1) Other things equal, which of the following would shift an economy’s production
possibilities curve to the left?
A.The discovery of a low-cost means of generating and storing solar energy.
B.The entrance of more women into the labor force.
C.A law requiring mandatory retirement from the labor force at age 55.
D.An increase in the proportion of total output that consists of capital or investment
goods.
2) Suppose that an industry’s long-run supply curve is downsloping. This suggests that:
A.it is an increasing-cost industry.
B.relevant inputs have become more expensive as the industry has expanded.
C.technology has become less efficient as a result of the industry’s expansion.
D.it is a decreasing-cost industry.
3) Assume that a firm has a plant of fixed size and that it can vary its output only by
varying the amount of labor it employs. The table below shows the relationships among
the amount of labor employed, the output of the firm, the marginal product of labor, and
the average product of labor.
(a)Assume each unit of labor costs the firm $20. Compute the total cost of labor for
each quantity of labor the firm might employ, and enter these figures in the table.
(b)Now determine the marginal cost of the firms product as the firm increases its
output. Enter these figures in the table.
(c)If labor is the only variable input, the total labor cost and total variable cost are
equal. Find the average variable cost of the firms product. Enter these figures in the
table.
(d)Describe the relationship between the marginal product of labor and the marginal
cost of the firms product.
(e)Describe the relationship between the average product of labor and the average
variable cost.
4) In the short run, a monopolist’s economic profits:
A.are always positive because the monopolist is a price-maker.
B.are usually negative because of government price regulation.
C.are always zero because consumers prefer to buy from competitive sellers.
D.may be positive or negative depending on market demand and cost conditions.
5) E-bay, Amazon and other Internet shopping sites provide ‘seller ratings” done by
previous buyers, in order to help deal with the problem of:
A.Adverse selection
B.Externalities
C.Moral hazard
D.Public goods
6) Assume a pure monopolist is currently operating at a price-quantity combination on
the inelastic segment of its demand curve. If the monopolist is seeking maximum
profits, it should:
A.retain its current price-quantity combination.
B.increase both price and quantity sold.
C.charge a lower price.
D.charge a higher price.
7) If a firm doubles its output in the long run and its unit costs of production decline, we
can conclude that:
A.technological progress has occurred.
B.economies of scale are being realized.
C.the firm is encountering diminishing returns.
D.diseconomies of scale are being encountered.
8) The median-voter model implies that:
A.political voting will be as economically efficient as “dollar voting” in competitive
markets.
B.all voters have about the same preferences for various public goods and services.
C.many people will be dissatisfied with the size of government in the economy.
D.with majority voting there can never be a consistent ordering of public good
preferences.
9) In exchange for a share of ZYX’s profits if it succeeds, Firm ABC provides
development funds to newly formed ZYX, which is developing an innovative product.
ABC funds are called ____________, while ZYX is known as a ____________.
A.venture capital; start-up
B.retained earnings; entrepreneurial firm
C.mutual funds; start-up
D.transfer payments; entrepreneurial firm
10) As it relates to the R&D decision, the interest-rate cost-of-funds curve:
A.usually slopes downward.
B.is the marginal cost element in the MB = MC decision framework.
C.indicates a constant rate of return, r.
D.reflects the interest rate on bank loans but not the implicit interest rate on the use of
retained earnings.
11) Whenever Josh goes to his favorite restaurant, he wants to buy tiramisu, his favorite
dessert. Despite the fact he would enjoy the flavor of the tiramisu the same amount
every time, Josh only buys it when others are having dessert, and never buys it if he
would be the only one having dessert. Behavioral economists would say that Josh’s
decision is affected by:
A.the availability heuristic.
B.confirmation biases.
C.framing effects.
D.the self-serving bias.
12)
Suppose that a city’s energy demand is 30 megawatts during off-peak times and 40
megawatts at its peak. The city has been purchasing electricity from an outside
company but has decided to build its own power plants to satisfy all of its energy
demand. The city can choose to build one or more plants to generate the needed
electricity. There are three types of plant: coal, natural gas, and hydroelectric. The three
types of plants face the costs appearing in the table. Assuming the city’s power needs
will not change in the foreseeable future, to achieve the lowest cost of power
generation, the city should build:
A.two coal-fired plants.
B.two natural gas plants.
C.one coal-fired and one hydroelectric plant.
D.four hydroelectric plants.
13)
Refer to the above graph. Which point is the break-even point for the firm?
A.A
B.B
C.C
D.D
14) In the table below are data from a book company that prints and binds special-order
books. The data show various quantities that can be produced by the firm in an hour and
the unit costs of each quantity.
(a)In the graph below, label the axes and plot the long-run average cost curve for this
firm using the data in columns 1 and 2 of the table above.
(b)The firm then decides to subcontract the binding work to another company that
specializes in the binding of books. As a consequence, the unit costs of the firm are
decreased by $20 at each output level. Fill in column 3 of the table, and then graph the
new long-run average cost curve B for the firm on the graph.
(c)What will be the minimum cost with unit cost A? With unit cost B?
(d)If the firm produces 400 books, what will be the cost with curve A? With curve B?
15)
Refer to the diagram and assume that price increases from $2 to $10. The coefficient of
the price elasticity of supply (midpoint formula) relating to this price change is about:
A.5 and supply is elastic.
B.1 and supply is unit elastic.
C..25 and supply is inelastic.
D.2.5 and supply is elastic.
16) Which of the following sets of personal characteristics best reflects what behavioral
economists assume about how people make decisions?
A.People are irrational, are prone to systematic errors, have stable preferences, and care
about fairness.
B.People are rational, adjust for errors, have stable preferences, and easily resist
temptation.
C.People care deeply about fairness, eagerly and accurately calculate ways to help
others, assess future and present options equally well, and resist temptations in their
selflessness.
D.People have preferences that depend on context, avoid and are bad at computation,
often give in to temptation, and are often selfless in their behavior.
17) A production possibilities curve shows:
A.that resources are unlimited.
B.that people prefer one of the goods more than the other.
C.the maximum amounts of two goods that can be produced, assuming the full use of
available resources.
D.combinations of capital and labor necessary to produce specific levels of output.
18)
Refer to the diagram, where Sd and Dd are the domestic supply and demand for a
product and Pc is the world price of that product. With a per-unit tariff in the amount
PcPt, price and total quantity sold will be:
A.Pt and x.
B.Pc and z.
C.Pt and y.
D.Pa and x.
19) If the total utility from consuming the fifth unit of a product is 6 and the total utility
from all five units is 162, then the total utility from consuming four units must be:
A.168
B.27
C.156
D.972
20) The elasticity of demand for a product is likely to be greater:
A.if the product is a necessity, rather than a luxury good.
B.the greater the amount of time over which buyers adjust to a price change.
C.the smaller the proportion of one’s income spent on the product.
D.the smaller the number of substitute products available.