Table 16-3
Julie plans to start a pet-sitting service. She surveyed her neighborhood to determine the
demand for this service. Assume that each person surveyed demands only one hour of
pet sitting services per period. Table 16-3 above shows a portion of her survey results.
Refer to Table 16-3. Suppose Julie’s marginal cost of providing this service is constant
at $7 and she charges each customer according to his or her willingness to pay instead
of a uniform price of $7. Which of the following statements is true?
A) Julie is worse off because the demand for her services is reduced.
B) Julie has converted the consumer surplus (from a uniform price) into economic
profit.
C) Julie’s customers are better off because their consumer surplus has increased.
D) Julie’s has converted the producer surplus (from a uniform price) into consumer
surplus.
Figure 12-7
Figure 12-7 illustrates the cost curves of a perfectly competitive firm.
Refer to Figure 12-7. If the market price is P3 the firm
A) will break even.
B) will make a profit.
C) will earn enough revenue to cover its variable costs but not its fixed costs.
D) will produce a quantity of Q1.
“Because chips and salsa are complements, an increase in the price of chips will cause
the demand for salsa to decrease. This initial shift in demand for chips results in a
higher price for chips; this higher price will cause the demand curve for chips to shift to
the right.” Which of the following correctly comments on this statement?
A) The statement will be true if consumer tastes for chips and salsa do not change.
B) The statement is false because a change in the price of chips would not change the
demand for chips.
C) The statement is false because salsa is an inferior good; chips are normal goods.
D) The statement is false because one cannot assume that chips and salsa are
complements for all consumers.
Figure 2-5
Refer to Figure 2-5. If the economy is currently producing at point Y, what is the
opportunity cost of moving to point W?
A) 2 million tons of steel
B) zero
C) 9 million tons of paper
D) 16 million tons of paper
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 accounting profit?
A) $17,000
B) $22,000
C) $47,000
D) $64,000
The extra cost associated with undertaking an activity is called
A) net loss.
B) marginal cost.
C) opportunity cost.
D) foregone cost.
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 Ireland’s opportunity cost of producing one guitar?
A) 2 motorcycles
B) 5 motorcycles
C) 8 motorcycles
D) 32 motorcycles
Joan Jillson owns a coffee shop. Assume that the marginal product of the labor Joan
employs (MPL)equals 500 cups per week and the marginal product of her shop’s capital
(MPK) equals 1,000. Assume also that the wage (w) Joan pays her workers equals $250
per week and the rental price (r) of her capital – her coffee machines – equals $500 per
week. Which of the following correctly analyzes whether Joan is minimizing her costs?
A) No, Joan is not minimizing her costs because MPK is greater than MPL and r is
greater than w.
B) Yes, Joan is minimizing her costs because MPK/r equals MPL/w.
C) No, Joan is not minimizing her costs because MPL × w is less than MPK × r.
D) Yes, Joan is minimizing her costs because she is a price-taker in the markets for
labor and capital.
Generally with bond ratings, the higher the rating, the ________ the interest rate an
investor will receive and the ________ the risk that the issuer of the bond will default.
A) higher; higher
B) higher; lower
C) lower; higher
D) lower; lower
If Alan Shaw reduces his work hours when his salary increases, then
A) the income effect of his salary increase dominates the substitution effect.
B) the substitution effect of his salary increase dominates the income effect.
C) the income effect of his salary increase is completely offset by the substitution
effect.
D) leisure is an inferior good to Alan.
Table 17-4
Table 17-4 lists data for the production of Apple iPods. Apple is assumed to be a price
maker, so to increase its sales of iPods the firm must lower its price. MPL and MRPL
refer to the marginal product of labor and the marginal revenue product of labor,
respectively.
Refer to Table 17-4. What are the quantity of labor and marginal revenue product of
labor that will maximize the profit Apple would earn from selling iPods?
A) 2; $160
B) 3; $340
C) 2; $680
D) 3; $140
Figure 16-2
Plato Playhouse, a theatre company in the university town of Wegg, caters to two
groups of customers: students and the non-student population. Figure 16-2 shows the
demand curves for the two groups of customers.
Refer to Figure 16-2. Suppose Plato Playhouse price discriminates. Which of the
following statements is true?
A) By charging two different prices, the theatre company has redistributed some profits
from those who can pay higher prices to those who cannot, thereby increasing
economic efficiency.
B) By charging two different prices, the theatre company essentially allows those
willing to pay higher prices to subsidize those who are not.
C) By charging two different prices, the theatre company has redistributed some profits
from those who can pay higher prices to those who cannot, thereby improving equity.
D) Plato Playhouse will earn higher profits if it charges a single price an average of the
two prices instead of charging two different prices to the two different groups of
customers.
In England during the Middle Ages each village had an area of pasture on which any
family in the village was allowed to graze its cows and sheep without charge.
Eventually, the grass in the pasture would be depleted and no family’s cow or sheep
would get enough to eat. The reason the grass was depleted was
A) the area of pasture was nonexcludable and the consumption of the grass was rival.
B) self-interest motives led livestock owners to raise too many cows and sheep.
C) due to a policy of neglect on the part of the English government.
D) it did not get enough rainfall.
If Abercrombie & Fitch borrows $8 million from a bank to finance the construction of a
new store, this is an example of
A) a stock market transaction.
B) direct finance.
C) a bond market transaction.
D) indirect finance.
Jaycee Jeans sold 40 pairs of jeans at a price of $40. When it lowered its price to $20,
the quantity sold increased to 60 pairs. Calculate the absolute value of the price
elasticity of demand. Use the midpoint formula.
A) 67
B) 0
C) 6
D) 53
Why do corporations want to keep the price of their stock high?
A) A higher stock price increases the funds the firm can raise when it sells a given
amount of stock.
B) Corporations can pay their managers lower salaries and avoid principal-agent
problems when stock prices are higher.
C) Higher stock prices are correlated with lower expected profitability.
D) All of the above provide incentive for corporations to keep the price of their stock
high.
Figure 16-5
Refer to Figure 16-5. Suppose the firm represented in the diagram decides to use a
two-part pricing strategy such that it charges a fixed fee and a per-unit price equal to the
competitive price. (This is also called an optimal two-part tariff.) What is the total
revenue it can expect to collect from the fixed fee portion of the price?
A) $2,560
B) $5,760
C) $7,870
D) $10,240
Two firms would sometimes be better off if they got together and agreed to charge a
high price, rather than to compete and risk having to charge a lower, competitive price.
What is the greatest deterrent to this strategy?
A) The firms may find that the price they charge is greater than the price that would
maximize their profits.
B) An agreement by firms to charge high prices is illegal. The government can fine the
firms and send their managers to jail.
C) Consumers may resent having to pay high prices and not buy from either of the
firms.
D) One of the firms may decide to lower its price and take business away from the firm
that charged the high price.
Table 10-7
Table 10-7 shows Antonio’s utility from beer and pizza.
Refer to Table 10-7. What is Antonio’s marginal utility from consuming the fifth beer?
A) 4 utils
B) 6 utils
C) 69 utils
D) 134 utils
An example of a government-imposed barrier to entry gives a firm the exclusive right
to a new product for a period of 20 years from the date the product is invented. This
entry barrier is known as
A) a copyright.
B) a patent.
C) an exclusive marketing agreement.
D) a tariff.
Figure 10-3
Refer to Figure 10-3. Best friends Laurel and Hardy, both enjoy watching romantic
comedies and science fiction movies. Based on the diagrams above what can you
conclude about their movie preferences?
A) They have identical movie preferences.
B) Laurel enjoys romantic comedies more than Hardy.
C) Laurel enjoys science fiction movies more than Hardy.
D) The diagrams do not provide any information about relative preferences.
A financial security that represents a promise to repay a fixed amount of funds is a
A) share of stock.
B) coupon.
C) dividend.
D) bond.
An equilibrium in a game in which players pursue their own self-interests and do not
cooperate is called a
A) cartel equilibrium.
B) noncooperative equilibrium.
C) prisoner’s dilemma equilibrium.
D) dominant strategy equilibrium.
Figure 9-3
Since 1953 the United States has imposed a quota to limit the imports of peanuts.
Figure 9-3 illustrates the impact of the quota.
Refer to Figure 9-3. What is the area of domestic producer surplus after the imposition
of a quota?
A) B
B) B + C
C) B + E + I + J + M
D) E + I + J + M
Figure 2-9
Figure 2-9 shows the production possibilities frontiers for Pakistan and Indonesia. Each
country produces two goods, cotton and cashews.
Refer to Figure 2-9. Which country has a comparative advantage in the production of
cotton?
A) Indonesia
B) They have equal productive abilities.
C) Pakistan
D) neither country
The restriction that a consumer’s total expenditure on goods and services purchased
cannot exceed the income available is referred to as
A) maximizing behavior.
B) economizing behavior.
C) the price constraint.
D) the budget constraint.
Economic costs of production differ from accounting costs in that
A) economic costs include expenditures for hired resources while accounting costs do
not.
B) economic costs add the opportunity costs of a firm using its own resources while
accounting costs do not.
C) accounting costs include expenditures for hired resources while economic costs do
not.
D) accounting costs are always larger than economic cost.
The labor supply for an industry would decrease if
A) the wage rate falls.
B) the percentage of the population from age 16 to 65 decreases.
C) the government welcomes foreign workers into the country.
D) a greater percentage of women want to work outside the home.
If the percentage change in the quantity of teapots demanded is greater than the
percentage change in the price of teapots, then
A) the price elasticity of demand for teapots is greater than 1 in absolute value.
B) the demand for teapots is unit elastic.
C) the price elasticity of demand for teapots is equal to zero.
D) the price elasticity of demand for teapots is less than 1 in absolute value.
Generally with bond ratings, the lower the rating, the ________ the interest rate an
investor will receive and the ________ the the risk that the issuer of the bond will
default.
A) higher; higher
B) higher; lower
C) lower; higher
D) lower; lower
Figure 15-6
Figure 15-6 shows the cost and demand curves for a monopolist.
Refer to Figure 15-6. The monopolist’s total cost is
A) $1,116.
B) $1,240.
C) $1,660.
D) $1,726.40.
Marginal utility can be
A) negative.
B) zero.
C) positive.
D) positive, negative, or zero.
Producing where marginal revenue equals marginal cost is equivalent to producing
where
A) average total cost equals average revenue.
B) average fixed cost is minimized.
C) total revenue is equal to total cost.
D) total profit is maximized.
Suppose the demand curve for a product is represented by a typical downward-sloping
curve. Now suppose the demand for this product decreases. Which of the following
statements accurately predicts the resulting decrease in price?
A) The more elastic the supply curve, the greater the price increase.
B) The more elastic the supply curve, the smaller the price decrease.
C) The increase in price is not affected by the elasticity of the supply curve.
D) The decrease in price will always be proportional to the magnitude of the demand
shift.
Article Summary
In an attempt to get approval for a $6.3 billion merger with Office Depot, Staples met
with FTC regulators to discuss the possible sale of assets so the merger can proceed.
The Competition Bureau of the FTC had previously indicated that it would not approve
the merger as initially structured, but Staples expressed optimism that it would be able
to reach a settlement with the FTC. Critics have argued that a merger of Staples and
Office Depot will result in higher prices for office supplies.
Source: Josh Kosman, “Staples still angling for Office Max merger,” New York Post,
October 14, 2015.
Refer to the Article Summary above. A merger between two competitors such as
Staples and Office Depot may ultimately be approved by the Department of Justice and
the FTC if the two companies can substantiate ________ as a result of the merger.
A) increases in revenue for the merged company
B) an increase in the HHI to over 1,800
C) decreases in marginal revenue for the merged company
D) increases in economic efficiency