(Table: Cakes) Look at the table Cakes. Pat is opening a bakery to make and sell special
birthday cakes. She is trying to decide how many mixers to purchase. Her estimated
fixed and average variable costs if she purchases one, two, or three mixers are shown in
the table. Assume that average variable costs do not vary with the quantity of output. If
Pat purchases three mixers and bakes 400 cakes per day, what is her average total cost?
A) $10.25
B) $12.50
C) $16.50
D) $2,504.00
Figure: A Perfectly Competitive Firm in the Short Run
(Figure: A Perfectly Competitive Firm in the Short Run) Look at the figure A Perfectly
Competitive Firm in the Short Run. The lowest price that will yield zero economic
profit is indicated by the letter:
A) G.
B) F.
C) E.
D) N.
(Figure: Profit Maximization for a Firm in Monopolistic Competition) Look at the
figure Profit Maximization for a Firm in Monopolistic Competition. Suppose that an
innovation reduces a firm’s costs from ATC to ATC¢. After the innovation reduces the
cost, the firm’s maximum economic profit is:
A) $0.
B) $30.
C) $1,500.
D) $3,000.
An economy is said to have a comparative advantage in the production of a good if it
can produce that good:
A) with more resources than another economy.
B) with a higher opportunity cost than another economy.
C) outside its production possibility frontier.
D) at a lower opportunity cost than another economy.
The simplest circular-flow model shows the interaction between households and firms.
In this model:
A) only barter transactions take place.
B) households and firms interact in the market for goods and services, but firms are the
only participants in the factor markets.
C) firms supply goods and services to households, which in turn supply factors of
production to firms.
D) attention is focused on real flows of goods, services, and factors of production, but
money flows between households and firms are ignored for simplicity.
Which of the following is NOT a leading cause of poverty in the United States?
A) lack of adequate employment
B) lack of education
C) the welfare system
D) discrimination
A decrease in a consumer’s income will do all of the following EXCEPT:
A) shift the budget line away from the origin.
B) decrease the horizontal intercept.
C) decrease the vertical intercept.
D) reduce the individual’s consumption possibilities.
Ersida purchases both baby food (F) and cloth diapers (C). The price of a jar of baby
food is PF and the price of a box of cloth diapers is PC. Assume that the quantity of
baby food is on the horizontal axis and the quantity of cloth diapers is on the vertical
axis. At any point on an indifference curve, the marginal rate of substitution of food for
cloth diapers can be represented by:
A) MUF / MUC.
B) MUF × PF.
C) MUF / PF.
D) (MUF / MUC) × (PF / PC).
A firm’s total fixed cost:
A) stays constant in the short run.
B) falls as the firm produces more output in the short run.
C) falls as the firm produces more output in the long run.
D) increases as the firm produces more output.
(Table: Production Possibilities Schedule I) Look at the table Production Possibilities
Schedule I. The opportunity cost of producing the fourth unit of consumer goods is
_____ units of capital goods.
A) 2
B) 4
C) 6
D) 8
Figure: The Market for Lattes
(Figure: The Market for Lattes) Look at the figure The Market for Lattes. If the
government assesses a tax of $0.75 on each latte, the price the consumer pays for a latte
after the tax will:
A) increase from $2 to $2.75.
B) increase from $2 to $2.50.
C) increase from $2 to $2.25.
D) change, but we cannot determine by how much.
If you were to provide an economic policy without knowing your own economic status,
you would be operating:
A) under a veil of ignorance.
B) in a way similar to how Robert Nozick believes one should operate.
C) in a way that would not encourage economic fairness.
D) in such a way as to increase the number of people below the poverty line.
The demand curve for a firm operating in a monopolistically competitive industry is:
A) U-shaped.
B) upward-sloping.
C) downward-sloping.
D) vertical.
(Table: The Market for Chocolate-Covered Peanuts) Look at the table The Market for
Chocolate-Covered Peanuts. A shortage of 210 bags of chocolate-covered peanuts exists
if the price is _____ per bag.
A) $0.80
B) $0.60
C) $0.40
D) $0.30
Figure: Short-Run Costs II
(Figure: Short-Run Costs II) Look at the figure Short-Run Costs II. At 6 units of output,
marginal cost is approximately:
A) $100.
B) $120.
C) $250.
D) $200.
Figure: The Value of the Marginal Product Curve
(Figure: The Value of the Marginal Product Curve) In the figure The Value of the
Marginal Product Curve, if the market wage rate increases:
A) the VMPL curve will shift to the right.
B) the profit-maximizing quantity of labor will increase.
C) the VMPL curve will shift to the left.
D) the profit-maximizing quantity of labor will decrease.
(Table: Three Tax Structure Proposals) Look at the table Three Tax Structure Proposals.
A regressive tax structure can be found in:
A) proposal 1.
B) proposal 2.
C) proposal 3.
D) all of the proposals.
Figure: Production Possibility Frontier
(Figure: Production Possibility
Frontier) Look at the figure Production Possibilities Frontier. If the economy is
producing 8 cars and 12 computers per period:
A) unemployment or inefficiency will ensue.
B) the notion of increasing opportunity cost is invalidated.
C) the economy is still efficient but has made a decision not to buy as much as it could.
D) something must be done to reduce the amount of employment.
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for
Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each
firm can produce gadgets at a marginal cost of $2 and no fixed cost. Suppose that these
two producers have formed a cartel, agreed to split production of output evenly, and are
maximizing total industry profits. Each firm’s output would be _____, and each firm’s
profit would be _____.
A) 500; $2,500
B) 200; $800
C) 1,000; $500
D) 1,000; $10,000
Which of the following best describes the value of the marginal product?
A) the change in total output generated by a unit change in the quantity of a factor
B) the change in total revenue generated by a unit change in the quantity of a factor
C) the change in marginal cost generated by a unit change in the quantity of a factor
D) the ratio of total revenue to the quantity of a factor employed
(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During
the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly
competitive industry. Assume that costs are constant in each interval; that is, the
variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for
the mower. His variable costs include fuel, his time, and mower parts. If the price for
mowing a lawn is $40, how much is Alex’s total revenue at the profit-maximizing
output?
A) $1,000
B) $1,200
C) $500
D) $1,500
The price elasticity of demand for gasoline in the short run has been estimated to be 0.4.
If a war in the Middle East causes the price of oil (from which gasoline is made) to
increase, how will that affect total revenue from gasoline in the short run, all other
things unchanged?
A) Quantity demanded will stay the same; total revenue will fall.
B) Quantity demanded will decrease; total revenue will rise.
C) Total revenue will remain unchanged.
D) Quantity demanded will not change; total revenue will rise.
Figure: Income and Leisure Opportunities
(Figure: Income and Leisure Opportunities) Given Keisha’s preferences and
opportunities for income and leisure shown in the figure Income and Leisure
Opportunities, Keisha sees leisure as:
A) a normal good.
B) an inferior good.
C) a complement to working.
D) The answer is impossible to determine with the information given.
(Table: TC’s Pizza Parlor) Look at the table TC’s Pizza Parlor and assume that marginal
cost is constant in the intervals of production. If 10 slices are being produced, the
marginal cost of producing one more slice of pizza is:
A) $2.
B) $10.
C) $40.
D) $70.
Microsoft and its operating system are often cited as an example of a company that
grew into a monopolist through:
A) ownership of a resource.
B) patents.
C) network externalities.
D) large economies of scale.
Figure: The Monopolist
(Figure: The Monopolist) Look at the figure The Monopolist. At the profit-maximizing
level, this monopolist will:
A) incur a loss equal to the area (P1 ” P4) Q1.
B) earn a profit equal to the area (P2 ” P4) Q2.
C) earn a profit equal to the area (P2 ” P3) Q2.
D) break even.
If two firms are identical in all respects except that one has more of the fixed input
capital than another, the total product curve for the firm with more capital:
A) must equal the total product curve for the firm with less capital.
B) will lie above the total product curve for the firm with less capital.
C) will lie below the total product curve for the firm with less capital.
D) will show no diminishing marginal returns.
Industrial production of goods causes pollution that damages the environment. Suppose
the marginal social cost of pollution can be represented by the function MSC = 2T,
where T represents tons of pollution. Suppose the marginal social benefit of pollution
can be represented by the function MSB = 1,000 ” 2T. A) In an unregulated market, how
many tons of pollution will be emitted? B) Solve for the socially optimal amount of
pollution. C) What level of Pigouvian tax will reduce pollution to the optimal level?
(Table: Wheat and Aluminum) Look at the table Wheat and Aluminum. The United
States and Germany can produce both wheat and aluminum. The table shows, in
tonnage, the maximum annual output combinations of wheat and aluminum that can be
produced. Which of the following choices represents a possible trade based upon
specialization and comparative advantage?
A) Germany would trade 2 tons of wheat to the United States for 1 ton of aluminum.
B) Germany would trade 2 tons of aluminum to the United States for 0.5 ton of wheat.
C) The United States would trade 1 ton of wheat to Germany for 1 ton of aluminum.
D) The United States would trade 1 ton of wheat to Germany for 1.5 tons of aluminum.