Two stores – Lazy Guys and Ralph’s Recliners – are located in the same city. Both stores
buy recliner chairs from the same manufacturer at the same price and both stores are
about the same size, so that the fixed costs of production for both stores are the same.
Ralph’s Recliners sells more recliners per month and Ralph’s has a lower average total
cost of production. Which of the following can explain why the average total cost of
production is lower for Ralph’s Recliners?
A) Because Ralph’s Recliners sells more output its average fixed costs are lower than
Lazy Guy’s average fixed cost.
B) The rent Lazy Guys pays for its building is greater than the rent paid by Ralph’s
Recliners.
C) Ralph’s explicit costs are less because Ralph owns the land on which his building is
located. Lazy Guy must make lease payments for the land on which its store is located.
D) The price of recliners charged by Ralph’s is greater than the price charged by Lazy
Guys.
Figure 13-13
Refer to Figure 13-13. If the diagram represents a typical firm in the market, what is
likely to happen in the long run?
A) Some firms will exit the market causing the demand to increase for firms remaining
in the market.
B) New firms will enter the market causing the demand to decrease for existing firms.
C) Inefficient firms will exit the market and new cost-efficient firms will enter the
market.
D) Competition will be intensified as firms strive to make long-run profits.
Assume you set up a sole proprietorship and your lawyer tells you that as the owner you
will face unlimited liability. What does that mean?
A) You are liable for organizing the business.
B) You could stand to lose your personal wealth if the business goes bankrupt.
C) There is no legal responsibility of the business in case a customer sues, as the
business is legally untouchable.
D) None of these explain what unlimited liability means.
Table 12-1
Table 12-1 shows the short-run cost data of a perfectly competitive firm that produces
plastic camera cases. Assume that output can only be increased in batches of 100 units.
Refer to Table 12-1. The firm will not produce in the short run if the output price falls
below
A) $8.
B) $4.
C) $3.20.
D) $2.80.
In 2002, the Enron corporation was accused of falsifying information regarding
liabilities on Enron’s balance sheets, thereby
A) increasing Enron’s assets on the balance sheet.
B) reducing Enron’s profit on the balance sheet.
C) increasing Enron’s net worth on the balance sheet.
D) reducing Enron’s net income on the income statement.
Economists assume that rational people do all of the following except
A) use all available information as they act to achieve their goals.
B) undertake activities that benefit others and hurt themselves.
C) weigh the benefits and costs of all possible alternative actions.
D) respond to economic incentives.
Table 2-11
Table 2-11 shows the number of labor hours required to produce a motorcycle and a
guitar in Ireland and Scotland.
Refer to Table 2-11. Scotland has a comparative advantage in the production of
A) both products.
B) guitars.
C) motorcycles.
D) neither product.
Bella can produce either a combination of 60 silk roses and 80 silk leaves or a
combination of 70 silk roses and 55 silk leaves. If she now produces 60 silk roses and
80 silk leaves, what is the opportunity cost of producing an additional 10 silk roses?
A) 2.5 silk leaves
B) 10 silk leaves
C) 25 silk leaves
D) 55 silk leaves
Suppose when the price of jean-jackets increased by 10 percent, the quantity supplied
increased by 16 percent. Based on this information the price elasticity of supply of
jean-jackets is
A) 0.625.
B) 6%.
C) 1.6.
D) 1.6%.
Which of the following is an example of a common resource?
A) elephants in the wild
B) lions in a zoo
C) a college education
D) public transportation
Table 4-4
Table 4-4 shows the demand and supply schedules for labor market in the city of Pixley.
Refer to Table 4-4. If a minimum wage of $11.50 is mandated there will be a
A) shortage of 20,000 units of labor.
B) surplus of 20,000 units of labor.
C) shortage of 40,000 units of labor.
D) surplus of 40,000 units of labor.
Table 2-3
Production Choices for Dina’s Diner
Refer to Table 2-3. Assume Dina’s Diner only produces sliders and hot wings. A
combination of 120 sliders and 100 hot wings would appear
A) along Dina’s production possibilities frontier.
B) inside Dina’s production possibilities frontier.
C) outside Dina’s production possibilities frontier.
D) at the vertical intercept of Dina’s production possibilities frontier.
What is the difference between labor’s marginal product and marginal revenue product?
A) The marginal product of labor is the increase in output as a result of hiring an
additional worker while the marginal revenue product of labor is the increase in profit
as a result of hiring an additional worker.
B) The marginal revenue product of labor is the dollar value of hiring an additional
worker while the marginal product of labor is the increase in the firm’s physical output
as a result of hiring an additional worker.
C) The marginal product of labor is the additional labor’s contribution to the firm’s total
output while the marginal revenue product is the additional labor’s contribution to the
firm’s total sales revenue.
D) Labor’s marginal product is a measure of labor’s productivity while labor’s marginal
revenue product is a measure of labor’s ability to sell the firm’s products.
In a decision tree, the difference between a decision node and a terminal node is that
A) at a decision node all participants are free to make individual decisions but at a
terminal node they must agree on a collective decision.
B) at a decision node all participants make the same decision, while at a terminal node
different players may make different decisions.
C) at a decision node, a decision must be made while a terminal node shows the payoff.
D) at a decision node a decision must be made, while at a terminal node the final
decision must be made.
What is the endowment effect?
A) the tendency of people to be unwilling to sell something they already own even if
they are offered a price that is greater than what they would be willing to pay to buy the
good if they did not already own it
B) the tendency of people to be unwilling to sell something they already own because
of its sentimental value
C) the tendency of people to overstate the value of a good they already own even
though similar items can be purchased at a lower price
D) the sum total of assets that a person has acquired over the years
According to Porter’s Five Competitive Forces Model, which kinds of products are most
likely to limit the ability of firms in an industry to raise prices?
A) differentiated products that target a small subsegment of the industry
B) substitutable products produced by firms in different industries
C) similar products produced by similar industries in low-cost countries
D) complementary products produced by different firms in the same industry
Figure 5-5
Figure 5-5 shows a market with an externality. The current market equilibrium output of
Q1 is not the economically efficient output. The economically efficient output is Q2.
Refer to Figure 5-5. If, because of an externality, the economically efficient output is
Q2 and not the current equilibrium output of Q1, what does D2 represent?
A) the demand curve reflecting external benefits
B) the demand curve reflecting social benefits
C) the demand curve reflecting private benefits
D) the demand curve reflecting the sum of social and external benefits
Table 2-11
Table 2-11 shows the number of labor hours required to produce a motorcycle and a
guitar in Ireland and Scotland.
Refer to Table 2-11. Ireland has a comparative advantage in the production of
A) both products.
B) guitars.
C) motorcycles.
D) neither product.
Many golf courses charge members an annual membership fee as well as a fee each
time they golf. One reason for this is
A) golf courses do not want their members to overuse their fairways. Charging for each
round of golf played reduces fairway maintenance costs.
B) charging both fees allows the courses to transfer more consumer surplus into profit
than charging only an admission fee.
C) charging both fees allows the courses to transfer more producer surplus into profit
than charging only an admission fee.
D) research has shown that charging both fees increases the likelihood that golfers will
renew their memberships.
Figure 11-11
Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture
frames. The graph also includes short-run average cost curves for three firm sizes:
ATCa, ATCb and ATCc.
Refer to Figure 11-11. Constant returns to scale
A) occur for output rates greater than 5,000 picture frames.
B) occur between 5,000 and 20,000 picture frames per month.
C) occur between 10,000 and 20,000 pictures frames per month.
D) will shift the long-run average cost curve downward.
Economists use the concept of ________ to measure how one economic variable, such
as quantity, responds to a change in another economic variable, such as price.
A) slope
B) efficiency
C) relativity
D) elasticity
Studies show that the income elasticity of demand for wine is approximately five. What
does this mean?
A) A 1 percent decrease in the price of wine leads to a 5 percent increase in wine
consumption.
B) A 1 percent increase in income leads to a 5 percent increase in wine consumption.
C) A 5 percent increase in income leads to a 1 percent increase in wine consumption.
D) Wine is a relatively elastic good.
In a graph that illustrates a perfectly competitive firm, marginal revenue is
A) a diagonal line that lies below the firm’s demand curve.
B) a line that intersects the firm’s demand curve from below at its lowest point.
C) a line that intersects the firm’s average total cost curve from below at its lowest
point.
D) the same as the firm’s demand curve.
Which of the following firms is most likely to use cost-plus pricing?
A) A firm that makes one product.
B) A firm that sells one product and has a sizable research and development budget.
C) A firm that makes several products and has a sizable research and development
budget, the cost of which cannot be easily assigned to each product.
D) A firm that makes many products but has a small research and development budget,
the cost of which can be easily assigned to the different product lines.
Table 9-4
Output Per Hour of Work
Table 9-4 shows the output per hour of work for handbags and jackets in Cambodia and
in Thailand.
Refer to Table 9-4.
a.Which country has an absolute advantage in the production of handbags and jackets?
b. Which country has a comparative advantage in the production of handbags?
c. Which country has a comparative advantage in the production of jackets?
Sam Lewis owns a firm in New York City’s garment district. If Sam keeps adding
workers to use the same number of sewing machines, eventually the workplace will
become so crowded that workers will get in each other’s way. At this point
A) the marginal product of labor in Sam’s business would be negative and his total
output would decrease.
B) Sam should encourage his workers to share their sewing machines.
C) Sam’s business will be in violation of safety rules that have been established by the
New York City government.
D) Sam should begin using a division of labor in his business.
Marginal revenue product of labor for a competitive seller is
A) the change in total product from hiring one more worker.
B) equal to the marginal product of labor multiplied by the output price.
C) the output price multiplied by the quantity sold.
D) the marginal revenue of the product multiplied by the output price.
Both presidents Kennedy and Reagan proposed significant cuts in income taxes because
A) at the time of their proposals the federal government was experiencing budget
surpluses; that is, tax revenue exceeded government expenditures.
B) they wanted to offset their proposals to increase other taxes.
C) state governments had increased their taxes and they believed the tax cuts they
proposed would result in most citizens paying about the same total state and federal
taxes.
D) they believed that the tax cuts would enhance economic efficiency.
What is meant by the “law of one price”?
A) Identical products should sell for the same price everywhere.
B) A law was passed in 1913 that made it illegal to sell the same good or service to
different people for different prices.
C) This is a section of the Sherman Act that forced trusts (for example, the Standard Oil
Company) to charge the same price for the same good or service in different states.
D) Foreign companies should not be allowed to sell a product in the United States for
prices different from prices these companies charge in other countries.
Which of the following is not a source of technological advancement for a producer?
A) better trained workers
B) more efficient physical capital
C) higher skill level of managers
D) outsourcing some aspect of production
Disagreements about whether the U.S. government should regulate international trade
A) began during the Great Depression.
B) began after World War I when government officials no longer believed in
isolationism.
C) date back to the beginning of the country.
D) did not occur until the end of the Mexican War in 1848.
Figure 13-2
Refer to Figure 13-2. The marginal revenue from selling the additional unit Qbinstead
of Qa equals
A) the area (G + H).
B) the area (H – E).
C) the area (E + F) – (G + H).
D) the area G.
Marginal analysis involves undertaking an activity
A) until its marginal costs start declining.
B) only when its marginal benefits are positive.
C) until its marginal benefits equal marginal costs.
D) only if its marginal costs are greater than its marginal benefits.
The study of how people make decisions in situations where attaining their goals
depends on their interactions with others is called
A) Nash equilibrium.
B) the prisoner’s dilemma.
C) game theory.
D) dominant strategy equilibrium.