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1) To be successful, a cartel must
a.find a way to encourage members to produce more than they would otherwise
produce.
b.agree on the total level of production for the cartel, but they need not agree on the
amount produced by each member.
c.agree on the total level of production and on the amount produced by each member.
d.agree on the prices charged by each member, but they need not agree on amounts
produced.
2) Which of the following statements regarding a competitive firm is correct?
a.Because demand is downward sloping, if a firm increases its level of output, the firm
will have to charge a lower price to sell the additional output.
b.If a firm raises its price, the firm may be able to increase its total revenue even though
it will sell fewer units.
c.By lowering its price below the market price, the firm will benefit from selling more
units at the lower price than it could have sold by charging the market price.
d.For all firms, average revenue equals the price of the good.
3) A barber currently cuts hair for 50 clients per week and earns a profit. He is
considering expanding his operation in order to serve more clients. Should he expand?
a.Yes, because cutting hair is profitable.
b.No, because he may not be able to sell more services.
c.It depends on the marginal cost of serving more clients and the marginal revenue he
will earn from serving more clients.
d.It depends on the average cost of serving more clients and the average revenue he will
earn from serving more clients.
4) Which of the following firms is the closest to being a perfectly competitive firm?
a.a hot dog vendor in New York
b.Microsoft Corporation
c.Ford Motor Company
d.the campus bookstore
5) Figure 7-14
If the market price increases to $130 due to an increase in demand, then producer
surplus is
a. $1,800.
b. $900.
c. $975.
d. $1,950.
6) The stable, long-run equilibrium in a competitive market occurs when the market
price equals the lowest point on a firm's average total cost curve.
a.True
b.False
7) A competitive firm has been selling its output for $20 per unit and has been
maximizing its profit, which is positive. Then, the price rises to $25, and the firm makes
whatever adjustments are necessary to maximize its profit at the now-higher price.
Once the firm has adjusted, its
a.quantity of output is higher than it was previously.
b.average total cost is higher than it was previously.
c.marginal revenue is higher than it was previously.
d.All of the above are correct.
8) Figure 9-13
The price and domestic quantity demanded after trade are
a. $8 and 300.
b. $8 and 900.
c. $14 and 900.
d. $14 and 600.
9) Table 16-6
Beatrice's Birthday Cakes is one bakery among many in the market for birthday cakes.
The following table presents cost and revenue data for birthday cakes at Beatrice's.
Suppose the government forced Beatrice's to produce at the efficient scale of output.
Who would be better off as a result of this policy? Who would be worse off as a result
of this policy?
a.Beatrice's would be better off¾ consumers would be worse off.
b.Consumers would be better off¾ Beatrice's would be worse off.
c.No one would be better off; consumers would be worse off.
d.No one would be better off; no one would be worse off.
10) Country A's tax system is more efficient than Country B's tax system if
a.Country A collects less tax revenue than Country B, and the cost to taxpayers is the
same in both countries.
b.Country A collects more tax revenue than Country B, even though the cost to
taxpayers is greater in Country A than in Country B.
c.the same amount of revenue is raised in both countries, but the cost to taxpayers is
smaller in Country A than in Country B.
d.the same amount of revenue is raised in both countries, but the taxes are collected in a
shorter amount of time in Country A than in Country B.
11) Figure 16-11
If this firm profit-maximizes, how much profit or loss will it earn?
12) When the price of good A is $50, the quantity demanded of good A is 500 units.
When the price of good A rises to
$70, the quantity demanded of good A falls to 400 units. Using the midpoint method,
the for good A is
a.1.50, and an increase in price will result in an increase in total revenue for good A.
b.1.50, and an increase in price will result in a decrease in total revenue for good A.
c.0.67, and an increase in price will result in an increase in total revenue for good A.
d.0.67, and an increase in price will result in a decrease in total revenue for good A.
13) An economic theory about international trade that is based on the assumption that
there are only two countries trading two goods
a.is useless, since the real world has many countries trading many goods.
b.can be useful only in situations involving two countries and two goods.
c.can be useful in the classroom, but is useless in the real world.
d.can be useful in helping economists understand the complex world of international
trade involving many countries and many goods.
14) Assume the price of gasoline is $2.40 per gallon, and the equilibrium quantity of
gasoline is 12 million gallons per day with no tax on gasoline. Starting from this initial
situation, which of the following scenarios would result in the largest deadweight loss?
a.A 10 percent increase in the price of gasoline reduces the quantity of gasoline
demanded by 2 percent and it increases the quantity of gasoline supplied by 5 percent;
and the tax on gasoline amounts to $0.40 per gallon.
b.A 10 percent increase in the price of gasoline reduces the quantity of gasoline
demanded by 2 percent and it increases the quantity of gasoline supplied by 7 percent;
and the tax on gasoline amounts to $0.40 per gallon.
c.A 10 percent increase in the price of gasoline reduces the quantity of gasoline
demanded by 1 percent and it increases the quantity of gasoline supplied by 8 percent;
and the tax on gasoline amounts to $0.35 per gallon.
d.There is insufficient information to make this determination.
15) Because monopoly firms do not have to compete with other firms, the outcome in a
market with a monopoly
a.is often not in the best interest of society.
b.maximizes total economic well-being.
c.is efficient.
d.benefits consumers more so than the producer.
16) Suppose in the country of Jumanji that the price of coffee with no trade allowed is
below the world price of coffee. If Jumanji allows free trade, will Jumanji be an
importer or an exporter of coffee?
17) Figure 7-31
Refer to Figure 7-31. If the market equilibrium price is $35, how much is total producer
surplus in this market?
18) Figure 15-24
Use the letters in the figure to identify the area of deadweight loss for the single price
monopolist.
19) d.
20) In what way do public goods give rise to positive externalities?
21) Define opportunity cost. What is the opportunity cost to you of attending college?
What was your opportunity cost of coming to class today?
22) Suppose the demand curve and the supply curve in a market are both linear. If a $2
tax per unit results in a deadweight loss of $200, how large would be the deadweight
loss from a $3 tax per unit?
23) The average-fixed-cost curve is always declining. How does this affect the
relationship between the AVC and ATC curves?
24) Why do economists use game theory to study the actions of firms in oligopoly
markets but not in other markets?
25) Considering perfect competition, monopolistic competition, and monopoly, which
of the market structures features entry in the long run?
