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. Suppose the fixed cost of production rises by $500 and the price
per unit is still $8. What happens to the firm’s profit-maximizing output level?
A) It must fall.
B) It must rise to offset the increased cost.
C) It will remain the same.
D) The firm will shut down.
Which of the following is not a characteristic of a monopolistically competitive firm in
long-run equilibrium?
A) Marginal revenue is equal to marginal cost.
B) Price is equal to average revenue.
C) The firm has excess capacity.
D) Price is equal to marginal cost.
Suppose the supply of bicycles is price elastic. This means that
A) consumers will respond significantly to an increase in the quantity of bicycles
supplied.
B) suppliers will increase the quantity of bicycles supplied, but not immediately.
C) suppliers face many substitutes for bicycles.
D) suppliers will respond significantly to changes in the price of bicycles.
If price discrimination occurs in a market
A) the law of one price does not hold.
B) the firm earns arbitrage profits.
C) consumers whose demand for the product sold is more elastic pay higher prices than
consumers whose demand is less elastic.
D) the marginal cost of production is constant.
The supply curve of a perfectly competitive firm in the short run is
A) the firm’s average variable cost curve.
B) the portion of the firm’s marginal cost curve below the minimum point of the
average variable cost curve.
C) the portion of the firm’s marginal cost curve above the minimum point of the average
variable cost curve.
D) the portion of the firm’s marginal cost curve above the minimum point of the
average total cost curve.
Assume that a monopolist practices perfect price discrimination. The firm will produce
an output rate
A) that is less than the efficient level of output.
B) that is greater than the efficient level of output.
C) that is equal to the efficient level of output.
D) that converts consumers surplus into a deadweight loss.
Economists have long debated whether there is a significant loss of well-being to
society in markets that are monopolistically competitive rather than perfectly
competitive. Which of the following offers the best reason why some economists
believe that monopolistically competitive markets are less efficient than perfectly
competitive markets?
A) In contrast to perfectly competitive markets, neither allocative efficiency nor
productive efficiency are achieved in monopolistically competitive markets.
B) In contrast to perfectly competitive markets, firms in monopolistically competitive
markets earn economic profits in long-run equilibrium.
C) In contrast to perfectly competitive markets, firms in monopolistically competitive
markets do not produce where price equals average total cost in long-run equilibrium.
D) In contrast to perfectly competitive markets, firms in monopolistically competitive
markets can charge a price greater than average total cost in the short run.
How are most fundamental economic decisions now determined in China?
A) Individuals, firms, and the government interact in a market to make these economic
decisions.
B) These decisions are made by the country’s elders who have had much experience in
answering these questions.
C) The government decides because China is a centrally planned economy.
D) The United Nations decides because China is a developing economy.
A tax that imposes a small excess burden relative to the tax revenue that it raises is
A) a payroll tax.
B) a sin tax.
C) an efficient tax.
D) a FICA tax.
If the cross-price elasticity of demand between Breeze Detergent and Faber Detergent is
a relatively large positive number, then it indicates that
A) the two brands are probably made by the same company.
B) the two brands of detergent are close substitutes.
C) consumers have a distinct preference for one brand versus the other.
D) detergents are necessities.
If the quantity of fishing poles demanded is represented by the equation QD = 60 – P
then the corresponding price of fishing poles is represented by the equation
A) P = 0.6QD + 10.
B) P = 60 – QD.
C) P = -60 + QD.
D) P = QD + 60.
Werner & Sons is a manufacturer of three-ring binders operating in a perfectly
competitive industry. Table 12-5 shows the firm’s cost schedule.
Table 12-5
Use the table to answer the following questions.
a. Complete Table 12-5 by filling in the blank cells.
b. Werner is selling in a perfectly competitive market at a price of $40. What is the
profit maximizing or loss-minimizing output?
c. Calculate the firm’s profit or loss.
d. Should the firm continue to produce in the short run? Explain.
e. If the firm’s fixed costs were $30 higher what would be the profit-maximizing output
level in the short run? Indicate whether the output level will increase, decrease, or
remain unchanged compared to your answer in b.
f. Suppose fixed cost remains at $76. If the price of three-ring binders falls to $20 what
is the profit-maximizing or loss-minimizing output?
g. Calculate the profit or loss. Should the firm continue to produce in the short run?
Explain your answer.
h. Suppose the fixed cost remains at $76. What price corresponds to the shut-down
point?
i. Suppose the fixed cost remains at $76. What price corresponds to the break-even
point?
Table 16-2
Neem Products sells its Ayurvedic Neem toothpaste in two completely isolated markets
with demand schedules as shown in Table 16-2. The average cost of production is
constant at $2 per tube.
Refer to Table 16-2. How many tubes of toothpaste will Neem sell in West Fall and at
what price?
A) Q = 2 units; P = $4.50
B) Q = 3 units; P = $4
C) Q = 4 units; P = $3.50
D) Q = 5 units; P = $3
For each bottle of wine that Italy produces, it gives up the opportunity to make 10
pounds of cheese. France can produce 1 bottle of wine for every 25 pounds of cheese it
produces. Which of the following is true about the comparative advantage between the
two countries?
A) Italy has the comparative advantage in cheese.
B) Italy has the comparative advantage in wine.
C) France has the comparative advantage in wine and cheese.
D) France has the comparative advantage in wine.
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
A tariff
A) makes domestic consumers worse off.
B) makes both domestic producers and consumers worse off.
C) makes everyone better off.
D) makes domestic producers worse off.
Figure 10-6
The above panels show various combinations of indifference curves and budget
constraints for two products: Popcorn and Candy.
Refer to Figure 10-6. Which diagram demonstrates an increase in total utility following
a decrease in the price of popcorn?
A) the movement from d to e in Panel A
B) the movement from f to g in Panel B
C) the movement from h to k in Panel C
D) none of the above
On a two-dimensional graph, ________ allows for the effects of additional variables.
A) moving along a curve
B) shifting curves
C) eliminating a curve
D) adding an additional curve
Suppose a competitive firm is paying a wage of $12 an hour and sells its product at $3
per unit. Assume that labor is the only input. If the last worker hired produces four units
of output per hour, then to maximize profits the firm should
A) not change the number of workers it currently hires.
B) lay off some workers.
C) hire another worker.
D) There is not enough information to answer the question.
Economists use game theory to analyze oligopolies because
A) real markets are too complicated to analyze without using games.
B) it is more enjoyable for economists and students to learn by playing games.
C) game theory helps us to understand why interactions among firms are crucial in
determining profitable business strategies.
D) game theory is useful in understanding the actions of firms that are price takers.
In long-run equilibrium, compared to a perfectly competitive market, a
monopolistically competitive industry produces a ________ level of output and charges
a ________ price.
A) higher; lower
B) lower; lower
C) lower; higher
D) higher; higher
In the 1930s, the United States charged an average tariff rate ________. Today, the rate
is ________.
A) of 100 percent; 20 percent
B) above 50 percent; less than 1.5 percent
C) of less than 10 percent; over 40 percent
D) of 17 percent; 33 percent
The social cost of cutting trees for firewood in a government forest is
A) the increased likelihood of flooding as more trees are cut.
B) the increased likelihood of flooding as more trees are cut plus the private cost of
cutting the trees.
C) opportunity cost to the individual of cutting the wood.
D) the marginal costs of cutting the last tree.
Suppose the marginal utilities for the first three cans of soda are 100, 80 and 60,
respectively. The total utility received from consuming 2 cans is
A)
B)
C)
D)
What is the dominant strategy in the prisoner’s dilemma?
A) Each prisoner confesses because this is the rational action to pursue.
B) Do nothing in the hope that the other prisoner will also do nothing.
C) Do not confess because the other prisoner will most likely confess.
D) There is no dominant strategy.
Despite evidence that companies will find it more profitable to use a commission
system of compensation rather than a salary system, many companies continue to pay
their workers salaries. Which of the following is one reason why firms choose a salary
system?
A) Most business owners and managers are not trained economists; therefore, they are
unaware of the research that shows a commission system is more profitable than a
salary system.
B) Firms often use salary systems to overcome their principal-agent problems.
C) Firms that have salary systems do not have to use compensating differentials to
attract employees to do hazardous jobs.
D) Many workers dislike risk and prefer to be paid a salary rather than to be paid by
commission.
Figure 12-1
Refer to Figure 12-1. If the firm is producing 200 units
A) it breaks even.
B) it is making a loss.
C) it should cut back its output to maximize profit.
D) it should increase its output to maximize profit.
Figure 15-17
Your college decides to offer a psychology course as a MOOC that can be taken by
students anywhere in the world, whether they are actually enrolled in your college or
not. The demand and cost situation for the MOOC is shown in the figure.
Refer to Figure 15-17. An economics professor argues: “I think the course should be
priced so as to achieve economic efficiency.” How much profit (or loss) will the college
make on the course if it charges this price?
A) -$2,592,000
B) -$1,080,000
C) $0
D) $450,000
One of your classmates asserts that advertising, marketing research, and brand
management are redundant expenditures because a firm can obtain the same
information by simply looking at what customers are already buying. Which of the
following is not a response you might offer her?
A) Conducting market research is a good way for firms to keep abreast of changing
consumer tastes and preferences.
B) Advertising and brand management allow a firm to create an entry barrier which will
insulate the firm from competition and from undertaking further product innovations.
C) Marketing research could allow a firm to identify new market opportunities and at
least, in the short run, a firm can make a profit supplying products to this market
segment.
D) If a firm successfully manages its brand, customers become less price sensitive as
they perceive fewer substitutes for the firm’s brand.
The public choice model can be used to examine voting models that contrast the
manner in which collective decisions are made by governments (state, local, and
federal) and the manner in which individual choices are made in markets. Which of the
following descriptions is consistent with the difference between collective
decision-making and decision-making in markets?
A) Everyone who votes must agree with a decision made collectively through
government, but in markets individuals can make their own choices.
B) Individuals are less likely to see their preferences represented in the outcomes of
government policies than in the outcomes of markets.
C) The cost of a government policy is determined by a majority vote of members of the
public; decisions made in markets are based on individual willingness to pay.
D) Choices made through government policies are more important than decisions
individuals make through markets.
The 10-year protection period from generic competition for drug manufacturers is a
form of
A) copyright.
B) trademark.
C) hallmark.
D) patent.