Many states have laws requiring that health insurance policies cover the treatment of
diabetes. One study found that diabetics became fatter after the passage of these laws,
which complicates the treatment of diabetes. This study’s finding is an example of:
A) cost lag.
B) hysteresis.
C) the multiplier.
D) moral hazard.
Answer:
Price discrimination is motivated by the firm’s desire to:
A) penalize customers who do not match the racial/ethnic profile of the firm.
B) reduce the deadweight loss attributable to monopoly pricing.
C) effect social justice through long-run sustainable pricing strategies that benefit all
community stakeholders.
D) increase producer surplus.
Answer:
Figure 6.4
(Figure 6.4) Which of the following statements is TRUE?
A) It is easier for a small amount of additional labor to replace a large amount of capital
at point A than at point B.
B) It is easier for a small amount of additional labor to replace a large amount of capital
at point B than at point A.
C) The MRTSLK at point A equals MPK/MPL.
D) The MRTSLK at point B is greater the MRTSLK at point A.
Answer:
Figure 12.1
(Figure 12.1) The Nash equilibrium of this game is:
A) Low, Up.
B) Low, Down.
C) High, Up.
D) High, Down.
Answer:
Menard quit his high-school teaching job, which paid $60,000 per year, to start a
business that prepares students for the SAT exam. His first year in business generated
the following revenues and costs:
a. What is Menard’s economic cost of his SAT-preparation business?
b. What is Menard’s accounting profit?
c. What is Menard’s economic profit?
Answer:
Figure 16.14
(Figure 16.14) The graph shows the marginal benefit curves for two consumers of a
public good.
a. Graph the total marginal benefit curve.
b. What is the total marginal benefit of 4 units of a public good?
c. What is the efficient quantity of the public good?
Answer:
Figure 3.14
(Figure 3.14) Which of the following statements is TRUE?
I. The price sellers receive (after paying the tax to the government) is $250.
II. With the tax, consumers pay $315 per snow blower.
III. The government collects $200,000 in tax revenue.
A) I and III
B) II and III
C) II only
D) I, II, and III
Answer:
Table 12.9
(Table 12.9) In the table, payoffs represent profits in thousands of dollars. In this game,
the Nash equilibria are:
A) (210, 250) and (180, 180).
B) (50, 50) and (20, 20).
C) (210, 250) and (50, 50).
D) (20, 20), (50, 50), and (180, 180).
Answer:
Almonds and walnuts are substitutes. Suppose the demand for walnuts increases from a
rise in world demand.
a. Using partial equilibrium analysis, predict what happens to the equilibrium price and
quantity of almonds.
b. Using general equilibrium analysis, explain how the feedback effects between the
markets affect the almond market. Does general equilibrium analysis predict a larger or
smaller effect on the equilibrium price and quantity of almonds than partial equilibrium
analysis?
Answer:
In Stackelberg competition, the market inverse demand curve is P = 20 ” 2(q1+ q2),
where q1 and q2 are Firm 1’s and Firm 2’s output measured in hundreds of units. Firm 1,
the first-mover, has a marginal cost of $4, and Firm 2 has a marginal cost of $2. How
much output does each firm produce?
A) q1 = 150; q2 = 120
B) q1 = 350; q2 = 275
C) q1 = 80; q2 = 106
D) q1 = 260; q2 = 245
Answer:
Table 12.35
(Table 12.35)
a. What is the Nash equilibrium if the game is played once with simultaneous moves?
b. What is the Nash equilibrium if the game is played sequentially?
Answer:
The real interest rate is the interest rate:
A) advertised in capital markets and does not account for changes in the price level.
B) expressed in terms of purchasing power.
C) that measures the return in numbers of dollars.
D) that removes the distortionary effects of compounding.
Answer:
A firm is producing 10,000 units of output at a total cost of $5,000. If the firm increases
output by 5,000 units and its total costs rise by $2,000, the firm is experiencing:
A) economies of scale.
B) economies of scope.
C) constant returns to scale.
D) diseconomies of scale.
Answer:
Which of the following statements is TRUE?
I. In the face of a positive externality, a perfectly competitive market produces less than
the socially optimal quantity of output.
II. If vaccinations create an external marginal benefit, the marginal social benefit of
vaccinations will always exceed their private marginal benefit.
III. In unregulated markets, the presence of negative externalitiesbut not positive
externalitiescreate deadweight losses.
A) I and II
B) I, II, and III
C) III only
D) I and III
Answer:
Suppose the market for dry cleaning has an inverse demand of P = 12 ” 0.10Q and an
inverse supply curve (MC) of P = 10Q, where P is the price per article of clothing and
Q is the quantity of clothing laundered. Suppose the external marginal cost of dry
cleaning is $0.80. To correct the market inefficiency, the government could set a quota
on the number of laundered pieces of clothing equal to:
A) 102.
B) 88.
C) 56.
D) 22.
Answer:
A firm’s short-run total cost is TC = and its marginal cost is MC = 7,700 ”
200Q + Q2. What is the firm’s shutdown price?
A) $45
B) $200
C) $1,100
D) $18
Answer:
Figure 5.15
(Figure 5.15) What type of good is good X?
I. a normal good
II. an inferior good
III. a Giffen good
A) I and III
B) III only
C) II and III
D) I only
Answer:
The Nash equilibrium in Bertrand competition with identical goods:
A) occurs when each firm produces where marginal revenue equals marginal cost.
B) occurs when each firm sets price equal to marginal cost.
C) occurs when each firm sets price equal to average total cost.
D) does not exist.
Answer: