Which of the following statements concerning monopoly is TRUE?
A) Monopoly firms are always larger than perfectly competitive firms.
B) A monopoly has no rivals.
C) Barriers to entry do not prevent other firms from entering a monopolized industry.
D) Monopolists produce more output than a competitive market with the same demand
and cost structure.
Figure: Gain in Consumer Surplus
(Figure: Gain in Consumer Surplus) Look at the figure Gain in Consumer Surplus.
Identify the area or areas that represent the gain in consumer surplus to consumers
already participating in the market when the price falls from P1 to P2.
A) A and B
B) B
C) B and C
D) C
The _____ rate applies to an additional $1 of taxable income.
A) marginal
B) average
C) total
D) lower
If an increase in income leads to a decrease in the demand for a good, then the good is
said to be:
A) normal.
B) a luxury.
C) inferior.
D) a staple.
An individual is MOST likely to be a free rider when a good is:
A) private.
B) nonexcludable.
C) nonrival.
D) artificially scarce.
The Bountiful Bakery is considering hiring another pastry chef. The bakery knows the
average product of its chefs is 15 dozen croissants per day. It also believes that the next
chef hired will produce an extra 12 dozen croissants per day. A dozen croissants sell for
$30. The bakery should hire another worker:
A) only if the new chef’s marginal product is 12 dozen or more.
B) only if the new chef’s daily wage is $450 or less.
C) only if the new chef’s daily wage is $360 or less.
D) because the marginal product is below the average product.
Figure: The Profit-Maximizing Output and Price
(Figure: The Profit-Maximizing Output and Price) Look at the figure The
Profit-Maximizing Output and Price. Assume there are no fixed costs and AC = MC. At
the profit-maximizing quantity of production for the monopolist, total revenue is _____,
total cost is _____, and profit is _____.
A) $600; $200; $400
B) $1,600; $3,200; $1,600
C) $4,800; $3,200; $1,600
D) $4,800; $1,600; $3,200
If the government allowed only one airline to serve the entire U.S. market, there would
be a _____ loss associated with _____ efficiency in the airline industry.
A) marginal; reduced
B) deadweight; reduced
C) total; increased
D) deadweight; increased
The marginal decision on how to allocate an additional dollar allows consumers to:
A) maximize utility.
B) maximize wealth.
C) spend their entire budget.
D) minimize their budget constraint.
Economic models often:
A) vary greatly in assumptions and simplifications.
B) are correct.
C) provide similar answers.
D) fail to explain any of the real-life scenarios they are supposed to help solve.
Which of the following taxes reflects the ability-to-pay principle?
A) the federal income tax
B) the payroll tax
C) a sales tax on food
D) Social Security tax
(Table: Total Cost and Total Individual Benefit) Look at the table Total Cost and Total
Individual Benefit. Assume there are 1,000 residents and they all have the same total
individual benefit, as shown in the table. If the residents acted together, how many
officers would they hire?
A) 0
B) 1
C) 3
D) 5
Figure: The Demand Curve
(Figure: The Demand Curve) Look at the figure The Demand Curve. If the price is $3,
total revenue is _____. If the price is $4, total revenue is _____.
A) $21; $24
B) $21; $18
C) $12; 28
D) $7; $13
(Table: Marginal and Total Benefit) Look at the table Marginal and Total Benefit. Sed is
deciding how many football games he wants to attend this year. If tickets to each
football game cost $75, how many games should he attend?
A) 0
B) 1
C) 2
D) 5
Suppose the government sets a price floor of $2.85 per bushel on corn when the current
price is $2.55. This price floor will:
A) cause a surplus of corn.
B) cause a shortage of corn.
C) have no effect on the price of corn.
D) increase the supply of corn.
(Table: Production Possibilities for Machinery and Petroleum) Look at the table
Production Possibilities for Machinery and Petroleum. The opportunity cost of _____ is
_____ in the United States as (than) in Mexico.
A) machinery; more
B) machinery; the same
C) machinery; less
D) petroleum; less
Buffalo Aircraft doubles the amount of all of the inputs it usesthe factory doubles in
size and twice as many workers are hired. After this expansion, the number of aircraft
produced triples. If the price of inputs is unchanged, this means that Buffalo Aircraft is
operating with:
A) increasing marginal cost.
B) economies of scale.
C) increasing average total cost.
D) decreasing average variable cost.
Which of the following statements is (are) TRUE? I. Quantity controls drive a wedge
between the demand price and the supply price of the good. II. The difference between
the demand price and the supply price at the quota limit is consumer surplus. III.
Quantity controls have no undesirable side effects.
A) I
B) II
C) II and III
D) I, II, and III
As a result of frequent flooding, the insurance market has noted a positive correlation
between flooding and the amount of insurance monies paid out for such floods.
Moreover, the probability of such flooding has been increasing. As a result,
homeowners in flood plains will find flood insurance:
A) easy to acquire and relatively inexpensive.
B) very costly and relatively difficult to find.
C) premiums have not changed, since the insurance continues to offer the same
coverage.
D) relatively expensive but easy to acquire.
The main reason a monopoly engages in price discrimination is that:
A) it wants to discriminate against a particular ethnic group.
B) doing so increases its profits.
C) it wants to discourage potential competitors.
D) by charging a lower price to some people, it may succeed in discouraging efforts to
regulate it.
Lauren has 11 people working in her tangerine grove. The marginal product of the
eleventh worker is 13 bushels of tangerines. If she hires a twelfth worker, the marginal
product of that worker will be:
A) 14 bushels.
B) 15 bushels.
C) 12 bushels.
D) The answer cannot be determined with the information available.
Now that Naila has her bachelor’s degree, she has decided to pursue her master’s degree.
Naila’s choice of additional education is called an investment in:
A) natural resources.
B) human capital.
C) physical capital.
D) labor.