home from Afghanistan.” Ava responds,
“We need to keep our troops in Afghanistan or the deaths of all the soldiers who lost
their lives fighting would be wasted.” What behavior economics bias is Ava
committing?
A) mental accounting
B) nominal loss aversion
C) rational ignorance
D) sunk-cost fallacy
In the market for karate lessons, the instructors know more about the quality of their
instruction than their students do. This situation may create a:
A) lemons problem.
B) sensei equilibrium.
C) subgame outcome.
D) dojo fruition.
In a perfectly competitive industry, the equilibrium price is $56 and the minimum
average total cost of the industry’s firms is $40. If this is a constant-cost industry, we
would expect that in the long run:
A) new firms will enter the market, shifting the industry’s short-run supply curve
outward until the minimum average total cost rises to $56.
B) new firms will enter the market, shifting the industry’s short-run supply curve
outward until the new equilibrium price is $40.
C) new firms will enter the market, shifting the industry’s short-run supply curve inward
until firms are making positive profit.
D) existing firms will exit the market, shifting the industry’s short-run supply curve
inward until firms are breaking even.
A perfectly competitive industry has 100 high-cost producers (each with a short-run
supply curve given by QH = 16P) and 100 low-cost producers (each with a short-run
supply curve given by QL = 24P).
The industry demand curve is given by Qd= 100,000 ” 1,000P. At market equilibrium,
industry producer surplus is:
A) $800,000.
B) $20,000.
C) $4,000.
D) $1.2 million.
Figure 12.11
(Figure 12.11)
a. What is the Nash equilibrium of this game?
b. Explain how Dale could use a side payment to make himself better off. What is the
size of the side payment?
When Logan earned $1,000 per week, he purchased 5 karate lessons and 40 gallons of
gasoline. When his earnings increased to $1,100 per week, he purchased 6 karate
lessons and 43 gallons of gasoline. The income elasticity of karate lessons and gasoline
are ______ and ______, respectively.
A) 0.50; 33
B) 0.10; 6
C) 2.00; 75
D) 0.85; 15
The market for flu shots is given by the following inverse demand and supply
equations:
P = 40 ” 0.40Q
P = 0.40Q
where P is the price per flu shot and Q measures the daily quantity of flu shots. The
external marginal benefit of a flu shot is $8. The socially optimal number of daily flu
shots is:
A) 60.
B) 50.
C) 140.
D) 35.
Figure 11.5
(Figure 11.5) According to the figure, which of the following statements is TRUE?
I. If Firm B expects Firm A to charge a price of $3, Firm Bshould charge a price of
$5.50.
II. If Firm A expects Firm Bto charge a price of $6, Firm A should charge a price of $7.
III. The Nash equilibrium is for each firm to charge the same price.
A) III only
B) II only
C) I and II
D) I, II, and III
The inverse demand for energy-efficient refrigerators is P = 2,000 ” 10Q, where Q
measures refrigerators per month. The inverse supply of energy-efficient refrigerators is
P = 10Q.
a. Solve for the market equilibrium price and quantity.
b. Suppose the use of an energy-efficient refrigerator reduces carbon dioxide emissions,
creating an external marginal benefit of $100. What is the socially optimal quantity of
energy-efficient refrigerators?
Figure 11.6
(Figure 11.6) The graph depicts a monopolistically competitive firm. The firm’s current
economic profit is ______, and its long-run economic profit is ______.
A) $6,000; $0
B) $4,000; $0
C) $2,000; $2,500
D) $4,000; $3,000
Figure 8.7
(Figure 8.7) If the market price is $6, this perfectly competitive firm will earn profits of:
A) $27.
B) $54.
C) $18.
D) $78.
Figure 10.8
(Figure 10.8) If the golf instructor set a single price to maximize profit, she would earn
producer surplus of ______. If she set a price of $120 an hour for the first four hours of
instruction and $80 an hour for each hour of instruction beyond four hours, she would
earn producer surplus of ______.
A) $480; $960
B) $320; $400
C) $500; $800
D) $80; $120
Figure 8.5
(Figure 8.5) The graph shows a firm’s marginal cost curve. This firm operates in a
perfectly competitive industry with market demand and supply curves given by Qd =
100 ” 8P and QS = “20 + 2P, where Q is measured in millions. Based on the figure, how
many units of output will the firm produce at the equilibrium price?
A) 1,100
B) 800
C) 1,200
D) 400
Some employers no longer consider a prospective employee’s grade point average as a
useful signal. Why might this be the case?
A) because only the really smart students receive high grade-point averages
B) because grade inflation has made it considerably easier for students with a poor
work ethic and little self-control to get high grades
C) because it is not fair to the students who put in a lot of effort and still get bad grades
D) because productivity is highly correlated with a worker’s grade-point average
Figure 4.18
(Figure 4.18) Use the preceding graph to answer the following questions.
a. What is the marginal rate of substitution at 3 concert tickets and 8 movie tickets?
b. If the consumer’s income decreases by 10% and the price of both goods decreases by
10%, how many concert and movie tickets will the consumer purchase?
c. If the price of movie tickets doubles, what does the marginal rate of substitution
equal at the new utility-maximizing point?
Figure 7.16
(Figure 7.16) Answer the following questions.
a. Complete the following table.
b. Based on your answers in the preceding table, graph the firm’s ATC curve.
Figure 15.1
(Figure 15.1) What will happen if an individual with no insurance coverage suddenly
purchases partial insurance coverage?
A) The marginal benefit curve will shift downward, leading her to reduce the number of
actions taken to prevent theft.
B) The marginal benefit curve will shift upward, leading her to increase the number of
actions taken to prevent theft.
C) The marginal cost curve will shift downward, leading her to reduce the number of
actions taken to prevent theft.
D) The marginal cost curve will shift upward, leading her to increase the number of
actions taken to prevent theft.
Suppose a perfectly competitive industry has 300 firms, and the short-run supply curve
for each firm is given by Q = 2P. What is the short-run industry supply curve?
A) QS = 150P
B) QS = 600
C) QS = 600P
D) QS = 300 + 2P
To practice indirect or second-degree price discrimination, a firm must have:
I. a Lerner index equal to zero.
II. market power and the ability to prevent resale.
III. customers with different demand curves, without the firm knowing which customers
have which type of demand before purchasing the product.
A) I and II
B) I, II, and III
C) II and III
D) I and III
Table 12.17
(Table 12.17) In the table, the payoffs represent profits measured in millions of dollars.
In this infinitely repeated game, Firm A and Firm B agree to cooperate and not offer
warranty coverage. Each firm follows a grim trigger strategy. At what value of d is Firm
A indifferent between keeping the agreement with Firm B and cheating on it?
A) 0.2
B) 0.4
C) 0.6
D) 0.8
Figure 4.14
(Figure 4.14) For Budget constraint 1, the price of good X and the price of good Y could
equal ________, respectively.
A) $175 and $100
B) $80 and $140
C) $140 and $160
D) $6 and $4
Table 12.14
(Table 12.14) In the table, the payoffs represent profits in millions of dollars. Suppose
that this simultaneous-move game is played once in each period for 3 periods. In period
1, the outcome will be ______, and in period 2, the outcome will be ______.
A) (6, 6); (4, 4)
B) (4, 4); (4, 4)
C) (2, 7); (6, 6)
D) (6, 6); (6, 6)
Suppose that Seth’s income increases from $400 to $500 per week, causing Seth to
increase his purchases of movies from 3 to The income elasticity of movies is:
A) 1.33.
B) 0.25.
C) 0.75.
D) 1.00.
Sally is one of many consumers in the yellow onion market. Which of the following
statements is TRUE?
I. Sally’s demand curve must have the same slope as the market demand curve.
II. Sally’s demand curve must be to the right of the market demand curve.
III. Sally’s demand curve is either flat or flatter than the market demand curve.
A) II and III
B) I only
C) II only
D) III only
Cher’s marginal rate of substitution of necklaces (N) for earrings (E) is 5 (MRSEN = 5).
This information implies that:
A) Cher is willing to trade away 5 necklaces for one more pair of earrings, holding her
utility constant.
B) Cher will move to a higher indifference curve if she trades away 5 necklaces for one
more pair of earrings.
C) Cher should own 5 times as many necklaces as pairs of earrings.
D) the slope of the indifference curve is 5 and thus upward sloping.
Suppose that a firm is earning a 12% return on capital in a perfectly competitive
industry, and the market return outside the industry is 5%. Which of the following
statements is TRUE?
A) In the short run, the firm is making a below-market return of 2.5%.
B) In the short run, the firm is making a negative return on capital of 5%.
C) In the long run, the firm’s return on capital will be 0%.
D) In the long run, the firm’s return on capital will be 9.5%.