Table 12-1
Table 12-1 shows the short-run cost data of a perfectly competitive firm that produces
plastic camera cases. Assume that output can only be increased in batches of 100 units.
Refer to Table 12-1. If the market price of each camera case is $8, what is the
profit-maximizing quantity?
A) 300 units
B) 400 units
C) 500 units
D) 600 units
Figure 13-13
Refer to Figure 13-13. What is the area that represents the firm’s profit?
A) profit = 0
B) P4edP2
C) P4eaP1
D) P3baP2
Figure 3-8
Refer to Figure 3-8. The graph in this figure illustrates an initial competitive
equilibrium in the market for apples at the intersection of D1 and S1 (point A). If there is
an increase in the wages of apple workers and an increase in the price of oranges, a
substitute for apples, the equilibrium could move to which point?
A) none of the points shown
B) B
C) C
D) E
State and local governments subsidize college students with grants and low-interest
loans. The loans and subsidies are examples of
A) positive externalities.
B) Coase subsidies.
C) Pigovian subsidies.
D) emission allowances.
What is a prisoner’s dilemma?
A) a game that involves no dominant strategies
B) a game in which prisoners are stumped because they cannot communicate with each
other
C) a game in which players act in rational, self-interested ways that leave everyone
worse off
D) a game in which players collude to outfox authorities
Which of the following is a necessary condition for successful price discrimination?
A) The seller must possess market power.
B) The buyer must possess market power.
C) Transactions costs must be zero.
D) Buyers must have identical inelastic demands.
The price elasticity of supply measures
A) the responsiveness of quantity supplied to changes in input prices.
B) the responsiveness of quantity supplied to changes in technology.
C) the responsiveness of quantity supplied to changes in price.
D) a supplier’s ability to produce a good in the face of scarcity.
Before digital photography, most film processing companies had a policy of printing
every picture on a roll of film and allowing customers to request a refund for pictures
that were not clearly developed. The companies did this knowing that most customers
did not ask for refunds. This was an example of consumers
A) failing to ignore sunk costs.
B) being overly optimistic about their future behavior.
C) not taking nonmonetary opportunity costs into account.
D) not making themselves aware of the policy regarding refunds.
If a perfectly competitive firm raises the price it charges to consumers, which of the
following is the most likely outcome?
A) The firm’s revenue will not change because some consumers will refuse to pay the
higher price.
B) The firm will not sell any output.
C) The firm’s total revenue will increase only if the demand for its product is inelastic.
D) The firm’s total revenue will increase only if the demand for its product is elastic.
What is the marginal rate of substitution?
A) the price ratio
B) the rate at which the consumer must give up one good to purchase an additional unit
of the other goods in the market
C) the rate at which the consumer is willing to trade one good for another so that she
increases her utility
D) the rate at which the consumer is willing to trade one good for another without any
loss in utility
Brand management refers to
A) picking a brand name for a new product that will attract attention.
B) the efforts to maintain the differentiation of a product over time.
C) efforts to reduce the cost of production.
D) selling the right to use a brand name in a particular market.
The political process is more likely to serve the interests of individuals whose
preferences are in the middle, rather than individuals with preferences that are much to
the left or right of the political center. This statement is best explained by which of the
following?
A) logrolling
B) the voting paradox
C) the Arrow impossibility theorem
D) the median voter theorem
Suppose your expenses for this term are as follows: tuition: $10,000, room and board:
$6,000, books and other educational supplies: $1,000. Further, during the term, you can
only work part-time and earn $8,000 instead of your full-time salary of $20,000. What
is the opportunity cost of going to college this term, assuming that your room and board
expenses would be the same even if you did not go to college?
A) $11,000
B) $17,000
C) $23,000
D) $29,000
What is different about buying stocks and buying bonds?
A) A stock can possibly pay dividends forever, but bonds have a fixed number of
payments.
B) Differences of opinion about a stock’s future may vary considerably but there is less
difference about a bond’s future.
C) The future growth of a stock is more uncertain than the payments of a bond.
D) All of these are differences between stocks and bonds.
Which of the following statements is true about marginal revenue?
A) If marginal revenue is zero, it means that quantity demanded falls to zero when a
firm changes its price.
B) If marginal revenue is negative, the additional revenue received from selling 1 more
unit of the good is smaller than the revenue lost from receiving a lower price on all the
units that could have been sold at the original price.
C) If marginal revenue is positive, the additional revenue received from selling 1 more
unit of the good is smaller than the revenue lost from receiving a lower price on all the
units that could have been sold at the original price.
D) Marginal revenue increases as price falls and quantity sold increases.
Which term refers to a legally established minimum price that firms may charge?
A) a price ceiling
B) a subsidy
C) a price floor
D) a tariff
Which of the following is an example of a common resource?
A) elephants in the wild
B) lions in a zoo
C) a college education
D) public transportation
Which of the following is a positive economic statement?
A) U.S. citizens should only buy products which are produced in the United States.
B) The government should ban the production and sale of incandescent light bulbs.
C) Raising the tax on gasoline raises the selling price of gasoline.
D) The government should revamp its immigration policies.
Suppose the value of the price elasticity of supply is 4. What does this mean?
A) A 4 percent increase in the price of the good causes quantity supplied to increase by
1 percent.
B) A 1 percent increase in the price of the good causes the supply curve to shift upward
by 4 percent.
C) A 1 percent increase in the price of the good causes quantity supplied to increase by
4 percent.
D) For every $1 increase in price, quantity supplied increases by 4 units.
Which of the following is the best example of a perfectly competitive industry?
A) wheat production
B) steel production
C) electricity production
D) airplane production
Vipsana’s Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to
make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed
cost of $120 per day. Calculate Vipsana’s total cost per day when she produces 50 gyros
using two workers?
A) $100
B) $124.40
C) $220
D) $340
Figure 6-2
Refer to Figure 6-2. The absolute value of the price elasticity of demand at points a and
b is 1. What is the value of Pb?
A) $50
B) $40
C) $30
D) $20
As a measure of competition in an industry, concentration ratios have several flaws.
One of these flaws is that concentration ratios
A) assume that all industries have low barriers to entry.
B) assume that a ratio less than 40 percent means an industry is perfectly competitive.
C) assume there are only four firms in an industry.
D) are calculated for the national market, even though competition in some industries is
mainly local.
Mortgages issued to borrowers who fail to document that their incomes are high enough
to afford their mortgage payments are known as ________ mortgages.
A) subprime
B) Alt-A
C) gray market
D) reciprocal
The change in a firm’s total cost from producing one more unit of a good or service is
A) the result of economies of scale.
B) the definition of marginal product
C) the definition of marginal cost.
D) impossible to observe in large firms with many manufacturing plants.
An advantage of imposing a tax on the producer that generates pollution is that
A) it forces the polluting producer to internalize the external cost of the pollution.
B) the government can keep tabs on exactly what is produced in an industry.
C) it will eliminate pollution.
D) a producer can pass the cost of the pollution to consumers.
Goods with upward sloping demand curves are referred to as
A) Marshall goods.
B) Giffen goods.
C) substitute goods.
D) luxury goods.
A positive externality causes
A) the marginal social benefit to be equal to the marginal private cost of the last unit
produced.
B) the marginal social benefit to be less than the marginal private cost of the last unit
produced.
C) the marginal social benefit to exceed the marginal private cost of the last unit
produced.
D) the marginal private benefit to exceed the marginal social cost of the last unit
produced.
Figure 5-3
Refer to Figure 5-3. At the competitive market equilibrium, for the last unit produced
A) the size of the external cost is Pm – Po.
B) the size of the external benefit is Pm – Po.
C) the size of the external cost is Pn – Po.
D) the size of the external benefit is Pn – Po.
An externality is
A) a benefit realized by the purchaser of a good or service.
B) a cost paid for by the producer of a good or service.
C) a benefit or cost experienced by someone who is not a producer or consumer of a
good or service.
D) anything that is external or not relevant to the production of a good or service.
Scenario 1-1
Suppose a cell phone manufacturer currently sells 20,000 cell phones per week and
makes a profit of $5,000 per week. A manager at the plant observes, “Although the last
3,000 cell phones we produced and sold increased our revenue by $6,000 and our costs
by $6,700, we are still making an overall profit of $5,000 per week so I think we’re on
the right track. We are producing the optimal number of cell phones.”
Refer to Scenario 1-1. Using marginal analysis terminology, what is another economic
term for the incremental cost of producing the last 3,000 cell phones?
A) marginal cost
B) operating cost
C) explicit cost
D) Any of the above terms are correct.