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. In the short run, if the firm sells fewer than 5,000 picture frames
per month
A) it should produce with the scale of operation associated with ATCa.
B) it should produce with the scale of operation associated with ATCb.
C) it should produce with the scale of operation associated with ATCc.
D) it will experience constant returns to scale.
As the value of the Gini coefficient approaches zero
A) income distribution becomes less unequal.
B) income distribution becomes more unequal.
C) the percentage of the population under the poverty line increases.
D) the percentage of the population under the poverty line decreases.
Which of the following characteristics is not common to monopolistic competition and
perfect competition?
A) Firms act to maximize profit.
B) Entry barriers into the industry are low.
C) The market demand curve is downward-sloping.
D) Firms take market prices as given.
Which of the following costs will not change as output changes?
A) marginal cost
B) total variable cost
C) average variable cost
D) average fixed cost
E) total fixed cost
Beginning in 1965, the head of the Antitrust Division of the U.S. Department of Justice
began to change antitrust policy. How did antitrust policy change?
A) For the first time horizontal mergers were allowed with government approval and
vertical mergers were allowed without need for approval from the government.
B) For the first time concentration ratios were used to evaluate the degree of
competition in the industries of firms that proposed mergers.
C) The Division began to systematically consider the economic consequences of
proposed mergers.
D) Proposed mergers no longer needed the approval of the Federal Trade Commission
or the court system.
Lilly Davis has $5 per week to spend on any combination of ice cream and candy. The
price of an ice cream cone is $2 and the price of a candy bar is $1. The table below
shows Lilly’s utility values. Use the table to answer the questions that follow the table.
a. Complete the table by filling in the blank spaces.
b. Suppose Lilly purchases 2 ice cream cones and 1 candy bar. Is she consuming the
optimal consumption bundle? If so, explain why. If not, what combination should she
buy and why?
Sarita can bake either a combination of 25 cakes and 15 pies or a combination of 10
cakes and 20 pies. If she now bakes 10 cakes and 20 pies, what is the opportunity cost
of baking an additional 15 cakes?
A) 5 pies
B) 10 pies
C) 15 pies
D) 20 pies
For each pair of items below determine which product would have the higher price
elasticity of demand (in absolute value).
a. Insulin for a diabetic or aspirin for someone suffering a headache.
b. A new Whirlpool 27 cu.ft. side-by-side refrigerator or electricity to power your
all-electric home.
c. A can of Red Bull or soft drinks in general.
Suppose a negative technological change in the production of disease-resistant wheat
caused the price of wheat to rise. Holding everything else constant, how would this
affect the market for corn (a substitute for wheat)?
A) The supply of corn would decrease and the equilibrium price of corn would increase.
B) The demand for corn would increase and the equilibrium price of corn would
increase.
C) The demand for corn would decrease because consumers could afford to buy less
wheat and corn.
D) The demand for corn would increase and the equilibrium price of corn would
decrease.
The slope of an isocost line ________ and equals the negative of ________.
A) increases as we move down the line; the ratio of input prices
B) decreases as we move down the line; the ratio of the marginal products
C) is constant; the ratio of input prices
D) is constant; the ratio of the marginal products
The Coase theorem states that
A) government intervention is always needed if externalities are present.
B) assigning property rights is the only thing the government should do in a market
economy.
C) if transactions costs are low, private bargaining will result in an efficient solution to
the problem of externalities.
D) a free-market equilibrium is the best solution to address externalities.
The person hired by a corporation’s board of directors to run the day-to-day operations
of the corporation is known as the
A) chairman of the board.
B) chief executive officer.
C) owner-manager.
D) corporate governor.
To improve package delivery, one change UPS made involved improvements in how
packages were routed. The firm started using more detailed maps to plan the routes for
packages. As a result, the typical delivery driver could travel several miles less per day
while delivering more packages. Which of the following statements best describes this
change at UPS?
A) The change implemented is not an example of technological change because it did
not require the use of new machinery or equipment.
B) Technological change refers only to the introduction of new products or
improvements to existing products. As such, the scenario described in the question is
not technological change.
C) The firm is able to produce more output (deliver more packages) using the same
number of inputs (trucks and drivers). Therefore, UPS has implemented a positive
technological change.
D) The scenario described is an example of management efficiency and not
technological change. Essentially, the chain changes its way of operating its business.
Figure 4-9
Refer to Figure 4-9. Suppose the market is initially in equilibrium at price P1 and now
the government imposes a tax on every unit sold. Which of the following statements
best describes the impact of the tax? For demand curve D1
A) the producer bears a greater share of the tax burden if the supply curve is S2.
B) the producer bears a greater share of the tax burden if the supply curve is S1.
C) the producer’s share of the tax burden is the same whether the supply curve is S1 or
S2.
D) the producer bears the entire burden of the tax if the supply curve is S1 and the
consumer bears the entire burden of the tax if the supply curve is S2.
Which of the following is an example of a common resource?
A) the Sumatran tiger population in the world
B) rabbit fur
C) the stock of knowledge in the public domain
D) taxicab services
Which of the following statements is true?
A) In general, if a product has few substitutes it will have an elastic demand.
B) The more time that passes the more inelastic the demand for a product becomes.
C) The demand curve for a necessity is more elastic than the demand curve for a luxury.
D) The more narrowly we define a market, the more elastic the demand for a product
will be.
Which of the following is not true for a firm in perfect competition?
A) Profit equals total revenue minus total cost.
B) Price equals average revenue.
C) Average revenue is greater than marginal revenue.
D) Marginal revenue equals the change in total revenue from selling one more unit.
If the demand for iPods is price elastic, then
A) the percentage change in quantity demanded is greater than the percentage change in
price (in absolute value).
B) the percentage change in quantity demanded is less than the percentage change in
price (in absolute value).
C) the percentage change in quantity demanded is equal to the percentage change in
price.
D) quantity demanded is not responsive to changes in price.
Figure 4-5
Figure 4-5 shows the market for apartments in Springfield. Recently, the government
imposed a rent ceiling of $1,000 per month.
Refer to Figure 4-5. Suppose that instead of a rent ceiling, the government imposed a
price floor of $2,000 per month for apartments. What is the quantity of apartments
demanded at the new price?
A) 0
B) 200
C) 300
D) 500
A tax imposed by a state or local government on retail sales of most products is
A) an excise tax.
B) a social service tax.
C) a consumption tax.
D) a sales tax.
The entry and exit of firms in a monopolistically competitive market guarantee that
A) marginal revenue equals marginal cost and average total cost is minimized.
B) firms can earn economic profits in the long run.
C) price equals average total cost in the long run.
D) firms can earn economic profits in the short run.
The prevalence of Alzheimer’s dementia is very high among residents living in nursing
homes. A student concludes that it is likely that living in a nursing home causes
Alzheimer’s dementia. What is the flaw in the student’s reasoning?
A) The student has failed to take into account other causes of Alzheimer’s disease.
B) The student is drawing a false conclusion; he is confusing cause and effect.
C) The student is using an inadequate sample size.
D) The student is drawing a false conclusion by making the mistake of omitting critical
variables such as the age and gender of the residents.
Firms use two marketing tools to differentiate their products. What are these two tools?
A) lobbying and word of mouth
B) market research and demand estimation
C) brand management and advertising
D) consumer surveys and market experiments
Which of the following is true at the output level where average total cost is at its
minimum?
A) Marginal cost equals average total cost.
B) Average variable cost equals fixed cost.
C) Marginal cost equals average variable cost.
D) Average total cost equals average fixed cost.
According to the benefits-received principle of taxation
A) individuals who receive the benefits from a government program should pay the
taxes that support the program.
B) because high-income individuals receive the most benefits from government
programs, they should pay more taxes than lower-income individuals.
C) people in the same economic situation should bear an equal share of the tax burden.
D) the benefits of government programs such as national defense are shared equally by
all people; therefore, the burden of paying for these programs should be shared equally.
Figure 15-14
Refer to Figure 15-14. From the monopoly graph above, identify the following:
a. The profit maximizing price
b. The profit maximizing quantity
c. The area representing deadweight loss
d. The area representing the transfer of consumer surplus to the monopoly
Figure 11-10
Refer to Figure 11-10. Suppose for the past 8 years the firm has been producing Qd
units per period using plant size ATC4. Now, following a permanent change in demand,
it plans to cut production to Qc units. What will happen to its average cost of
production?
A) In the short run, its average cost falls from $47 to $41, and in the long run, average
cost falls even further to $37.
B) In the short run, its average cost rises from $47 to $55, and in the long run, average
cost falls to $41.
C) In the short run, its average cost falls from $47 to $37, and in the long run, average
cost rises to $41.
D) In the short run, its average cost rises from $47 to $55, and in the long run, average
cost falls to $37.
Apple introduced its iPhone 3G in July 2008 and within a month sales had topped 3
million units. By April 2009, more than 25,000 apps for the iPhone 3G were available
in the iTunes store, an indication that in a competitive market
A) the ease at which a new firm can enter a competitive market is low.
B) the ease at which a new firm can enter a competitive market is high.
C) entry into the market is blocked.
D) entry into the market is restricted in the short run, but becomes easier in the long
run.
Why do convex indifference curve have a negative slope?
A) because consumers take market prices as given
B) because consumers face a budget constraint
C) because to keep utility constant, a consumer must get more of one good if she is to
give up some of the other
D) because scarcity implies that it is not possible to consume more of one good without
giving up some of the other
Figure 5-15
Figure 5-15 shows the market for Atlantic salmon, a common resource. The current
market equilibrium output of Q1 is not the economically efficient output. The
economically efficient output is Q2.
Refer to Figure 5-15. The current market equilibrium output is partly the result of
overfishing. In that case, what does S2 represent?
A) the private marginal benefit of harvesting salmon
B) the social marginal benefit of harvesting salmon
C) the private marginal cost of harvesting salmon
D) the social marginal cost of harvesting salmon
When the price of audio books, a normal good, falls, causing your purchasing power to
rise, you buy more of them due to
A) the substitution effect.
B) the income effect.
C) the deadweight loss effect.
D) the elasticity effect.
Linesha, a college student working part-time received a wage increase. An avid movie
buff, she increased her purchases of Blu-ray discs and reduced her purchases of DVDs.
Based on this information
A) DVDs and Blu-ray discs are substitutes.
B) Blu-ray discs are normal goods and DVDs are inferior goods.
C) DVDs and Blu-ray discs are normal goods.
D) the cross-price elasticity between DVDs and Blu-ray discs is negative.
If, in the market for oranges, the supply has increased then
A) the supply curve for oranges has shifted to the right.
B) the supply curve for oranges has shifted to the left.
C) there has been a movement upwards along the supply curve for oranges.
D) there has been a movement downwards along the supply curve for oranges.
In San Francisco there are many restaurants that specialize in a wide variety of cuisines.
Patronage at these restaurants is influenced by factors such as tastes, price, and location.
This market is
A) perfectly competitive.
B) monopolistically competitive.
C) oligopolistic.
D) monopolistic.
A bond’s coupon payment divided by the bond’s current price is equal to the bond’s
A) dividend yield.
B) current yield.
C) price-earnings ratio.
D) maturity value.