Figure 18-2
Figure 18-2 shows a demand curve and two sets of supply curves, one set more elastic
than the other.
Refer to Figure 18-2. If the government imposes an excise tax of $1.00 on every unit
sold, what is the size of the deadweight loss, if there is any?
A) the area adc if the supply curve is S0 and the area bec if the supply curve is S1.
B) the area afcd if the supply curve is S0 and the area bfce if the supply curve is S1.
C) the area becf under either supply curve.
D) There is no deadweight loss; revenue raised is used to fund government projects.
Figure 11-7
Figure 11-7 shows the cost structure for a firm.
Refer to Figure 11-7. If output is 100 units what is the fixed cost of production?
A) $8
B) $800
C) $1,000
D) This cannot be determined from the diagram.
The marginal product of labor is defined as
A) the additional sales revenue that results when one more worker is hired.
B) the additional output that results when one more worker is hired, holding all other
resources constant.
C) the additional number of workers required to produce one more unit of output.
D) the cost of hiring one more worker.
Foreign factories produce ________ of the shoes New Balance sells in the United
States.
A) none
B) less than 15 percent
C) roughly half
D) about 75 percent
Figure 4-1
Figure 4-1 shows Arnold’s demand curve for burritos.
Refer to Figure 4-1. If the market price is $1.00, what is the consumer surplus on the
fourth burrito?
A) $0
B) $0.50
C) $1.50
D) $2.25
Table 2-2
Production choices for Billie’s Bedroom Shop
Refer to Table 2-2. Assume Billie’s Bedroom Shop only produces pillows and blankets.
Billie faces ________ opportunity costs in the production of pillows and blankets.
A) increasing
B) constant
C) decreasing
D) negative
An increase in the price of off-road vehicles will result in
A) a smaller quantity of off-road vehicles supplied.
B) a larger quantity of off-road vehicles supplied.
C) an increase in the demand for off-road vehicles.
D) a decrease in the supply of off-road vehicles.
If a corporation goes bankrupt, which of the following has first claim on the firm’s
assets?
A) stockholders
B) the state where chartered
C) employees
D) bondholders
There is a difference between who is legally required to send a tax payment to the
government and who bears the burden of the tax. Which of the following would have
the most impact on who bears the burden of an excise tax?
A) whether the tax is imposed by the federal government or a state government
B) whether the tax is based on the ability-to-pay principle or the benefits-received
principle
C) The motive for the tax. If the tax is designed to raise revenue, more of the burden
will fall on firms. If the tax is designed to achieve a social objective (for example, to
discourage smoking) more of the burden will fall on consumers.
D) The elasticity of demand for the item that is taxed.
Which of the following is an advantage of starting a new business as a proprietorship?
A) The owner has limited personal liability.
B) A proprietorship has few government rules and regulations to comply with.
C) Business profits are not taxed.
D) A proprietorship can easily attain additional funding.
Table 14-8
Two rival oligopolists in the athletic supplements industry, the Power Fuel Company
and the Brawny Juice Company, have to decide on their pricing strategy. Each can
choose either a high price or a low price. Table 14-8 shows the payoff matrix with the
profits that each firm can expect to earn depending on the pricing strategy it adopts.
Refer to Table 14-8. Which of the following is true?
A) Power Fuel’s dominant strategy is to select a low price.
B) Brawny Juice’s dominant strategy is to select a high price.
C) Power Fuel does not have a dominant strategy.
D) Brawny Juice does not have a dominant strategy.
Article Summary
In an effort to raise funds to cut debt, Fiat Chrysler is selling a stake in Ferrari through
an initial public offering (IPO) to be valued at as much as $9.8 billion. 17.2 million
shares of stock in the company are to be sold, and the stock will be traded on the New
York Stock Exchange under the symbol RACE. One analyst speculates that requests for
shares in Ferrari may be ten times less than the number available. Including debt,
Ferrari will have a value of about $12 billion, and chairman Piero Ferrari will keep a 10
percent stake in the new company and receive about €280 million in cash. Before taxes
and interest, Ferrari’s 2014 earnings were €389 million, with revenue of €2.8 billion.
Source: Tommaso Ebhardt, “Ferrari to Be Valued at Up to $9.82 Billion in IPO,”
Bloomberg.com, October 9, 2015.
When Ferrari sells stock to the public in its IPO, it will do so through the New York
Stock Exchange. This is an example of Ferrari using ________ to raise funds.
A) indirect finance
B) direct finance
C) bonds
D) corporate governance
Table 2-10
Table 2-10 shows the output per day of two pet groomers, Tammi and Horace. They can
either devote their time to grooming dogs or bathing cats.
Refer to Table 2-10. What is Tammi’s opportunity cost of grooming a dog?
A) half a bathed cat
B) two bathed cats
C) two-thirds of a bathed cat
D) one and a half bathed cats
Table 4-3
Refer to Table 4-3. The table above lists the marginal cost of cowboy hats by The Waco
Kid, a firm that specializes in producing western wear. If the market price of The Waco
Kid’s cowboy hats is $40
A) The Waco Kid will produce four hats.
B) producer surplus from the first hat is $40.
C) producer surplus will equal $28.
D) there will be a surplus; as a result, the price will fall to $24.
For a firm that can effectively price discriminate, who will be charged a lower price?
A) customers who have an elastic demand for the product
B) customers who have an inelastic demand for the product
C) buyers that are members of the largest market segment
D) buyers that are members of the smallest market segment
Which of the following is an example of a “how much” decision?
A) Dinah’s Diner is only open for breakfast and lunch. Dinah is trying to decide
whether to open for dinner as well.
B) Zander has torn up his front yard and is debating whether to plant grass or install a
rock garden.
C) You received a nice birthday check from your grandmother and are deciding on
whether to spend it on a trip to New York or a trip to San Francisco.
D) Sergio quit his job to go back to school full time.
Maximizing the level of output for a given total cost of production
A) is equivalent to producing the profit maximizing output level.
B) is equivalent to minimizing cost for a given level of output.
C) necessitates using only relatively low-priced inputs.
D) will maximize total revenue.
Some consumer electronics products such as plasma TVs, DVD players, and digital
cameras, are introduced at very high prices but over time, their prices start falling
(beyond what could be attributed to falling costs as companies take advantage of
economies of scale and cheaper technologies). Which of the following is the best
explanation for this observation?
A) More firms are likely to enter the consumer electronics market over time, forcing
market prices down.
B) Early adopters of these new products typically have a higher demand and higher
income compared to those who are willing to wait.
C) Early adopters are more quality conscious and are willing to pay higher prices for
the initial production of these goods.
D) After satisfying the demand for early adopters, firms lower price to attract the more
price-sensitive consumers.
Figure 15-4
Figure 15-4 shows the demand and cost curves for a monopolist.
Refer to Figure 15-4. What is the amount of the monopoly’s total revenue?
A) $21,600
B) $20,400
C) $19,740
D) $7,800
An outward shift of a nation’s production possibilities frontier represents
A) economic growth.
B) rising prices of the two goods on the production possibilities frontier model.
C) an impossible situation.
D) a situation in which a country produces more of one good and less of another.
Which of the following statements is true?
A) Consumer surplus under perfect price discrimination is greater than under
single-price monopoly pricing.
B) Consumer surplus under an optimal two-part tariff is greater than that under
single-price monopoly pricing.
C) Although consumers reap some consumer surplus under a single-price monopoly,
society is better off with optimal two-part tariff pricing.
D) Of the three pricing schedules, single-price monopoly, an optimal two-part tariff,
and perfect price discrimination, profit is highest under single-price monopoly pricing.
Table 14-5
Ming and Henri each run one of the two dry cleaning facilities in the town of Scaraby.
Both consider offering free pickup and delivery services. Table 14-5 shows the payoff
matrix containing the expected quarterly profits for each firm.
Refer to Table 14-5. Does Ming have a dominant strategy? If yes, what is it?
A) Yes, Ming’s dominant strategy is to offer free pickup and delivery.
B) No, Ming does not a dominant strategy – his best outcome depends on what Henri
does.
C) Yes, Ming’s dominant strategy is to not to offer free pickup and delivery.
D) Yes, Ming’s dominant strategy is to wait to see what Henri does first.
Table 11-2
Table 11-2 summarizes production at the Crunchy Apple Orchard for the month of
April.
Refer to Table 11-2. What is the marginal product of the 4th worker?
A) 230 bushels
B) 4 bushels
C) 50 bushels
D) 4 bushels
Figure 16-6
Watanabe Sensei operates the only martial arts school in Hartfield. For simplicity,
assume that consumers have identical demand curves and that Sensei knows what this
demand curve is. Figure 16-6 shows this demand curve.
Refer to Figure 16-6. If Sensei acts as a monopolist and charges the profit-maximizing
price, what is his producer surplus?
A) the area B + D + G
B) the area A + B + C + D + H + G
C) the area C + D + H + G
D) the area A + C + H
Table 2-8
Table 2-8 shows the number of labor hours required to produce a digital camera and a
pound of wheat in China and South Korea.
Refer to Table 2-8. What is China’s opportunity cost of producing one digital camera?
A) 04 pounds of wheat
B) 4 pounds of wheat
C) 25 pounds of wheat
D) 40 pounds of wheat
Cross-price elasticity of demand is calculated as the
A) percentage change in quantity demanded divided by percentage change in price of a
good.
B) percentage change in quantity demanded of one good divided by percentage change
in price of a different good.
C) percentage change in quantity sold divided by percentage change in buyers’ incomes.
D) percentage change in quantity supplied divided by percentage change in price of a
good.
Although advertising raises the price of a monopolistic competitor’s product, it does
confer a benefit to consumers. Which of the following is a benefit to consumers?
A) Advertising acts as a barrier to entry.
B) Advertising engenders brand loyalty.
C) Advertising could provide consumers with useful information about new products
and enable them to comparison shop.
D) Advertised products tend to be of higher quality so consumers feel special when they
consume advertised products.
Figure 4-6
Figure 4-6 shows the demand and supply curves for the almond market. The
government believes that the equilibrium price is too low and tries to help almond
growers by setting a price floor at Pf.
Refer to Figure 4-6. What is the area that represents producer surplus after the
imposition of the price floor?
A) A + B + E
B) B + E
C) B + E + F
D) B + C + D + E
Of the following, which is the best example of good with a perfectly inelastic demand?
A) the demand for tickets in New York City when the Mets or Yankees are in the World
Series
B) the demand for gasoline
C) a diabetic’s demand for insulin
D) the demand for a college education by a student who has a full scholarship to an Ivy
League school
Which of the following does not explain why consumers buy products that many other
consumers are already buying?
A) technology
B) the satisfaction people derive by being viewed as “fashionable”
C) cost-effective way to gather information about a product
D) differences in tastes and preferences
Which of the following factors will not cause the labor demand curve to shift?
A) increases in human capital
B) changes in technology
C) a change in the price of the product produced with labor
D) the wage rate
“Sin taxes,” such as taxes on alcoholic beverages, are intended to
A) increase the amount of the products supplied.
B) generate money to subsidize production of the products taxed.
C) reduce the quantity demanded.
D) generate funds to aid in the medical care of those harmed by the product.
Which of the following is a reason why a firm would experience diseconomies of scale?
A) To finance an increase in the size of its plant a firm must borrow more money or sell
more shares of stock.
B) As the size of the firm increases, it becomes more difficult to find markets where it
doesn’t already have operations.
C) As the size of the firm increases it becomes more difficult to coordinate the
operations of its manufacturing plants.
D) As the size of the firm increases, it must operate in other countries where differences
in language, customs, and laws increase its average costs.
Though large firms have the knowledge and resources to utilize a better pricing
strategy, many choose to use cost-plus pricing. One reason for this is that
A) large firms do not have to maximize their profits because they face little competition
from other firms.
B) there is less risk of violating antitrust laws if a cost-plus pricing strategy is used
rather than a profit-maximizing pricing strategy.
C) the additional revenue that would result from a profit-maximizing pricing strategy is
an insignificant fraction of the firms’ revenues.
D) firms often adjust the markup they charge to reflect current demand.
Consumers benefit from monopolistic competition by
A) being able to choose from products more closely suited to their tastes.
B) paying the lowest possible price for the product.
C) paying the same price as everyone else.
D) being able to purchase high-quality products at low prices.