1) A competitive firm is currently producing a quantity of output at which marginal
revenue exceeds marginal cost. In order to increase its profit, the firm should
a.increase the price of the good that it produces and sells.
b.increase its quantity of output.
c.decrease its total cost.
d.decrease its average total cost.
2) Scenario 15-8
Mega Media Cable TV is able to purchase an exclusive right to sell a premium sports
channel in its market area. Let’s assume that Mega Media pays $100,000 a year for the
exclusive marketing rights to the sports channel. Since Mega Media has already
installed cable to all of the homes in its market area, the marginal cost of delivering the
sports channel to subscribers is zero. The manager of Mega Media needs to know what
price to charge for the sports channel service to maximize her profit. Before setting
price, she hires an economist to estimate demand for the sports channel. The economist
discovers that there are two types of subscribers who value premium sporting channels.
First are the 3,000 die-hard sports fans who will pay as much as $150 a year for the new
channel. Second, the premium sports channel will appeal to 20,000 occasional sports
viewers who will pay as much as $25 a year for a subscription to it.
How much profit will Mega Media Cable TV earn if it sets the price at $25?
a. $350,000
b. $450,000
c. $475,000
d. $575,000
3) Figure 18-5
The figure shows a particular profitmaximizing, competitive firm’s valueofmarginal-
product (VMP) curve. On the horizontal axis, L represents the number of workers. The
time frame is daily.
Refer to Figure 18-5. The firm would choose to hire three workers if
a.the market wage for a day’s work is $220.
b.the market wage for a day’s work is $260.
c.the output price is $220.
d.the output price is $260.
4) Figure 16-12
How much cost per unit could this firm save by producing the efficient level of output
rather than the profit-maximizing level of output?
a.$0
b.$1
c.$2
d.$3
5) If a product can be produced by a natural monopoly, society will benefit in the form
of lower prices if the monopolist is broken up into several smaller firms.
a.True
b.False
6) Economists agree that trade ought to be restricted if free trade means that domestic
jobs might be lost because of foreign competition.
a.True
b.False
7) Suppose that two poker players believe that they are superior players to the rest of
the people at their table. Further suppose that the two players make an agreement to
concede hands to each other in order to drive the other players from the game first.
Economists would model such behavior as
a.monopolistic competition.
b.game theory.
c.predatory pricing.
d.a dominant strategy.
8) The goal of utilitarians is to
a.punish crimes and enforce voluntary agreements but not to redistribute income.
b.redistribute income until each person has equal earnings.
c.redistribute income until the marginal utility of the wealthiest person equals the total
utility of the poorest person.
d.redistribute income based on the assumption of diminishing marginal utility.
9) Assume that Maya and Miguel can switch between producing mixers and producing
toasters at a constant rate.
The opportunity cost of 1 toaster for Miguel is
a.1/2 mixer.
b.2 hours of labor.
c.2 mixers.
d.20 hours of labor.
10) At the equilibrium price of a good, the good will be purchased by those buyers who
a.value the good more than price.
b.value the good less than price.
c.have the money to buy the good.
d.consider the good a necessity.
11) Figure 15-22
If the monopolist uses perfect price discrimination, what price will it charge?
12) Under what conditions is an economy’s production possibilities frontier also its
consumption possibilities frontier?
13) Figure 9-28
The following diagram shows the domestic demand and domestic supply curves in a
market.
Suppose the world price in this market is $6. If the country allows free trade, how many
units will domestic consumers demand, and how many units will domestic producers
supply?
14) If the price of steel, an input into the production of automobiles, rises, and at the
same time the price of gasoline rises, what will happen to the equilibrium price and
quantity of automobiles?
15) How can the average-fixed-cost curve be declining when fixed cost is constant?
16) Scenario 8-3
Suppose the market demand and market supply curves are given by the equations:
Suppose that a tax of T is placed on buyers so that the demand curve becomes:
If T = 40, how much will be the deadweight loss from this tax?
17) Suppose that Venezuela produces beef and oil and it can switch production between
each at a constant rate. If the most beef it can produce is 300 million pounds and the
most oil it can produce is 50 million barrels, then what is the opportunity cost of a
pound of beef and what is the opportunity cost of a barrel of oil?
18) The poverty rate is the percentage of the population whose family income falls
below an absolute level called the .
19) d.