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1) If government officials break up a natural monopoly into four smaller firms, then
a.each firm will be unable to maximize profits due to increased competition.
b.competition will force firms to produce surplus output, which drives up price.
c.the average cost of production will increase.
d.consumers will benefit from lower average total costs.
2) Anya has decided to start her own hair-styling salon. To purchase the necessary
equipment, Anya withdrew $10,000 from her savings account, which was earning 3%
interest, and borrowed an additional $5,000 from the bank at an interest rate of 8%.
What is Anya's annual opportunity cost of the financial capital that has been invested in
the business?
a.$300
b.$400
c.$700
d.$1,650
3) Suppose the cost of operating a 75 room hotel for a night is $6,000 and there are 5
empty rooms for tonight. If the marginal cost of operating one room for one night is
$40, the hotel manager should rent one of the empty rooms only if a customer is willing
to pay
a.more than $40, as the average benefit will exceed the marginal cost.
b.more than $40, as the marginal benefit will exceed the marginal cost.
c.more than $80, as the average benefit will exceed the marginal cost.
d.more than $80, as the marginal benefit will exceed the marginal cost.
4) Scenario 12-3
Suppose Roger and Regina receive great satisfaction from their consumption of
cheesecake. Regina would be willing to purchase only one slice and would pay up to $8
for it. Roger would be willing to pay $11 for his first slice,$9 for his second slice, and
$5 for his third slice. The current market price is $5 per slice. Assume that the
government places a $2 tax on each slice of cheesecake and that the new equilibrium
price is $7. What is the deadweight loss of the tax?
a.zero
b.$3
c.$6
d.$8
5) Scenario 17-5
Assume that a local restaurant sells two items, salads and steaks. The restaurant's only
two customers on a particular day are Mr. Carnivore and Ms. Leafygreens. Mr.
Carnivore is willing to pay $20 for a steak and $7 for a salad. Ms. Leafygreens is
willing to pay only $8 for a steak, but is willing to pay $12 for a salad. Assume that the
restaurant can provide each of these items at zero marginal cost.
Refer to Scenario 17-5. If the restaurant is unable to use tying, what is the
profit-maximizing price to charge for a salad?
a.$16
b.$14
c.$12
d. $7
6) Figure 9-6
The figure illustrates the market for roses in a country.
The amount
of revenue collected by the government from the tariff is
a. $200.
b. $400.
c. $500.
d. $600.
7) When a firm is experiencing diseconomies of scale, long-run
a.average total cost is minimized.
b.average total cost is greater than long-run marginal cost.
c.average total cost is less than long-run marginal cost.
d.marginal cost is minimized.
8) Figure 14-3
Suppose a firm operating in a competitive market has the following cost curves:
The firm will earn zero economic profit if the market price is
a. $0.
b.$6.
c.$7.
d.$10.
9) Figure 7-18
Total surplus amounts to $500 if consumer surplus amounts to
a.$290 and if the price of the good is $150.
b.$300 and if the price of the good is $130.
c.$275 and if the price of the good is $160.
d.$400 and if the price of the good is $100.
10) Which of the following phrases best captures the notion of efficiency?
a.absolute fairness
b.equal distribution
c.minimum waste
d.equitable outcome
11) As a monopolist increases the quantity of output it sells, the price consumers are
willing to pay for the good
a.is unaffected.
b.decreases.
c.increases.
d.There is not enough information given in answer the question.
12) Table 2-5 shows one set of production possibilities. Based on the values in the table,
the production possibilities frontier is
a.bowed outward indicating increasing opportunity costs.
b.bowed outward indicating decreasing opportunity costs.
c.a straight line indicating constant opportunity costs.
d.bowed inward indicating increasing opportunity costs.
13) Suppose Ireland exports beer to China and imports pineapples from the United
States. This situation suggests that
a.Ireland has a comparative advantage relative to the United States in producing
pineapples, and China has a comparative advantage relative to Ireland in producing
beer.
b.Ireland has a comparative advantage relative to China in producing beer, and the
United States has a comparative advantage relative to Ireland in producing pineapples.
c.Ireland has an absolute advantage relative to the United States in producing
pineapples, and China has an absolute advantage relative to Ireland in producing beer.
d.Ireland has an absolute advantage relative to China in producing beer, and the United
States has an absolute advantage relative to Ireland in producing pineapples.
14) Scenario 22-4
Three members of the DiCarlo family, Vinny, Maria, and Franki, are choosing the
entree for a large family reunion. Their options are: spaghetti, ravioli, lasagne, and
pizza. Vinny prefers spaghetti over lasagne, lasagne over ravioli, and ravioli over pizza.
Maria prefers ravioli over spaghetti, spaghetti over pizza, and pizza over lasagne.
Frankie prefers pizza over ravioli, ravioli over lasagne, and lasagne over spaghetti.
Refer to Scenario 22-4. If the vote were conducted according to a Borda count system
where each person's first choice receives 4 points, second choice 3 points, third choice 2
points, and fourth choice 1 point, the election winner would be
a.pizza.
b.ravioli.
c.lasagne.
d.spaghetti.
15) The term market failure refers to
a.a market that fails to allocate resources efficiently.
b.an unsuccessful advertising campaign which reduces demand.
c.ruthless competition among firms.
d.a firm that is forced out of business because of losses.
16) When a tax is imposed on the sellers of a good, the
a.demand curve shifts downward by less than the amount of the tax.
b.demand curve shifts downward by the amount of the tax.
c.supply curve shifts upward by less than the amount of the tax.
d.supply curve shifts upward by the amount of the tax.
17) If a good is a Giffen good, then
a.the supply curve is downward sloping.
b.the demand curve is upward sloping.
c.the demand curve is horizontal.
d.there is no optimal level of consumption for the consumer.
18) New cars are normal goods. What will happen to the equilibrium price of new cars
if the price of gasoline rises, the price of steel falls, public transportation becomes
cheaper and more comfortable, auto-workers accept lower wages, and automobile
insurance becomes more expensive?
a.Price will rise.
b.Price will fall.
c.Price will stay exactly the same.
d.The price change will be ambiguous.
19) Cost-benefit analysts often encounter the problem that those who would benefit
from government provision of a public good tend to
a.overstate the benefit they would receive from the public good and those who would be
harmed by government provision of a public good tend to overstate the costs they
would incur from the public good.
b.overstate the benefit they would receive from the public good and those who would
be harmed by government provision of a public good tend to understate the costs they
would incur from the public good.
c.understate the benefit they would receive from the public good and those who would
be harmed by government provision of a public good tend to overstate the costs they
would incur from the public good.
d.understate the benefit they would receive from the public good and those who would
be harmed by government provision of a public good tend to understate the costs they
would incur from the public good.
