1)
A profit-maximizing monopolist facing the situation shown in the graph above should:
A.Shut down in the short run
B.Continue producing to minimize losses
C.Continue producing to make economic profits
D.Continue producing as long as price is greater than marginal cost
2) The goal of product differentiation and advertising in monopolistic competition is to
make:
A.The firm allocatively efficient even if it is not productively efficient
B.The firm productively efficient even if it is not allocatively efficient
C.Price less of a factor and product differences more of a factor in consumer purchases
D.Price more of a factor and product differences less of a factor in consumer purchases
3) Over the long run, real earnings per worker can increase only at about the same rate
as the economy’s rate of growth of:
A.total output.
B.stock of capital.
C.output per worker.
D.international trade.
4) A Middle Eastern country has an oil reserve that it can extract for a profit of $60 a
barrel today, $65 a barrel in two years, $70 a barrel in three years, and $75 in four
years. The current market rate of interest is 7 percent. When should this country tap into
its oil reserve to obtain the most profit per barrel in present value terms?
A.Today
B.Two years
C.Three years
D.Four years
5) Which of the following is an example of a sunk cost, as it relates to a firm?
A.An expenditure on raw materials used in the production process.
B.An expenditure on a nonrefundable, nontransferable airline ticket.
C.An expenditure to buy a delivery van.
D.An expenditure for a new factory.
6) Answer the question on the basis of the following information for Manfred’s Shoe
Shine Parlor. Assume Manfred hires labor, its only variable input, under purely
competitive conditions. Shoe shines are also sold competitively.
Refer to the given data. At what price does each shoe shine sell?
A.$1.
B.$2.
C.$3.
D.$2.50.
7) Farm policy in the U.S. has been heavily criticized for the following, except:
A.Being fraught with policy contradictions
B.Directing most subsidies to the wealthier farmers
C.Benefiting foreign farmers, rather than domestic farmers
D.Delaying the shift of resources away from agriculture
8) Households and businesses are:
A.both buyers in the resource market.
B.both sellers in the product market.
C.sellers in the resource and product markets respectively.
D.sellers in the product and resource markets respectively.
9) People’s tendency to prefer the “default” option over other options is known in
prospect theory as the:
A.Anchoring effect
B.Mental accounting effect
C.Status quo bias
D.Confirmation bias
10) Suppose Tom, Dick, and Harry live in a barter economy. Tom produces wine, Dick
bakes bread, and Harry makes cheese. Tom wants some bread to go with his wine and is
willing to trade 1 gallon of wine for two loaves of bread. Dick wants some cheese to go
with his bread and is willing to trade one loaf of bread for one-half pound of cheese.
Harry doesnt want bread, but wants some wine to go with his cheese and is willing to
trade cheese for one gallon of wine. It is not possible for all three to meet together at
one time.
(a)Explain how this situation illustrates the difficulty with a barter economy.
(b)Devise a money system using precious stones where four stones are equivalent in
value to one gallon of wine. In other words tell how much bread and cheese would be
worth in terms of stones in this economy. In this system, how much cheese must Harry
sell in order to buy one gallon of wine?
11) Suppose that a firm has “pricing power” and can segregate its market into two
distinct groups based on differences in elasticities of demand. The firm might charge:
A.a lower price to the group that has the less elastic demand.
B.a higher price to the group that has the less elastic demand.
C.the same price to both groups but include a “free” related product for the group that
has an inelastic demand.
D.the same price to both groups but make it difficult for the group with the more elastic
demand to gain access to the product.
12) A firm has the choice between producing product A, B, or C. In producing the
products the firm faces a weekly cost of $10 for product A, $130 for product B and
$200 for product C. The prices received for each product at different quantities are
listed in the table below.
(a)Compute the firms profit for A, B, and C and enter this data into the table.
(b)Which product will the firm choose to produce and how much output will maximize
profit?