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_____ tax is NOT used in the United States.
A) Property
B) Value-added
C) Profits
D) Sales
If a perfectly competitive firm sells 10 units of output at $30 per unit, its marginal
revenue is:
A) $10.
B) $30.
C) more than $30.
D) $300.
If marginal costs remain constant, the marginal cost curve is:
A) vertical.
B) horizontal.
C) upward-sloping from the origin.
D) downward-sloping.
Figure: Profit Maximization in Monopolistic Competition
(Figure: Profit Maximization in Monopolistic Competition) In panel (A) of the figure
Profit Maximization in Monopolistic Competition, if the firm raises its price above P, it
will:
A) lose all of its customers.
B) still have some customers.
C) not lose any customers.
D) gain many new customers.
If the government levies an excise tax in a market whose demand curve is perfectly
inelastic, the burden of the tax will fall completely on the _____, and the deadweight
loss will equal _____.
A) consumers; zero
B) producers; zero
C) consumers; the tax revenue
D) producers; the tax revenue
Figure: Total Surplus with a Regulated Natural Monopolist
(Figure: Total Surplus with a Regulated Natural Monopoly) Look at the figure Total
Surplus with a Regulated Natural Monopolist. The natural monopoly:
A) would incur an economic profit if regulated to produce where price is less than
marginal cost.
B) would incur an economic profit if regulated to charge a price equal to average total
cost.
C) generates more consumer surplus than an unregulated monopolist if regulated to
produce where price equals average total cost.
D) generates more consumer surplus than an unregulated monopolist if regulated to
produce where price is above the average total cost.
Figure: Market Failure
(Figure: Market Failure) Look at the figure Market Failure. Suppose the supply curve
represents the marginal cost of providing streetlights in a neighborhood that is
composed of two people, Ann and Joe. The demand curve represents the marginal
benefit that Ann receives from the streetlights. Suppose that Joe's marginal benefit from
the streetlights is a constant amount equal to AC. How much is Ann willing to pay for F
streetlights?
A) 0
B) A
C) B
D) C
Figure: Cost Curves for Corn Producers
(Figure: Cost Curves for Corn Producers) Look at the figure Cost Curves for Corn
Producers. The market for corn is perfectly competitive. If the price of a bushel of corn
is $14, in the short run, the farmer will produce _____ of corn and earn an economic
_____ equal to _____.
A) 4 bushels; profit; $0
B) 4 bushels; profit; just less than $80 per bushel
C) 2 bushels; profit; $0
D) 2 bushels; loss; just more than $80 per bushel
(Table: Production Possibilities for Machinery and Petroleum) Look at the table
Production Possibilities for Machinery and Petroleum. The opportunity cost in Mexico
of producing 105 units of petroleum is _____ units of machinery.
A) 35
B) 70
C) 90
D) 160
In a monopoly in the long run:
A) economic profits will be eliminated by the entry of rival firms.
B) economic profits will be reduced but not eliminated by the entry of rival firms.
C) entry by other firms will not occur.
D) the price will be the same as in a perfectly competitive market.
Sally devotes all of her income to the consumption of apples and Reese's Peanut Butter
Cups. At her current level of consumption the marginal utility of an apple is 6 and the
marginal utility of a Reese's Peanut Butter Cup is 8. Assume that diminishing marginal
utility applies to both apples and Reese's Peanut Butter Cups. Suppose the price of an
apple is $0.20 and the price of a Reese's Peanut Butter Cup is $0.25. To maximize her
total utility, assuming that the goods are divisible, she would:
A) consume more Reese's Peanut Butter Cups and fewer apples.
B) consume less of both goods.
C) consume more apples and fewer Reese's Peanut Butter Cups.
D) There is not enough information to justify a change in her current level of
consumption.
Some economists think that advertising is a waste of resources because:
A) rational consumers end up spending too little on brand names.
B) consumers may buy things they do not need.
C) advertising creates excess capacity.
D) advertising leads to lower costs for goods and services.
Gary's Gas and Frank's Fuel are the only two providers of gasoline in their small town.
Gary summarizes his pricing strategy as, "I'll do to Frank what Frank did to me last
time." This is an example of:
A) a dominant strategy.
B) a tit-for-tat strategy.
C) an irrational strategy.
D) product differentiation.
If the toothpaste market is monopolistically competitive, product differentiation may
take the form of:
A) production of many varieties of toothpaste, including those with whitening agents.
B) differentiation in the locations where certain toothpastes are available.
C) quality differences among the various brands.
D) production of many varieties of toothpaste, including those with whitening agents;
differentiation in the locations where certain toothpastes are available; and quality
differences among the various brands.
Figure: The Marginal Cost Curve
(Figure: The Marginal Cost Curve) Look at the figure The Marginal Cost Curve. The
total cost of mowing five lawns is approximately:
A) $68.
B) $100.
C) $50.
D) $10.
If LeRoyce trades two cookies for one of Amir's brownies, we say that they are
engaging in:
A) exploitation.
B) benevolence.
C) barter.
D) a zero-sum game.
A perfectly competitive firm will incur an economic loss but will continue to produce a
positive quantity of output in the short run if the price is:
A) less than marginal cost.
B) less than average variable cost.
C) greater than average total cost.
D) greater than average variable cost and less than average total cost.
The rent for Oscar's sporting goods store is $2,500 per month. Oscar pays his staff $9
per hour, and his monthly electricity bill averages $700, depending on his total hours of
operation. Oscar's fixed costs of production equal:
A) $2,500 per month.
B) $3,200 per month.
C) $9 per hour multiplied by total hours of work plus $700.
D) $9 per hour multiplied by total hours of work plus $3,200.
Scenario: Choosing Insurance
The Ramirez family owns three cars and is considering buying insurance to cover the
cost of repairs. They face two possible states: in state 1 their cars need no repairs and
their income available for purchasing other goods and services is $50,000; in state 2
their cars need $10,000 worth of repairs and their income available for purchasing other
goods and services is reduced to $40,000. The probability of repairs is 10%, while the
probability of no repairs is 90%.
(Scenario: Choosing Insurance) Refer to the information in the scenario Choosing
Insurance. For $1,000 the Ramirez family can buy insurance that will cover the full cost
of repairs. If family members are risk-averse and want to maximize their expected
utility:
A) they will buy the insurance.
B) they will be indifferent between buying and not buying the insurance, since their
expected income for purchasing other goods and services is $49,000, regardless of what
they do.
C) they will buy the insurance as long as the utility of having a certain income of
$48,000 to buy goods and services other than car repairs is higher than the utility
associated with their expected income without insurance.
D) they will self-insure.
The "good enough" method of decision making is also called:
A) utility-maximizing behavior.
B) profit-maximizing behavior.
C) bounded rationality.
D) irrational decision making.
A firm that is in an oligopoly knows that its _____ affect its _____ and that the _____
of its rivals will affect it.
A) actions; rivals; reactions
B) price changes; total revenue in a positive way; reactions
C) actions rarely; rivals; actions
D) price increases; total revenue in the long run only; large but not small price changes
Which of the following statements is TRUE if the principle of diminishing marginal
utility applies?
A) When a customer at the Pie Palace continues to eat more pie, each additional piece
gives more marginal utility.
B) When a customer at the Pie Palace continues to eat more, each additional piece of
pie gives less marginal utility.
C) The marginal utility of a piece of pie is maximized when the total utility of pie is
zero.
D) The total utility of pie is at a maximum while the marginal utility of pie is still
increasing.
Table: Denise's Consumption of Coffee and Gasoline
(Table: Denise's Consumption of Coffee and Gasoline) Look at the table Denise's
Consumption of Coffee and Gasoline. Denise will maximize her utility by consuming
bundle:
A) A.
B) B.
C) C.
D) D.
The problem with common resources is similar to the problem with negative
externalities because:
A) both issues deal with natural resources.
B) the marginal social benefit of producing another unit exceeds the individual's
marginal benefit.
C) the marginal social cost of producing another unit exceeds the individual's marginal
cost.
D) the individual's marginal cost of producing another unit exceeds the individual's
marginal benefit.
Figure: Monopoly Profits in Duopoly
(Figure: Monopoly Profits in Duopoly) Given the duopoly industry illustrated in the
figure Monopoly Profits in Duopoly, if each firm acted on the belief that it faced
demand curve D2 and acted without consideration of the other, each firm would attempt
to maximize economic profits by producing quantity _____ and setting price equal to
_____.
A) Q4; P1
B) Q4; P2
C) Q1; P4
D) Q2; P2
A ______ graph shows how the value of one or more variables has changed over some
period.
A) linear
B) time-series
C) nonlinear
D) periodic table
(Table: Demand and Total Cost) Look at the table Demand and Total Cost. Lenoia runs
a natural monopoly firm producing electricity for a small mountain village. The table
shows Lenoia's demand and total cost of producing electricity. To maximize profits,
Lenoia should charge a price of:
A) $350.
B) $400.
C) $450.
D) $500.
The market for good Y, a perfectly competitive good, is made up of 15 producers who
each produce the same amount of good Y. If the price of good Y is $100 and the total
quantity supplied is 150, how many units of good Y is each producer supplying?
A) 10
B) 150
C) 100
D) 15
The eventual increase in AVC as output increases is the _____ effect.
A) diminishing returns
B) spreading
C) constant cost
D) increasing returns
A men's tie store sold an average of 30 ties per day at $5 per tie but sold 50 of the same
ties per day at $3 per tie. The price elasticity of demand, by the midpoint method, is:
A) greater than zero but less than 1.
B) equal to 1.
C) greater than 1 but less than 3.
D) greater than 3.
Which of the following statements is TRUE?
A) The marginal product is the change in total revenue divided by a one-unit change in
a factor.
B) The marginal revenue is the change in total output divided by the change in output.
C) The value of the marginal product is the marginal product times the price.
D) The marginal cost is equal to the average total cost.
