Tanesha sells homemade candles over the Internet. Her annual revenue is $64,000 per
year, the explicit costs of her business are $17,000, and the opportunity costs of her
business are $22,000. What is her economic profit?
A) $17,000
B) $25,000
C) $42,000
D) $47,000
Table 4-4
Table 4-4 shows the demand and supply schedules for the labor market in the city of
Pixley.
Refer to Table 4-4. Suppose that the quantity of labor demanded increases by 40,000 at
each wage level. What are the new free market equilibrium hourly wage and the new
equilibrium quantity of labor?
A) W = $8.50; Q = 550,000
B) W = $12.50; Q = 630,000
C) W = $9.50; Q = 570,000
D) W = $11.50; Q = 610,000
If you were to ask your employer for a raise, which of the following would be your
most effective argument?
A) “I have a job offer at another firm that will pay me more than my current wage.”
B) “I am willing to work more hours each week.”
C) “Increases in my productivity have resulted in greater revenue and profits for your
business.”
D) “My marginal product is greater than my current wage.”
Table 13-1
Refer to Table 13-1. What portion of the marginal revenue of the 5th unit is due to the
output effect and what portion is due to the price effect?
A) output effect = $3.00; price effect = $0.50
B) output effect = $1.50; price effect = $2.00
C) output effect = $5.50; price effect = -$2.00
D) output effect = $4.00; price effect = -$0.50
Firms that face downward-sloping demand curves for their output in the product market
are called
A) price takers.
B) price dictators.
C) monopolists.
D) price makers.
Collusion between two firms occurs when
A) the firms independently pursue strategies that could hurt each other.
B) firms explicitly or implicitly agree to adopt a uniform business strategy.
C) announce that each will match its rival’s market price.
D) firms act altruistically to bring about the economically efficient outcome.
Figure 12-9
Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly
competitive firm.
Refer to Figure 12-9. At price P3, the firm would produce
A) Q2 units
B) Q3 units.
C) Q4 units.
D) Q5 units.
Seth is a competitive body builder. He says he has to have his 12-oz package of protein
powder to “feed his muscles” every day. On the basis of this information, what can you
conclude about his price elasticity of demand for protein powder?
A) It is elastic.
B) It is perfectly elastic.
C) It is perfectly inelastic.
D) The price elasticity coefficient is 1.
Holding everything else constant, the demand for a good tends to be more elastic
A) the more substitutes there are for the good.
B) the shorter the time period involved.
C) the more consumers perceive the good to be a necessity.
D) the less important the product is in consumers’ budgets.
With the proposed TPP tariff changes on imported shoes, New Balance would be
________ by the change in prices on some of the imported shoes sold by other
companies that compete with New Balance’s U.S.-produced shoes, and New Balance
would be ________ because of the price it could now charge for the shoes it imports
from TPP countries.
A) hurt; helped
B) hurt; hurt
C) helped; hurt
D) helped; helped
Table 4.7
Refer to Table 4-7. The equations above describe the demand and supply for Bubba’s
Fried Jellybeans. What are the equilibrium price and quantity (in thousands) for Bubba’s
Fried Jellybeans?
A) $80 and 40 thousand
B) $60 and 10 thousand
C) $20 and 20 thousand
D) $40 and 5 thousand
Economists assume that the goal of consumers is to
A) do as little work as possible to survive.
B) make themselves as well off as possible.
C) spend all their income.
D) consume as much as possible.
In 2002, the Enron corporation was accused of falsifying information regarding
liabilities on Enron’s balance sheets, thereby
A) increasing Enron’s assets on the balance sheet.
B) reducing Enron’s profit on the balance sheet.
C) increasing Enron’s net worth on the balance sheet.
D) reducing Enron’s net income on the income statement.
Figure 3-1
Refer to Figure 3-1. A decrease in the price of the product would be represented by a
movement from
A) A to B.
B) B to A.
C) D1 to D2.
D) D2 to D1.
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. China has a comparative advantage in the production of
A) wheat.
B) digital cameras.
C) both products.
D) neither product.
Under J.C. Penney’s everyday low pricing policy, the everyday low prices
A) ended up being the highest prices ever charged by the company.
B) were always lower than the sale prices under the previous policy.
C) were not actually charged every day, but only once a month during half-off sales.
D) ended up being higher than the sale prices under the previous pricing policy.
Which of the following is not an advantage of starting a new business as a corporation?
A) separation of ownership and business liability
B) enhanced ability to raise funds
C) ability to share risks
D) possibility of double taxation
Table 6-8
The town of Bloomfield is well known for its basketball team. The price of basketball
game tickets is determined by market forces. Table 6-8 above shows the demand and
supply schedules for basketball games tickets.
Refer to Table 6-8. What is the most distinctive feature of the supply curve?
A) The supply curve is perfectly inelastic.
B) The supply curve is horizontal.
C) The supply curve is upward sloping.
D) The supply curve is perfectly elastic.
Suppose a competitive firm is paying a wage of $12 an hour. Assume that labor is the
only input. If hiring another worker would increase output by four units per hour, then
to maximize profits the firm should
A) not change the number of workers it currently hires.
B) hire the extra worker.
C) layoff some workers.
D) There is not enough information to answer the question.
In a perfectly competitive market the term “price taker” applies to
A) sellers and buyers.
B) sellers but not buyers.
C) buyers but not sellers.
D) only the smallest sellers and buyers.
Every firm that has the ability to affect the price of the good or service it sells will
A) have a perfectly elastic demand curve.
B) have a marginal revenue curve that lies below its demand curve.
C) earn a short-run profit but break even in the long run.
D) shut down in the short run.
Figure 13-13
Refer to Figure 13-13. If the diagram represents a typical firm in the market, what is
likely to happen in the long run?
A) Some firms will exit the market causing the demand to increase for firms remaining
in the market.
B) New firms will enter the market causing the demand to decrease for existing firms.
C) Inefficient firms will exit the market and new cost-efficient firms will enter the
market.
D) Competition will be intensified as firms strive to make long-run profits.
Assume that a 50 percent gasoline tax led to a large increase in its price and only a
small decrease in the quantity of gasoline demanded. Economic analysis would lead one
to conclude that
A) gasoline should be taxed because the benefits of the tax would exceed the costs.
B) gasoline should not be taxed because the benefits are uncertain.
C) gasoline should not be taxed on ethical grounds since ethical benefits and costs can’t
be measured.
D) the benefits of taxing gasoline is a normative issue. Economic analysis can be used
to contribute to discussion of this issue but cannot decide it.
When the average total cost is $16 and the total cost is $800, then the number of units
the firm is producing is
A) impossible to determine with the information given.
B) 12,800.
C)
D)
Suppose the price of capital and labor remain constant. As a firm’s expenditures for
capital and labor increase, its isocost line
A) shifts out parallel to the original isocost line.
B) shifts in parallel to the original isocost line.
C) rotates outward on the Y-intercept.
D) rotates outward on the X-intercept.
Pookie’s Pinball Palace restores old Pinball machines. Pookie has just spent $300
purchasing and cleaning a 1960s-era machine which he expects to sell for $2,000 once
he is finished with the restoration. After having spent $300, Pookie discovers that he
will need to rewire the entire machine at a cost of $1,100 in order to finish the
restoration. Alternatively, he can sell the machine “as is” now for $1,000. What should
he do?
A) He should sell the machine now to make the most profit.
B) It does not matter what he does; he is going to take a loss on his project.
C) He should rewire the machine, complete the task and then sell the machine.
D) He should have never purchased the machine because he has already spent too much
time on it and has not been paid for that time.
Marginal cost is
A) the total cost of producing one unit of a good or service.
B) the average cost of producing a good or service.
C) the difference between the lowest price a firm would have been willing to accept and
the price it actually receives.
D) the additional cost to a firm of producing one more unit of a good or service.
Table 11-7
Table 11-7 shows cost data for Lotus Lanterns, a producer of whimsical night lights.
Refer to Table 11-7. What is the average variable cost per unit of production when the
firm produces 90 lanterns?
A) $490
B) $33.67
C) $7.67
D) $5.44
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 average product of labor when the orchard employs 5
workers?
A) 270 bushels
B) 54 bushels
C) 40 bushels
D) 8 bushels
Table 2-11
Table 2-11 shows the number of labor hours required to produce a motorcycle and a
guitar in Ireland and Scotland.
Refer to Table 2-11. What is Scotland’s opportunity cost of producing one motorcycle?
A) 25 guitar
B) 4 guitars
C) 12 guitars
D) 16 guitars
Which industry has the highest four-firm concentration ratio?
A) discount department stores
B) college bookstores
C) retail gasoline stations
D) cigarettes
Many state governments use lotteries to raise revenue. If a lottery is viewed as a tax, is
it most likely a progressive tax or a regressive tax? What information would you need
to determine whether the burden of a lottery is progressive or regressive?
Suppose you hit a progressive jackpot on a slot machine in a casino in Atlantic City and
are given the choice of the following prizes:
Prize 1: $150,000 to be received right away, with three additional payments of $150,000
to be received each year for the next three years.
Prize 2: $500,000 to be received right away.
If the interest rate is 5 percent, what is the present value of each prize?
Suppose Veronica sells teapots in the perfectly competitive teapot market. Her output
per day and her costs are as follows:
Suppose the current equilibrium price in the teapot market is $20. To maximize profit,
how many teapots will Veronica produce, what price will she charge, and how much
profit (or loss) will she make? Draw a graph to illustrate your answer. Your graph
should include Veronica’s demand, ATC, AVC, MC, and MR curves, the price she is
charging, the quantity she is producing, and the area representing her profit (or loss).
Many book publishers use cost-plus pricing to establish prices for some of their books.
Would you expect a publishing company to use a strict cost-plus pricing system for all
its books? How might you determine if a publishing company actually does use
cost-plus pricing for all its books?
There are many cattle ranchers in the world, and there are also many McDonald’s
restaurants in the world. Why, then, does a McDonald’s restaurant face a
downward-sloping demand curve while a cattle rancher faces a horizontal demand
curve?
What is a black market?
Explain the relationship between price elasticity of demand and total revenue.
What happens to a monopoly’s revenue when it sells more units of its product?
What is a private benefit from consumption? What is a social benefit from
consumption? When is the private benefit from consumption equal to the social benefit
from consumption?
The breakfast cereal industry has a four-firm concentration ratio of 80 percent. Is this
enough information to classify the industry as an oligopoly? Is a high concentration
ratio evidence that an industry is not competitive?
How have U.S. imports and exports, as a fraction of GDP, changed from 1970 to the
present?
The four-firm concentration ratio in the breakfast cereal industry is 80 percent. How
does the five competitive forces model provide better insight into the degree of
competition in the breakfast cereal industry than just observing the concentration ratio?
Explain whether a monopoly that maximizes profit will also be maximizing revenue
and production.
What is an oligopoly? Give two examples of oligopolistic industries in the United
States.