Once a firm incurs diminishing marginal returns, total product will begin to decline as
more of the variable input is employed.
While the demand for beer is relatively price inelastic, the price elasticity of demand for
a particular brand is relatively high, due in large part to availability of close substitutes.
In terms of location decisions, firms evaluate the extent to which the labor force is
unionized.
Assume that when the price of good X is $12, quantity demanded is 32. When price is
decreased to $9, quantity demanded increases to 45. Based on this information, over the
range in question demand is elastic.
According to the circular flow model, all else constant, an increase in government
spending should cause an increase in spending, income, and production in the economy.
The term “variable input” is used to refer to inputs that vary in terms of quality and,
therefore, productivity.
Evidence suggests that as the amount of market power possessed by the firms in an
industry increases, the amount of X-inefficiency will decrease.
If a good is price elastic, an increase in price will increase total revenues.
The results of studies of the tobacco industry suggests that college and secondary
school students who smoke are much more likely to respond to a change in price than
adults who smoke.
Under a gold standard, a continual balance of surplus in any country can be sustained
only as long as the country’s gold reserves hold out.
The liquidity-money (LM) curve shows the alternative combinations of interest rates
and real income that clears the money market.
A German tourist visits Disney World in Orlando; the expenditures made by the
German tourist are included in U.S. GDP.
All else constant, an increase in the price of a good will cause the quantity supplied to
increase.
The following question is an example of microeconomic analysis, “What determines the
price of gasoline in a particular city or town?”
In the case of a linear demand curve, average revenue is equal to price, while (with the
exception of Q = 1) marginal revenue is less than price.
In terms of location decisions, firms evaluate the infrastructure of the area in terms of
access to transportation as well as the quality of life.
All else constant, as the barriers to entry into a particular market increase, so will the
ability of firms in that market to earn above-average profits.
Empirical evidence indicates that most firms operate where marginal and average
variable costs are constant.
The characteristic of ease of entry and exit ensures that perfectly competitive firms will
be able to earn positive economic profits over the long run.
Assume the market price is greater than average total cost at the perfectly competitive
firm’s profit-maximizing level of output. In this case, the firm is earning positive
economic profits, which act as an incentive for new firms to enter the market.
In the long-run average cost function, only the amount of capital is allowed to vary.
The expenditure approach to calculating GDP for an open economy entails adding
consumption, investment, and government purchases.
Discretionary expenditures are federal government expenditures for programs whose
funds are authorized and appropriated by Congress and signed by the President, where
explicit decisions are made on the size of the programs.
Assume the firms in a perfectly competitive market are initially incurring economic
losses. An increase in supply would cause existing firms’ economic losses to decrease.
The market demand for a good is determined by horizontally summing the demand
curves of individual consumers.
The labor force includes discouraged workers.
GDP may be computed using the expenditure or value-added approaches.
When using expert opinion, consumer surveys, test marketing, and price experiments to
analyze consumer behavior, managers must consider whether the answers given in these
formats represent actual market behavior.
When a perfectly competitive market is in long-run equilibrium, price is equal to
marginal cost, the individual firm is operating at the minimum of its short-run and
long-run average cost curves, and economic profit equals zero.
According to the circular flow model, an increase in spending by businesses on
productive resources would cause the income and spending of consumers to increase.
Net exports are positively related to income in the rest of the world.
So long as a monopolist finds itself in the situation where price is greater than average
fixed cost at the profit-maximizing (loss-minimizing) level of output, the firm should
continue to operate to minimize its losses.
Contractionary monetary policy increases the federal funds rate.
McDonalds has traditionally been popular among Chinese children.
Expansionary fiscal policy will shift the AD curve leftward.
To the extent that customers can resell products to each other, the effectiveness of a
price discrimination strategy will be undermined.
Lower interest rates are generally charged on more risky investments and on securities
that have longer maturities.
Higher marginal propensities to consume and invest will make the slope of the
aggregate expenditure function steeper.
If firms in a perfectly competitive industry produce an undifferentiated product, it is not
possible to increase profits of the individual firms in the industry by increasing market
demand for the product because of the large number of available substitutes.
Assuming demand is inelastic, if a firm wants to increase its total revenue, it should
raise price.
The intercept term of the linear investment function measures:
A) induced investment expenditures.
B) autonomous investment expenditures.
C) income.
D) none of the above.
If GDP rises:
A) income and production must both fall.
B) income and production must both rise.
C) income must rise, but production may rise or fall.
D) none of the above.
Assume an automobile manufacturer can sell its sport utility vehicle (SUV) with or
without a trailer towing package. One group of customers, group A, is willing to pay a
maximum of $30,000 for the SUV and $1,100 for the towing package. A second group,
B, is willing to pay $29,000 for the SUV and $1,000 for the towing package. Assuming
the manufacturer cannot price discriminate, to maximize its revenues the manufacturer
should:
A) sell the components separately, charging $30,000 for the SUV and $1,000 for the
towing package.
B) sell the components separately, charging $29,000 for the SUV and $1,100 for the
towing package.
C) sell the components separately, charging $29,000 for the SUV and $1,000 for the
towing package.
D) sell the components as a bundle for $30,500.
A firm’s profits will be greatest when it practices:
A) first-degree price discrimination.
B) second-degree price discrimination.
C) third-degree price discrimination.
D) no price discrimination.
Refer to Scenario 1. Is the slope coefficient statistically different from zero?
A) No.
B) Yes.
C) Inconclusive.
D) None of the above.
The measure of market power that focuses on the share of the market controlled by the
X largest firms in the market is known as:
A) the Lerner Index.
B) the Herfindahl-Hirschman Index.
C) the Minimum-Efficient Scale Index.
D) a concentration ratio.
The federal law that prohibits, among other things, price discrimination that lessens
competition, the use of tie-in sales, and mergers between firms that reduce competition
is the:
A) Sherman Act of 1890.
B) Clayton Act of 1914.
C) Federal Trade Commission Act of 1914.
D) Celler-Kefauver Act of 1950.
Suppose the firms in a monopolistically competitive market are incurring economic
losses. What will happen to move the market to its long-run equilibrium?
A) More close substitutes will appear in the market until economic profits are zero.
B) The firms that dropped out of the market will reenter once the level of economic
losses is zero.
C) Firms will continue to exit the market until economic losses are equal to zero.
D) The demand functions of all the firms remaining in the market will become
relatively more elastic.
In China, beef is considered a:
A) luxury.
B) necessity.
C) close substitute for chicken.
D) none of the above.
Many unions attempt to raise the hourly wages received by their members by restricting
the supply of workers firms can hire from. Assuming the demand for workers who
belong to these unions is inelastic, this would cause:
A) wages of individual union members to decrease and the total (combined) income of
union members to increase.
B) wages of individual union members and the total (combined) income of union
members to decrease.
C) wages of individual union members to increase and the total (combined) income of
union members to decrease.
D) wages of individual union members and the total (combined) income of union
members to increase.
________ investment is more volatile than other forms of investment spending because
this type of investment can be changed relatively quickly.
A) Business fixed
B) Inventory
C) Residential
D) Capital
Which of the following would be least likely to lead the Justice Department and the
FTC to block a proposed horizontal merger?
A) A finding that the resulting firm might be able to unilaterally affect price and output.
B) A finding that the potential for entry into the market by new firms would be
adversely affected.
C) A finding that the potential for coordination among sellers in the market would be
enhanced.
D) A finding that resulting cost savings and efficiencies would offset any increase in
market power.
Assume that when the price of good Z is increased from $5 to $6, the total revenue
earned increases from $600 to $690. Based on this information, we can conclude that
over this range, demand for Z is:
A) elastic.
B) unit elastic.
C) inelastic.
D) perfectly inelastic.
Assume there is a simultaneous increase in home foreclosures and a decrease in
consumer incomes. Based on this information we can conclude, with certainty, that in
the market for used single-family homes equilibrium:
A) price will increase.
B) price will decrease.
C) quantity will increase.
D) quantity will decrease.
Domestic currency appreciation will:
A) help domestic firms that export and hurt domestic firms that import.
B) hurt domestic firms that import.
C) hurt domestic firms that export and help domestic firms that import.
D) help domestic firms that export.
Contractionary fiscal policy should be used if:
A) aggregate demand-aggregate supply equilibrium is below potential output.
B) aggregate demand-aggregate supply equilibrium is above potential output.
C) aggregate demand-aggregate supply equilibrium is equal to potential output.
D) none of the above.
Hot dogs and hot dog buns would be expected to have:
A) positive income elasticities of demand with respect to each other.
B) negative income elasticities of demand with respect to each other.
C) a positive cross-price elasticity of demand.
D) a negative cross-price elasticity of demand.
Which of the following is not included in gross private domestic investment spending?
A) Household spending on residential construction.
B) Spending on business inventories.
C) Household spending on durable goods.
D) Business spending on plant and equipment.
From the manager’s perspective:
A) it is important to treat implicit costs as explicit in order to make sound strategic
decisions.
B) implicit costs are simply a theoretical construct and should be ignored in the
decision-making process.
C) only explicit costs matter because accounting profit is based on explicit costs.
D) there is no difference between implicit and explicit costs. As such, treating implicit
costs as explicit would result in double counting and an overstatement of total costs.
In the foreign exchange market, the quantity supplied of dollars is 600 whereas the
quantity demanded of dollars is 400 results in a:
A) balance of payments surplus of 200.
B) balance of payments deficit of 200.
C) balance of payments surplus of -200.
D) balance of payments deficit of -200.
Much of the empirical evidence on the behavior of costs for real-world firms suggests
that:
A) average costs functions are U-shaped as suggested by economic theory.
B) for most firms, marginal costs are declining in the range in which the firms operate.
C) for many firms, marginal and average variable costs are constant over wide ranges of
output.
D) there is no relationship between the marginal and average variable costs of
production.
Which of the following statements is correct?
A) In the short run, if a firm chooses to produce no output (i.e., shut down) its total
costs of production will equal its total fixed costs.
B) If a firm decides to shut down, its short-run total costs will equal 0.
C) As a firm increases output in the short run, the change in total costs is equal to the
change in total variable costs.
D) A firm minimizes its total costs of production when average variable cost is
minimized.
As we move down a particular indifference curve, if the “marginal rate of substitution”
between the two goods does not change we can conclude that the two goods are:
A) perfect substitutes.
B) perfect complements.
C) totally unrelated.
D) both inferior goods.
Assume there is a simultaneous decrease in the incomes of people in the market for new
homes and a decrease in the wages paid to carpenters, plumbers, and electricians. All
else constant, we can predict, with certainty, that in the market for new homes the
equilibrium:
A) quantity of new homes will decrease.
B) quantity of new homes will increase.
C) price of new homes will decrease.
D) price of new homes will increase.
The largest component of national income is:
A) compensation of employees
B) proprietor’s income
C) rental income
D) corporate profits
Government expenditures are considered autonomous in the model meaning that
changes are the result of:
A) changes in real income.
B) changes in inflation.
C) changes in unemployment.
D) changes in policy decisions.
A measure of the change in the stock of real and financial assets held by a country’s
residents in a foreign country and by foreigners in the given country is called the:
A) current account.
B) financial account.
C) national income product account.
D) none of the above.
Which of the following statements about production isoquants is correct?
A) They show all the combinations of two inputs that result in the same level of output.
B) They are usually concave to the origin.
C) They show all the combinations of two inputs that yield the same cost of production.
D) They represent lower levels of output the farther they are from the origin.
The demand curve faced by the individual perfectly competitive firm is:
A) downward sloping.
B) upward sloping.
C) horizontal.
D) vertical.
Microsoft enjoyed the benefit of several barriers to entry, including all of the following
except:
A) lock in and switching costs.
B) patents and copyright protection.
C) input barriers.
D) network externalities.
Which of the following statements is false?
A) Price determination is the key element in any market system.
B) Input prices influence a firm’s costs of production.
C) Output prices influence a firm’s revenues.
D) While managers must understand how output prices are determined, determination
of input prices is irrelevant because it is beyond the manager’s control.
The producer price index measures:
A) the prices consumers pay for final goods and services.
B) the prices firms pay for crude and intermediate materials as well as finished goods.
C) the prices the government pays for final goods and services.
D) none of the above.
Assuming the inverse demand function for good Z can be written as P = 90 – 3Q, when
P = 20, the point price elasticity of demand is equal to (approximately):
A) -0.22.
B) -0.29.
C) -0.67.
D) -4.5.
Assume that there is an improvement in the technology used by firms in a perfectly
competitive industry that is initially in long-run equilibrium. In the short run this would
cause:
A) an increase in the firm’s economic profit.
B) a decrease in the firm’s economic profit.
C) no change in the firm’s economic profit.
D) cannot be determined with the information given.
The estimated regression equation is Y = 10 + 2.5X, if X =0 than the predicted value of
Y is equal to:
A) 12.5
B) 10
C) 2.5
D) 7.5