A profit-maximizing monopoly will always produce at the minimum point of its
average total cost (ATC) curve.
a. True
b. False
In the case of a normal good, an increase in consumers’ incomes would shift the
a. demand curve inward
b. supply curve inward
c. supply curve outward
d. supply and demand curves inward
e. demand curve outward
In the United States, imports have exceeded exports in every year since 1960.
a. True
b. False
Total deadweight loss in society is reduced through rent seeking by monopolists.
a. True
b. False
Publications such as Consumer Reports magazine
a. increase the optimal amount of information gathered
b. reduce the optimal amount of information gathered
c. reduce the amount of common knowledge
d. raise the marginal benefit of information curve
e. make consumers perfectly informed
Sole proprietorships produce more goods and services than does any other form of
business organization.
a. True
b. False
A monopoly is likely to charge a higher price than an otherwise similar competitive
industry would be.
a. True
b. False
A line that shows the combinations of two goods that can be purchased with a given
income is called a(n)
a. indifference curve
b. budget line
c. demand curve
d. supply curve
e. price floor
Figure 8-21
Consider Figure 8-21. If the market price is P3, which of the following best describes
the long-run implications for the industry?
a. Profit will attract new resources to the industry and drive the market price down.
b. Profit will attract new resources to the industry and drive prices up.
c. The lack of profit will lead to the maintenance of the status quo.
d. Losses will drive resources from the industry and drive market price down.
e. Losses will drive resources from the industry and drive market prices up.
Price elasticity of demand is useful because it measures __________ responsiveness to
changes in __________.
a. taxpayers’; demand
b. producers’; supply
c. consumers’; price
d. consumers’; demand
e. producers’; income
The slope of a U-shaped curve is infinity at the bottom of the U.
a. True
b. False
Exhibit 9-11
In Exhibit 9-11, the level of output that would achieve allocative efficiency is
a. 700 units
b. 810 units
c. 884 units
d. 976 units
e. 1,000 units
The division of labor facilitates productivity increases for all of the following reasons,
except one. Which is the exception?
a. It allows people to do those tasks for which they have the greatest natural ability.
b. Workers get better at tasks, the more they repeat them.
c. The more experience workers gain by specializing in a task, the more likely they will
enjoy that task.
d. More sophisticated production techniques are introduced.
e. The division of labor often permits the introduction of labor-saving machinery.
Exhibit 20-8
In Exhibit 20-8 a movement from point A to F represents a depreciation in the value of
the dollar.
a. True
b. False
A perfectly competitive firm finds that:
Average total cost is $25;
Average variable cost is $15;
Marginal cost is $20 and increasing;
Price of the product is $22.
This firm should
a. produce more output
b. raise the price of its product
c. reduce production without shutting down
d. shut down (reduce output to zero)
e. do nothing (it is currently maximizing profit)
The resource market is different from the product market because
a. in the resource market, firms don’t maximize profit
b. in the resource market, households don’t maximize utility
c. in the resource market, firms are demanders and households are suppliers
d. supply and demand do not apply in the resource market
e. supply and demand do not apply in the product market
Legal attempts to arrange one’s financial decisions so as to pay the least tax possible are
known as
a. tax evasion
b. logrolling
c. tax avoidance
d. rent seeking
e. underreporting
Which of the following is notnecessary for price discrimination to occur?
a. a downward-sloping demand curve facing the firm
b. control over price by the firm
c. the firm can easily distinguish groups with different price elasticities
d. the firm can easily prevent resale of the good by lower-price customers
e. economies of scale exist
Maryann and Don want to open their own deli. To do so, Maryann must give up her job,
at which she earns $20,000 per year, and Don must give up his part-time job, at which
he earns $10,000 per year. They must liquidate their money market fund, which earns
$1,000 interest annually. The rent on the building is $10,000 per year, and expenses for
such necessities as utilities, corned beef, and pickles are $35,000 annually. What is the
explicit cost per year of operating the deli?
a. $10,000
b. $35,000
c. $45,000
d. $31,000
e. $76,000
Exhibit 6-1
Consider Exhibit 6-1 which shows the total utility derived from various numbers of
glasses of milk consumed in a day. The marginal utility of the second glass of milk is
a. 0 units of utility
b. 5 units of utility
c. 8 units of utility
d. 12 units of utility
e. 14 units of utility
Exhibit 6-2
Consider Exhibit 6-2 which shows the marginal utility of consuming milk. The total
utility from 2 glasses of milk is
a. 0 units of utility
b. 30 units of utility
c. 35 units of utility
d. 65 units of utility
e. impossible to determine
At its present rate of output, 200 units, a perfectly competitive firm has variable costs of
$10,000 and marginal cost of $50, and accepts the market price of $40 per unit. To
improve its profit/loss situation, this firm should
a. increase output
b. reduce output but not to zero
c. maintain the present rate of output
d. shut down
e. raise the price
The law of increasing opportunity cost reflects the fact that
a. the production possibilities frontier is bowed inward
b. resources are not perfectly substitutable
c. resources cannot always be used efficiently
d. an economy will operate at a point inside the production possibilities frontier
e. an economy will operate at a point along the production possibilities frontier
In economics, products are considered “differentiated” only if
a. they are physically or chemically different
b. sellers decide that they are different
c. buyers think that they are different
d. the government determines that they are different
e. they are produced by different firms
The proposed takeover of Tony’s Airlines by Plummet Airlines will result in increased
profits for Plummet and increased air fares for consumers. This is an example of
a. widespread distribution of benefits and costs
b. concentrated distribution of costs and benefits
c. concentrated distribution of benefits and widespread distribution of costs
d. concentrated distribution of costs and widespread distribution of benefits
e. logrolling
For which of the following is demand likely to be the most price inelastic?
a. furniture
b. automobiles
c. hotel rooms
d. airline travel
e. candy bars
The supply curve for a monopolist
a. is its marginal cost curve
b. is vertical because there are no close substitutes for its product
c. is horizontal because there are no close substitutes for its product
d. slopes upward
e. does not exist
Exhibit 17-1
In Exhibit 17-1, the equilibrium level of output determined by private decisions is
a. 0 units
b. 100 units
c. between 100 and 160 units
d. 160 units
e. the answer cannot be determined from the information given
Commodity products are
a. rare and expensive
b. patented and licensed
c. highly differentiated
d. uniform or standardized
e. ones without impurities
A nation’s consumption possibilities frontier is
a. always the same as its production possibilities frontier
b. never the same as its production possibilities frontier
c. the same as its production possibilities frontier only if there is advantageous trade
d. the same as its production possibilities frontier only if there is no international trade
e. usually lower than its production possibilities frontier
Suppose Bob leaves his $50,000-a-year job as a financial advisor to P.E.T.S. and starts
his own business selling spot remover for Dalmatians. In the first year his accounting
profit is $70,000. Based on this level of success, Bob should
a. return to his old job because his economic profit is negative
b. return to his old job because his economic profit is smaller than his accounting profit
c. return to his old job because his economic profit is less than his old salary
d. stay with his new firm because his economic profit is positive
e. stay with his new firm because accounting profit is positive
Exhibit 5-27
Consider Exhibit 5-27. Which graph depicts neither a perfectly elastic nor a perfectly
inelastic demand?
a. Graph A
b. Graph B
c. Graph C
d. Graph D
e. both graphs A and B
Exhibit 6-3
In Exhibit 6-3, what is the total utility of three pretzels?
a. 5
b. 15
c. 40
d. 55
e. 70