When the increase in the price of one good causes the demand for another good to
decrease, the goods are
A) normal.
B) inferior.
C) substitutes.
D) complements.
Table 16.5
Refer to Table 16.5. A point on the market demand curve for this public good would be:
at a price of ________ quantity demanded would be ________.
A) $30; 5
B) $50; 3
C) $100; 1
D) $110; 1
NOTE: The MEI (marginal efficiency of investment) curve represents the demand for
investment.
Figure 11.1
Refer to Figure 11.1. If the market rate of interest is 10%, this firm’s investment will
total
A) $0.
B) $5,000.
C) $7,000.
D) $15,000.
________ is (are) an example of tangible capital.
A) A pet store’s unsold, unopened bags of dog food
B) An idea for a new business
C) The goodwill a firm has established through charitable giving
D) Knowledge of how to operate a forklift
Figure 18.1
Refer to Figure 18.1. In order to reach point A or any other point on the utility
possibilities frontier, ________.
A) all the assumptions of perfectly competitive market theory must hold
B) the government must redistribute income between Molly and Pam
C) the initial endowments of wealth, skills, etc. between Molly and Pam must be
equitable
D) the distributions of income and wealth must be equitable
The Taste Freeze Ice Cream Company is a perfectly competitive firm producing where
MR = MC. The current market price of an ice cream sandwich is $5.00. Taste Freeze
sells 200 ice cream sandwiches. Its AVC is $8.00 and its AFC is $3.00. What should
Taste Freeze do?
A) Continue to produce because price exceeds AFC.
B) Shut down and produce zero sandwiches because price is less than AVC.
C) Decrease production so that AVC will decrease.
D) Increase production so that AFC will decrease.
Table 16.2
Refer to Table 16.2. To force this glassrecycling firm to produce the efficient level of
output, the government should impose a tax
A) of $10 per ton.
B) of $12.50 per ton.
C) of $20 per ton.
D) that depends on the level of output that the firm produces to maximize profits.
Figure 15.4
Refer to Figure 15.4. If the No-Sweat Sweatshirt Manufacturing Company is
monopolistically competitive, what is the maximum level of average variable cost that
would lead to the firm continuing to operate at the profit-maximizing level in the short
run?
A) $18
B) $22
C) $23
D) $25
In the distribution of world income, the richest one-fifth of the world’s population earns
about ________ of the world income.
A) 40%
B) 65%
C) 79%
D) 98%
A shortage will occur if a ________ is set ________ the equilibrium price.
A) price floor; below
B) price floor; above
C) price ceiling; above
D) price ceiling; below
Figure 4.1
Refer to Figure 4.1. At the world price of 30 cents per apple the United States imports
________ million apples per day.
A) 2
B) 4
C) 6
D) 10
Table 9.1
Refer to Table 9.1. If the market price is $30, then this firm will maximize profits by
producing ________ units of output.
A) three
B) four
C) five
D) six
A graph showing ________ is an isoquant.
A) all combinations of capital and labor that have the same total cost
B) all combinations of capital and labor that a firm can use to produce a given amount
of output
C) all combinations of products desired by consumers
D) all combinations of products that yield the same total utility
Equilibrium in this market occurs at the intersection of curves S and D.
Figure 6
In figure 4.6, the area of [E + F + G] represents
A) producer surplus.
B) consumer surplus.
C) consumer surplus plus producer surplus.
D) consumer surplus minus producer surplus.
Table 16.1
Refer to Table 16.1. This salt processing firm is perfectly competitive and is NOT
forced to take damage costs into account. If the market price of salt is $60 a ton and the
firm behaves as a profit-maximizer, how much total damage will result?
A) $20
B) $60
C) $80
D) $180
In order to exercise control over the price of its product, a firm must be able to
________ competition.
A) maximize
B) increase
C) not change
D) limit
A soybean farmer sells soybeans in a perfectly competitive market and hires labor in a
perfectly competitive market. The market price of soybeans is $6 a bushel, the wage
rate is $30, the farmer employs eight workers and the marginal product of the eighth
worker is 4 bushels. What would you advise this farmer to do?
A) Do nothing because the wage rate and the marginal product of the last worker hired
are equal.
B) Reduce employment because the wage paid is more than the marginal revenue
product.
C) Increase employment because the wage paid is less than the marginal revenue
product.
D) Reduce the product price so that the wage and marginal revenue product will be
equal.
Investors put up $1,040,000 to construct a building and purchase all equipment for a
new restaurant. The investors expect to earn a minimum return of 10 per cent on their
investment. The restaurant is open 52 weeks per year and serves 900 meals per week.
The fixed costs are spread over the 52 weeks (i.e. prorated weekly). Included in the
fixed costs is the 10% return to the investors and $2,000 in other fixed costs. Variable
costs include $2,000 in weekly wages, and $600 per week in materials, electricity, etc.
The restaurant charges $8 on average per meal.
The normal return to the investors on a weekly basis is
A) $600.
B) $1,000.
C) $2,000.
D) $4,500.
As output decreases, in the short run,
A) the difference between average total cost and average variable cost increases.
B) the difference between total cost and average variable cost increases.
C) marginal cost eventually decreases.
D) All of the above are correct.
Table 16.1
Refer to Table 16.1. This salt processing firm is perfectly competitive and IS forced to
take damage costs into account. If the market price of the product is $60 a ton and the
firm behaves as a profit-maximizer, how much total damage will result?
A) $0
B) $40
C) $60
D) $100
Table 20.1
Refer to Table 20.1. The opportunity cost of producing a bushel of oranges in Mexico is
A) twice as much as that in Guatemala.
B) half as much as that in Guatemala.
C) the same as that in Guatemala.
D) four times as much as that in Guatemala.
Figure 1.5
Refer to Figure 1.5. Panel A shows a curve with a slope that is
A) positive and increasing.
B) positive and decreasing.
C) negative and increasing.
D) negative and decreasing.
Figure 2.6
Refer to Figure 2.6. Economic growth is represented by a
A) shift from ppf2 to ppf1.
B) shift from ppf1 to ppf2.
C) movement along ppf1.
D) movement along ppf2
Figure 1.2
Refer to Figure 1.2. The slope of the line between Points A and B is
A) positive and increasing.
B) positive and constant.
C) negative and decreasing.
D) negative and constant.
Once a ________ good is produced, everyone consumes the same amount, ________
for different individuals.
A) private; but the willingness to pay will be different
B) private; and the willingness to pay will be the same
C) public; but the willingness to pay will be different
D) public; and the willingness to pay will be the same
Price and total revenue are directly related when demand is
A) price elastic.
B) price inelastic.
C) unit price elastic.
D) perfectly price elastic.
Table 16.1
Refer to Table 16.1. The marginal damage costs imposed on society from processing
four tons of salt are
A) $5 per ton of salt.
B) $20 per ton of salt.
C) $25 per ton of salt.
D) indeterminate from this output.
The marginal revenue product
A) is the product of the marginal product of labor and the price of the output.
B) eventually increases as labor input increases.
C) measures the benefit to the firm from hiring an additional unit of labor.
D) Both A and C are correct.
If Overstock.com earns a rate of return less than necessary for it to continue operations,
then its
A) total revenue exceeds its economic costs.
B) economic costs exceed its total revenue.
C) normal profit is zero.
D) economic profit is zero.
Figure 16.4
Refer to Figure 16.4. The efficient level of output of this product is
A)0
B)15
C)20
D) indeterminate from this information.
As a manager of a dry-cleaning establishment, you estimate that the total product of
labor used to clean shirts varies according to the following data:
Fill in the table above.
Explain why distributing $500 worth of food stamps to someone is not the same thing
economically speaking as giving them $500 in cash? Why might the cash option make
the poor better off than food stamps?
Suppose a manager of a company is told by his staff that marginal productivity has
risen above the average productivity over the last six months of operation. What can
this manager conclude is happening to the overall average productivity of the company?
Explain.
The owner of a local restaurant comes to you for help. He needs to know whether or not
he should increase the price of the meals he serves. To answer his question, what
information would you like to know?
What does it mean when a firm is earning positive economic profit?
Graphically illustrate and explain the effect of an increase in the wage rate on the
demand curve for labor.
An Internet start-up company consists of three people with an idea that they wish to use
in pursuing a patent for a product. What type of capital does this company have and
what is its value?
Assume a desert island economy in which labor is the only scarce resource and labor
can be used to gather food (coconuts) or to build huts. There are six equally productive
individuals on the island. Each inhabitant can gather 25 coconuts in one day or build
one hut in one day.
What is the maximum potential increase in coconut production and maximum potential
increase in hut production described in the previous question?
Scenario 1. Suppose your instructor informs the class that the highest grade on each of
his multiple-choice exams will automatically receive a 100. All other grades below this
will be based on this high grade. For example if the highest grade is an 80 this would
receive an automatic 100. If someone scores a 40 then the grade earned would be a 50
[(40 80) * 100%)]. To the instructors surprise all the students earned a 100 on the first
exam even though their grades were all an identical 25%. How could this have
happened?
Using the scenario above what might the instructor do to avoid this same result?
SCENARIO 1: Consider the interactions between the markets for beer and cola drinks.
Both industries are initially in long-run equilibrium. Assume that they are substitutes in
consumption and that labor is mobile between the two industries.
Refer to Scenario 1. Graph the initial equilibrium conditions for the markets.
Michael Jordan has more athletic ability than most individuals. Thus, he is more
productive at most tasks involving physical skill. Explain why then, it is more efficient
for Michael Jordan to pay someone else to mow his lawn.
What three conditions must be satisfied in order for the Coase theorem to work?
Niko’s Sandwich Shop sells sandwiches in a competitive market. The price of the
sandwiches is $0.50 each. Hourly output varies with the amount of labor hired as
follows:
Fill in the columns for total revenue and marginal revenue product.
Barney’s Beds currently hires 14 workers. The average product of labor is 2 beds per
day, and the marginal product of a 15th worker is expected to be three beds per day. If
the firm hires the 15th worker, what will happen to the average product of labor?
Explain.
Suppose a movie theater raises its ticket prices by 10% and the total revenue it receives
in ticket sales doesn”t change one bit from the previous week. What can you say about
the price elasticity of demand at that new price? Could this go on indefinitely? In other
words, would continued price increases leave total revenue unchanged without bound?
Why or why not?