If the interest rate is 10%, the current market value of $1 to be delivered in one year is
A) $0.91.
B) $0.99.
C) $1.00.
D) $1.10.
In some nations, the government pays parents to send their children to school. There is
________ that these payments ________ school attendance.
A) some evidence; actually decrease
B) no evidence; increase or decrease
C) no evidence; increase
D) some evidence; increase
If the slope of a straight line is 6 and if Y (the variable on the vertical axis) decreases by
60, then X (the variable on the horizontal axis)
A) increases by 10.
B) decreases by 10.
C) increases by 600.
D) decreases by 600.
Related to the Economics in Practice on page 298: In the price-fixing case against the
Taiwanese firm AU Optronics, the DOJ claimed that the price fixing resulted in
________ paying more for products with LCD screens.
A) consumers
B) businesses
C) government agencies
D) All of the above are correct.
Figure 6.8
Refer to Figure 6.8. The marginal utility of the third movie rental is
A) 0.
B) 3.
C) 12.
D) 28.
The Razor-Thin Disposable Razor Company is a perfectly competitive firm producing
where MR = MC. The current market price of a disposable razor is $3.00. The firm sells
1,800 disposable razors. Its AVC is $4.00 and its AFC is $1.50. What should Razor-Thin
do?
A) Continue to produce because price exceeds AFC.
B) Shut down and produce zero razors because price is less than AVC.
C) Decrease production so that AVC will decrease.
D) Increase production so that AFC will decrease.
If you are traveling in Thailand and you purchase a meal that costs 1,400 baht and the
current exchange rate is 35 baht to the dollar, then the price of the meal in U.S. currency
is
A) $400.
B) $40.
C) $4.
D) $0.40.
Table 16.2
Refer to Table 16.2. This glass-recycling firm is perfectly competitive and IS forced to
take damage costs into account. If the market price of the product is $25 a ton and the
firm behaves as a profit maximizer, then total damage will be ________.
A) $0
B) $20
C) $25
D) $45
If marginal cost is between average variable cost and average total cost, then
A) both average variable cost and average total cost are increasing.
B) both average variable cost and average total cost are decreasing.
C) average variable cost is increasing and average total cost is decreasing.
D) average variable cost is decreasing and average total cost is increasing.
The official poverty line in the United States ________ the cost of the Department of
Agriculture’s minimum food budget.
A) is set below
B) is set at three times
C) is set at ten times
D) is unrelated to
The formula for present discounted value is
A) R(1 + r)t.
B) (1 + r)t/R.
C) R/(1 + r)t.
D) (1 + r)/Rt.
Upon graduating with an accounting degree, you open your own accounting firm of
which you and your assistant are the only employees. To start the firm you passed on a
job offer with a large accounting firm that offered you a salary of $50,000 annually.
Last year you earned a total revenue of $120,000. Rent and supplies last year were
$50,000. Your assistant’s salary is $30,000 annually.
Your annual economic profit is
A) -$10,000.
B) $20,000.
C) $40,000.
D) $70,000.
A firm will choose to operate rather than shut down as long as
A) price is greater than or equal to AFC.
B) AFC is greater than AVC.
C) price is greater than or equal to AVC.
D) AVC is greater than MC.
Table 3.2
Refer to Table 3.2. If the price per cheeseburger is $8, the price will
A) remain constant because the market is in equilibrium.
B) decrease because there is an excess demand in the market.
C) increase because there is an excess supply in the market.
D) decrease because there is an excess supply in the market.
Saying a firm will continue investing up to the point at which ________ is equivalent to
saying that a firm will keep investing in new capital up to the point where the expected
rate of return is equal to the interest rate.
A) the marginal product of capital is equal to the marginal product of labor
B) the interest rate is equal to the inflation rate
C) the marginal revenue product of capital is equal to the price of capital
D) the return on capital is equal to depreciation
A lawn service company has the following production possibilities. With one, two,
three, and four workers, the company can mow 5, 12, 17, and 20 lawns per day,
respectively.
The marginal product of the third worker is
A) 4
B) 5
C) 12
D) 17
Property rights are protected by
A) taxes and subsidies.
B) bargaining and negotiation.
C) injunctions and liability rules.
D) rivalry and excludability.
An economist estimates that the maintenance of a public park costs $20,000 a year and
that the park generates $35,000 a year in revenue for merchants near it. From society’s
point of view, the maintenance of this park is
A) inefficient because everyone in the community pays taxes to support the park, but
only the merchants near the park benefit.
B) inefficient because the additional revenues generated by the park are so low.
C) potentially efficient because the value of the gains exceed the value of the losses.
D) potentially efficient because no one would be made worse off as a result of
maintaining the park.
Any firm’s total revenue equals
A) MR × q.
B) P × q.
C) P/q.
D) MR/q.
When the price of coffee increases 5%, quantity demanded decreases 10%. The price
elasticity of demand for coffee is ________ and total revenue from coffee sales will
________.
A) inelastic; increase
B) inelastic; decrease
C) elastic; increase
D) elastic; decrease
In economics, the creation of capital is referred to as
A) investment.
B) comparative advantage.
C) consumption.
D) allocation.
That which we forgo, or give up, when we make a choice or a decision is known as
A) equity.
B) causation.
C) correlation.
D) opportunity cost.
The profit-maximizing level for all firms, regardless of industry structure, is the output
level where
A) TR = MC.
B) P = MC.
C) ATC = P.
D) MC = MR.
Below are drawn cost curves for Clips Ahoy Barber Shop, a monopolistically
competitive firm.
Figure 15.1
Refer to Figure 15.1. From society’s point of view, the ________ level is 25 haircuts.
A) minimum output
B) monopoly output
C) efficient output
D) shut down
Assume Dell Computer Company operates in a perfectly competitive market producing
5,000 computers per day. At this output level, marginal cost exceeds this firm’s price. To
maximize profits, Dell should
A) make no adjustments as they are already maximizing their profits.
B) increase their output.
C) decrease their output.
D) stop producing since it is earning a loss.
In the short run,
A) firms only stay in the industry if they earn a profit.
B) if current firms are suffering losses, new firms will enter the industry to try to drive
the other firms out.
C) firms act such that they minimize losses or maximize profits.
D) all firms will break even.
Table 8.1
Refer to Table 8.1. Assuming the price of capital (K) is $10 per unit and the price of
labor (L) is $5 per unit, the marginal cost of producing the third unit of output is
A) $15.
B) $20.
C) $25.
D) indeterminate from this information.
Table 16.3 shows the situation facing two firms, both of which are polluting. Assume
that each firm emits 5 units of pollution.
Table 16.3
Refer to Table 16.3. Suppose the government wants to reduce the total amount of
pollution from the current level of 10 to 4. To do this, the government caps each firm’s
emissions at 2 units and issues 2 permits to each firm. If firms are not allowed to trade
permits, what is the total cost of the pollution reduction?
A) $30
B) $55
C) $58
D) $130
Table 7.2
Inputs Required to Produce a Product Using Alternative Technologies
Refer to Table 7.2. If the hourly price of capital is $10 and the hourly price of labor is
$20, which production technology should be selected?
A) A
B) B
C) C
D) D
Total cost is
A) TFC –TVC.
B) TFC/TVC.
C) TFC + TVC.
D) AFC + AVC.
Which of the following is the correct way to calculate economic profit?
A) TR – TC
B) TR – TFC
C) TR – TVC
D) TVC – TFC
If a firm is producing where MR < MC,
A) the revenue gained by producing one more unit of output exceeds the cost incurred
by doing so.
B) the revenue gained by producing one more unit of output equals the cost incurred by
doing so.
C) the revenue gained by producing one more unit of output is less than the cost
incurred by doing so.
D) the firm is already maximizing profits because revenue is being decreased by more
than costs.
The owner of Instant Printing, a firm that prints business cards, tells you that as a result
of an increase in the wage rate of printer operators he has reduced the amount of output
he produces and the amount of capital he uses. How would you respond to this?
A) You should tell him that this doesn’t make any economic sense because according to
the factor substitution effect he should have substituted toward capital and away from
labor.
B) This seems logical, because the output effect of a factor price increase would cause a
firm to demand less of all inputs, not just the input whose price increased.
C) You should tell him that instead of reducing output and the demand for all factors of
production, he should increase output and the demand for all factors of production so
that he can meet the higher labor costs by generating more revenue.
D) You tell him that capital must be an inferior input, because he reduced his use of
capital when the price of labor increased.
Compared to a monopolistically competitive firm having the same cost curves, a
perfectly competitive firm produces ________ output and charges a ________ price.
A) less; higher
B) more; lower
C) less; lower
D) more; higher
As you move down the production possibility frontier, the absolute value of the
marginal rate of transformation
A) increases.
B) decreases.
C) initially increases, then decreases.
D) initially decreases, then increases.