The main decision for a profit maximizing perfectly competitive firm is not what
________ but what ________.
A) level of output to produce; price to charge
B) price to charge; level of output to produce
C) level of output to produce; total revenue to achieve
D) price to charge; total cost to achieve
Figure 3.9
Refer to Figure 3.9. Assume that there are only two people in the market for coconuts:
Sasha and Kyle. Along the market demand curve for coconuts, at a price of ________,
quantity demanded would be ________.
A) $14; 7
B) $14; 9
C) $10; 9
D) $10; 8
In practice, the market outcome is usually
A) equitable but inefficient.
B) efficient and equitable.
C) inefficient and inequitable.
D) unfair but efficient.
You own and are the only employee of a company that writes computer software that
gamblers use to collect sports data. Last year your total revenue was $90,000. Your
costs for equipment, rent, and supplies were $50,000. To start this business you invested
an amount of your own capital that could pay you a $40,000 a year return.
During the year your economic costs were
A) $40,000.
B) $60,000.
C) $90,000.
D) $100,000.
Figure 2.3
Refer to Figure 2.3. Assume that in this society the opportunity cost of sailboats in
terms of surfboards is increasing. A graph of this society’s production possibility
frontier will be represented by
A) A.
B) B.
C) C.
D) D.
In the short run, it is necessary to non-price ration a good whenever ________ exists.
A) excess demand
B) excess supply
C) a surplus
D) market equilibrium
Figure 6.2
Refer to Figure 6.2. Assume Mr. Lingle is on budget constraint AC. If the price of a
gardenburger is $5, Mr. Lingle’s monthly income is
A) $8.
B) $150.
C) $200.
D) $240.
Investors put up $104,000 to construct a building and purchase all equipment for a new
restaurant. The investors expect to earn a minimum return of 10 percent on their
investment. The restaurant is open 52 weeks per year and serves 900 meals per week.
The fixed costs are spread over the 52 weeks (i.e. prorated weekly). Included in the
fixed costs is the 10% return to the investors and $2,000 in other fixed costs. Variable
costs include $2,000 in weekly wages, and $600 per week in materials, electricity, etc.
The restaurant charges $6 on average per meal.
In the short run, if the restaurant shuts down, its losses will equal its ________ costs of
________.
A) variable; $2,600
B) total; $6,600
C) fixed; $4,000
D) fixed; $2,000
You will agree to lend your sister’s grandma’s daughter $2,000 for a year, if at the end of
the year she pays you $2,200. The interest rate you are charging her is
A) 1%.
B) 09%.
C) 10%.
D) 20%.
All of the following statements are true EXCEPT:
A) An income tax taxes savings twice only if consumption is the measure used to gauge
a person’s ability to pay.
B) Proponents of income as a tax base argue that you should not be taxed on what you
draw out of the common pot, but rather on the basis of your ability to draw from the
pot.
C) The double taxation of saving tends to increase the saving rate because people have
to save more to keep the after-tax yield constant.
D) At this time, there is not clear consensus on what the best tax base is.
From 1978 to 2003, the economy of China grew on average ________ percent per year,
a rate faster than any other country in the world.
A) 4
B) 8
C) 25
D) 75
An individual earning $60,000 pays $12,000 in taxes. The marginal tax rate on any
income earned above $60,000 is 25%.
Suppose this person earns $70,000 and gives a $1,000 tax deductible donation to
charity. The donation reduces her tax payment by ________.
A) $200
B) $207
C) $250
D) $1000
The four criteria that are frequently used in judging the outcome of economic policy are
efficiency, stability, economic growth, and
A) equity.
B) equality.
C) profitability.
D) resolution.
The only advanced country to experience ________ in their income distribution is
France.
A) increasing inequality
B) 100% equality
C) decreasing inequality
D) 100% inequality
Both Claudia and Javier are certified educators. Claudia makes $55,000 a year working
as a teacher in a public high school in Chicago. Javier makes $40,000 working as a
grade school teacher in a private school in Chicago. Which of the following is true?
A) Javier is clearly worse off than Claudia, because he earns $15,000 a year less.
B) Javier must be better off than Claudia if he is willing to take a job at $15,000 a year
less than Claudia.
C) From this information it cannot be determined who is better off because income is an
imperfect measure of well-being.
D) Even though income is an imperfect measure of well-being, Claudia and Javier must
be equally well off because either is free to switch jobs.
Which of the following is an example of a normative statement?
A) The unemployment rate is six percent.
B) There should be no unemployment in an advanced industrial society.
C) Higher prices cause consumers to buy less.
D) Equilibrium price implies that quantity demanded equals quantity supplied.
Figure 8.5
Refer to Figure 8.5. The average total costs are ________ when more than six ovens are
produced.
A) minimized
B) maximized
C) negative
D) indeterminate from this information
Suppose a new government policy will generate $5,000 of benefits for local businesses
and $3,000 of costs. This policy can best be described as
A) Pareto efficient.
B) inefficient.
C) potentially efficient.
D) equitable.
________ is (are) an example of selling externality rights.
A) Auctioning the right have a garage sale each year
B) Direct regulation of externalities
C) Having the damaged party avoid the damage
D) Government imposed taxes and subsidies
When the addition to a monopolist’s total profit is negative from selling another unit,
then it follows that
A) MR > ATC.
B) MR = MC.
C) MR > MC.
D) MR < MC.
Suppose the supply of labor schedule increases in a perfectly competitive labor market
while the market demand schedule remains unchanged. A profit maximizing
representative firm will
A) hire more workers.
B) hire fewer workers.
C) hire the same number of workers.
D) substitute capital for labor.
If economic profit is zero, a firm
A) earns a negative rate of return.
B) will leave the industry.
C) earns a positive but below normal rate of return.
D) earns exactly a normal rate of return.
Related to the Economics in Practice on page 179: When considering expanding its
student body, a college should
A) compare the marginal cost of educating an additional student to the tuition that
student pays.
B) compare the average total cost of educating an additional student to the tuition that
student pays.
C) definitely expand because education is very important and should be made available
to as many people as possible.
D) only consider doing so if they have sufficient housing.
If labor and capital are complementary in production and a technological advance
increases the productivity of capital, then, ceteris paribus,
A) labor productivity is likely to fall.
B) labor productivity is likely to rise.
C) wages are likely to fall.
D) Both A and C are correct.
A monopolistically competitive industry has all of the following characteristics
EXCEPT:
A) there are no barriers to entry.
B) strategic behavior.
C) product differentiation.
D) a large number of firms.
Table 10.2
Refer to Table 10.2. The firm currently employs 4 workers at the market wage of $120
per worker per day. If the firm wants to maximize its profits, it should
A) hire fewer workers
B) hire more workers.
C) make no adjustments as it is already employing the profit maximizing number of
workers.
D) shut down since it is incurring a loss.
Figure 8.4
Refer to Figure 8.4. If six microwave ovens are produced, average variable costs are
A) $116.67.
B) $233.33.
C) $500.
D) $1,500.
In nations where the government pays cash to parents to send their children to school,
A) very few parents accept the payments.
B) school attendance has increased.
C) the poorest parents are usually not offered the cash payments.
D) school attendance did not change.
In 2007, remittances from illegal immigrants in the United States to Mexico
A) began to fall because of increased crackdowns on illegal immigration.
B) continued to rise despite increased crackdowns on illegal immigration.
C) began to fall despite a decrease in enforcement of immigration laws.
D) continued to rise because of the decrease in enforcement of immigration laws.
The average variable cost of producing 100 sundaes is $3. At this level of output,
average variable cost is minimized. Which of the following statements is true?
A) Marginal cost of the 100th sundae is $300.
B) Average total cost is minimized at an output greater than 100 sundaes.
C) Average fixed cost is minimized at an output less than 100 sundaes.
D) Total cost of producing 100 sundaes is $300.
If you eat at a sushi restaurant that charges $20 for its all you can eat sushi special, then
the marginal cost of your 10th piece of sushi is
A) zero.
B) $2.
C) $200.
D) $2,000.
In 2006, the largest population group (2.4 billion people) belonged to countries
classified as
A) low-income.
B) lower middle-income.
C) upper middle-income.
D) high-income.
For a monopolistically competitive firm in long-run equilibrium,
A) the demand curve must intersect the average total cost curve at the ATC curve
minimum.
B) the demand curve must be tangent to the average total cost curve at the ATC curve
minimum.
C) at the profit-maximizing quantity, the demand curve must intersect the average total
cost curve.
D) at the profit-maximizing quantity, the demand curve must be tangent to the average
total cost curve.
SCENARIO 5: In 1999 Disk Monger sold 1,100 digital video disks (DVD) at a price of
$15 each. Across the street, Audio Haven sold 700 DVD players at a price of $500 each.
In 2000, Audio Haven reduced the price of DVD players to $250 each and sold 3,000
players. In the same year, Disk Monger sold 1,300 DVDs at a constant price of $15
each.
Refer to Scenario 5. Calculate the price elasticity of demand for DVD players. Is
demand for players elastic, inelastic, or unitary?
Define horizontal differentiation.
Compare perfect competition and monopolistic competition. In what ways are they
similar? In what ways are they different?
Justin has a part-time job and earns $50 per week. He spends his entire income on two
goods: Hamburgers (which cost $2 each) and movie rentals (which cost $3 each). Draw
Justin’s budget constraint. Suppose that Justin decides to purchase 10 hamburgers and
rent 10 movies this week. Is this choice within Justin’s opportunity set? Show this
choice on your graph.
Draw a supply curve that has a zero elasticity of supply. What might be an example of a
good with a zero elasticity of supply?
Many people have observed that retail gas stations tend to operate very closely to one
another. Explain the logic behind having a gas station at each corner of an intersection.
The president of XYZ, Incorporated is considering the purchase of new equipment. The
equipment is expected to increase profits by $25,000 per year for four years. After that,
the equipment will have no value. If the machine costs $80,000 and the market rate of
interest is 6 percent, should your firm purchase the machine? Explain.
Give three examples of ways in which financial markets channel household savings into
investment projects.
Explain the “vicious-circle-of-poverty” hypothesis.
An engineer has informed the city manager that the marginal cost of an additional car
crossing the city bridge is zero? If you were required to draw this cost function on a
graph what would it look like? What is the slope of this graph?
What role do households play in output markets? What role do households play in
factor
markets?
When trade is free (unimpeded by government-instituted barriers) how are the patterns
of trade and trade flows determined?
What might be some of the causes and consequences of industrial concentration?
Provide some examples.
Define “externality.” Give an example of an external cost. Explain why resources will
not be allocated efficiently if externalities are present. How can the problem of
externalities be addressed?
What is pure rent?
Define a variable and give two examples that would apply to economics.
Each year Apple Computers produces a new line of IPods with greater storage capacity
and more features. Sales continue to soar even though the prices each year
rise as well. Is this a refutation of the law of demand or is there something else going on
here that doesn”t meet the eye?
What answers are required before the notions of horizontal and vertical equity become
meaningful?
What do diminishing returns imply about the production process?